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Property for possible flip - with possible old building permit issues
03-27-2013, 08:41 PM
Post: #1
Property for possible flip - with possible old building permit issues
Ugh---I don't even know where to start as this potential deal has so many red flags that I should just be running away as fast I possibly can! Very very long story short, I have an out-of-town cash investor interested in a property that he would like to flip and re-sell in 30 to 60 days. Asking price on the property is $150K after about 8 months on the market and 1 price reduction, comps for updated properties in the neighborhood are going for $200-220K. Buyer wants to offer about $100K, thinking "cash talks." The owner is disabled and on the premises (I've previewed twice), and he grew up in the house (both his parents are long-since deceased). Property advertised as needing "TLC and cosmetic updates" that would include new bathroom, rip up carpet to expose hardwood, new windows---roof and main systems have been replaced in past 5-8 years. The buyer is obviously looking for reasons to justify his lowball price, and one thing that is a legitimate concern to me is that the owner has talked freely about work he's had done that he seems proud of but actually seems questionable to me (for example, he was talking about how genius it was to have a slope added to the laundry and kitchen floors in case anything ever leaks). Do I approach the listing agent to find out if she has copies of permits/receipts for any work done? Do I go to the township to ask about permits on the property? While I would like to get a deal for my buyer, I'm now also sympathetic to the seller---I don't want to open a can of worms for him if this isn't going anywhere for my buyer, but I also don't want my buyer to find himself in a sticky situation if HE were to go do work on the place and have to redo work at his own expense because it was originally performed without a permit. Do I call an independent appraiser? How do I work around the "owner must confirm all appointments" and be present while we assess things?

Ugh, this is not how I envisioned my career would begin AT ALL! Any thoughts or advice is greatly appreciated!
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03-27-2013, 09:52 PM (This post was last modified: 03-27-2013 09:58 PM by Lisa Marie.)
Post: #2
RE: Property for possible flip - with possible old building permit issues
Laura, I would just caution you about doing "too much" for your clients. I know, that probably doesn't sound like it's coming from and SWSer, but you have to make sure what you are doing for your client is within your own scope of practice. You are not an inspector or an issuer of permits, right? Just like I'm assuming you are not an attorney? You can't give legal advice any more than you should be confirming for your client whether or not there were permits issued for any work done in the past on any particular property. It is the seller's burden to disclose material defects, and it is the buyer's burden to inspect, inspect, inspect to his own satisfaction. Here in PA, the buyer can specifically ask an inspector to verify if the property meets current code, and to investigate the history of permits issued for the particular property. That seems helpful, at first, but not really. That's because in many municipalities around here, permit records are purged after a certain number of years. I doubt the seller or listing agent would have receipts or permit records. And, yes, in my neck of the woods, once the buyer owns the property, it would be his responsibility to bring things up to code IF a code inspector ever entered the property to maybe inspect NEW work being done and happened to notice other code issues. That being said, there's nothing preventing anybody from selling a property that has "repairs" that don't meet code. And there's nothing preventing anybody from buying any such property either.

You probably want to bring these issues to your buyer's attention. It's his choice to inspect/research whatever issues he chooses. Call an independent appraiser? Uh-uh. You need to advise your buyer to inspect and if he has concerns about code issues, he needs to ask the inspector to advise him of these issues. And he gets to inspect AFTER he makes an offer (at least here in PA). It's kind of hard to purchase a property risk-free. If he inspects, he may be out inspection money if he doesn't like what he finds. But that's a risk he assumes when he places his offer. Better than being out $100-150k!

Be careful of going too far outside what you are licensed to do. SWSer's love to help--sometimes too much--and sometimes to the point WE end up over-stepping our scope of practice. KWIM? Suppose you check on the previous permits and advise or confirm for your buyer that everything was done up to code--and then it turned out later you were REALLY REALLY wrong? Who's fault would that be? Guide your buyer, yes. Advise your buyer, yes. Do another professional's job for your buyer, NO. Good luck!
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03-28-2013, 12:41 PM
Post: #3
RE: Property for possible flip - with possible old building permit issues
Hi Laura,

I ran into something similar to this on the sale of my own home just a few months ago. We bought it from an investor who had flipped it from a foreclosure sale. They did quite a bit or work, including $15k of repairs on the septic. We never looked at permits or past additions as it just never came up ( we did not have the smartest agent on the block repping us on the purchase as we found out later). But we knew something had been done as the neighbors told us that the house had been added onto over the years.

In a nutshell, when we put it up for sale, the buyer's Appraiser DID find copies of permitted additions, rather significant ones at that, and we were surprised. It did not kink our sale but it paused things for a few days while our agent contacted the county recorders office and asked for copies of the addition records. I actually ended up going down there myself and getting them for free.

My point would be that our listing agent was very, very careful to only ask for the minimal amount of information from the county as she did not want to "trigger" a closer look by the city or county. Once that would happen, then they could come out, look over everything and I knew we would be stalled in escrow.

I would agree with Cracken that from a service perspective you WANT to help your client, but you have to tread lightly when it is out of your normal "agent" or fiduciary duty to your client. This Seller is going to face these issues with someone, either now or when he accepts an offer, so I would stay focused on what's best and ethical for your client. If he wants to proceed, follow the process and let the pros do their thing.

How you work around the Seller not being present when you show/assess is a toughie. If the Seller is disabled and is not mobile enough to leave, maybe you talk to the listing agent and ask her to talk to him and convince him to be somewhere outside or as far away as possible. It doesn't sound like he understands that anything of material substance that he discloses to you may impact the sale and you are bound to relay to your buyer. It's almost as if when you go to the house you want to raise your hand and tell Seller to not speak! Smile I envision a "Silence of the Lambs" mask around his head! HAH!

In the end, if your buyer wants to move forward, can you make the purchase offer contingent upon an inspection and appