rehabs in city

[Randy Beigh]

"Flipping" involves buying and quickly reselling real estate for cash . . . you don't need credit, large sums of capital or experience. You don't need to know how to do repairs. You don't need a real estate license. Heck, you don't even have to work full-time to make money at this!

The above came from a website at www.realestateinvesting.com

My understanding is that "flipping" is reselling of the home in back to back transactions or short time period. Most flips are not illegal, but the appraisers job is to figure which out ones are are legal and not to use the illegal ones.

 

[Larry Lyke]

I agree that ...

Illegal flip: Is fraud in any of its many forms. Usually requires a dishonest Appraiser to make the scheme work.

Legal flip: Is the arm's length rapid turnover of a property with all parties being knowledgable and operating in their own self interest. All docs disclosed is the way to go.

Kinda ...

 

[bradellis]

Randy and Larry,

I still will not use the word "flip" in any sense except where fraud is present.

There are plenty of books that use the term" legal flips". I consider NONE of them to be expert. There are also plenty of books telling you how to buy property "no money down". They tell you to get the seller to finance all or part of the transaction. Does it happen? Sure- about 1 in a million times.

The only folks getting rich on this are the ones selling the books and courses.

I am still asking that we stop calling flips legal, even though you can explain the legal ones. Use some other term and we can get so real mileage for appraisers out of this.

Brad Ellis, IFA, RAA
National Director, NAIFA

 

[Larry Lyke]

I encourage every Appraiser to use the term "legal flip" for a very quickly turned-around property.

Then the UW has the obligation and opportunity to scrutinized the appraisal report as thoroughly as she sees fit...

MOST INTENTIONALLY, to send it out for review, in which case, the Reviewer will see her higher obligation for scrutiny too.

In a "flip property" appraisal, I ALWAYS itemize potential Comps that were not selected to be used in this appraisal and give a reason; but I do not grid them. An entry regarding such might read:

[Forum reader information: Subject property appraised @ $117,000]:

"[bullet] 1234 TreeHugger St, 0.17 mile radius SSE, sold @ $!20,000 on 12-25-01 after 5 days on the market. Said property was previously sold @ $68,000 on 9-11-01. Appraiser unable to determine the amount of, quality of, or if any improvements were made to property, or if an arm's length transaction."

It's NOT the avoidance of using vernacular terms ("flip" in its many manifestations) in an appraisal, it's the boldness to ADDRESS the issue forthrightly.

Remember, the Appraiser is the person setting up the valuation reportage for UW approval.

That's my story and I'm sticking to it.

 

[bradellis]

Larry,

Perhaps you should visit the post by Pam Crowley in this section under "predatory lending and Baltimore". There is a link to an article. I suggest your read it.

HUD's pronouncements CLEARLY use the term in a negative fashion.

Brad Ellis

 

[Ben Vukicevich SRA]

Why use the term "flip" at all in the report. It could be misleading and has no place in the report, in my opinion. Report the prior sales of the subject and complete the appraisal. I never use any other "custom" words to define say, a typical transfer of a property.

I'm not looking this up, but I believe I remember from long ago some government entity coming out with a reg that if the subject property had sold or appraised more currently than it did in a prior sale in the past year, there was a requirement to explain why. I think the percentage increase allowed was 5 or 10%. I'm sure someone else will remember the reg. It was basically a clue to alert the underwriter to actually read the appraisal report in its entirety to see the "source" of the appreciation in value.

Now for Ben's definition of a "flip."

You have the subject street address and begin preliminary research for the appraisal. You pull lots of comps starting at the subject street and you radiate outwards block by block until you're happy with the amount of comps. You drive-up to the subject property, take a look at it, look at the sale price on the agreement of sale, look at the subject again, look at the sale price on the agreement of sale again and then break into a fit of laughter in the car which is followed by the famous words mumbled by every appraiser more than once in a lifetime, "You gotta be kidding me."

Now that is a real "flip" and it will be the deal that will get you into trouble, if you are not experienced in this type of appraisal work. If you're not experienced at it or don't want to spend the time necessary to dig out the truth, run away.

Ben

 

[Leon Stewart]

Everybody has gotten on the bandwagon of calling every sale where there is a short period of time between the purchase date and the sale date a "Flip" It hasn't been that long ago that most of the individuals who participated in this type of activity was referred to as "Real Estate Investors", and many of them operate medium size business firms with sizeable work crew's, and in some cases they Rehab as many as 100 dwellings a year. That makes up the bulk of the business that many individuals and Agencies are calling "Flippers".

These Investors buy low and do the necessary amount of repairs to get the maximum Market Price. In years past most of these Houses were purchased from the VA and FHA thru their Real Estate Owned Departments. These Dwellings were sold thru open bidding, and even some non-profit community organizations participated in these program. There were also a few private individuals who would Rehab one or two houses a year to try and make a few dollars.

Whatever Fraud that takes place in this process is at the Lender level where the Lender can select a specific Appraiser to get the Specific Value needed to close the Loan. But that has very little to do with any type of "Flipping". The Fraud is an organized process coordinated by the Lender, and a lot of the Lending is done by Big Bank Lenders rather than small Mortgage Broker. In the past Big Banks used these type of deals to meet their "Community Reinvestment" Requirements.

The Buyer has to assume some responsibility in knowing whether the price he/she is paying for a property is a fair price based on their "Shopping Around". It's a "Buyer beware" thing just like it is at anything else. The government doesn't investigate the Stock Market when a person uses the advise of a Stock Broker to buy worthless Stock. Nor do they investigate the Auto Industry when a person pays $ 5,000 more for a Chevy than what he could have gotten the identical Car for from another dealer.

Since the Appraiser deals with factors that are not exact, it leaves him/her on unsound footing, but it's been the weakness of the Appraisal Organizations that have allowed the Appraiser to take all the heat in this process.

leart3

 

[Ray Ohler]

you work in or how much "flipping" goes on there. Yes, a "fair" number of real estate investors DO buy low, actually do the work and sell for a profit. However, in areas such as Philadelphia and some surrounding municipalities there are FAR MORE "investors", many of them working with UNLICENSED mortgage brokers (avoiding public records) who do slipshod "rehabs" and "flip" the property for HUGE profits within hours, days or weeks. ALL the while, avoiding taxes, licenses and permits which makes the "legitimate" investor suffer similar to the "honest" or "fairly reputable" appraiser. Evidently you have not seen any of it or choose NOT to see any of it. HELL, they even STEAL houses here, working with "not so astute" (either by birth or by choice) notarys, title clerks, etc. There goes the blood pressure.

 

[Larry Lyke]

leart3 --

What you are describing is licit business practices.

It becomes illegal flipping when it includes a fraudulent appraisal, without which the deal will no go together.

The Appraiser is tasked with doing the research and issuing a respectable report of valuation.

Fraud is fraud. It's not hard to see it coming. The average Appraiser sees potential fraud and runs away. You don't have to get involved on the wrong side of a flip.

I work in these neighborhoods all the time and I'm hired because I know a respectable rehab from a cosmetic job. It doesn't matter who the Seller is or where he bought the property or what he's done to it or how long he's held it. I state what I see in no uncertain terms. Don't have any trouble with the parties, usually.

You know who was my worst troublemaker in the past year: A Realtor-rehabber who was representing himself on both sides of the transaction and had done a really shoddy job and was selling FHA.

I was the immovable object. He did close the sale, though. He didn't have to. But he did come around to the realization that, hey, he was stuck with the appraisal for 6 months. He appealed and I didn't budge. The Comps he offered weren't as good as the ones I used. And was that.

Now all I do for that Client is FHA. The Lenders really do want to work with somebody who knows what's happenin' -- and is willing to keep the ugliness at bay from their people. BUT, you've got to be right often. A couple of bungled transactions and you'll be history too. The LOs and Lenders take a lot of heat on their FHA-front. AND, let's keep in mind, the Lenders can become as confused about FHA as Appraisers sometimes do.

 

[Leon Stewart]

Ray:

Many Years ago HUD's Real Estate Owned Department use to package several homes together and allow investors to bid on each package. There were usually 3 dwellings in a typical package. Say, one investor was successful at getting a package of 3 for $ 30,000. That Investor would, in some cases "Flip" out one or two of the dwellings for, say $ 15,000 each, leaving him with a good profit, or he ends up with one dwelling free. Say he put $ 10,000 into rehabbing the one dwelling that he didn't pay anything for, and selling it for $ 60,000 in a $ 60,000 market where he get's a $ 60,000 Appraisal. Is that a so called flip? or is Fraud involved in this transaction? That's one example of how the Real Estate Investment Business works, but there are many other examples.

As far as Fraud is concerned, it saturates the entire business of Real Estate. That's why the "Buyer has to beware". There are conditions and factors included in all the Contracts involved in the transaction, but as far as the Appraiser is concerned, he functions at the will of the Lender, or he doesn't work.

leart3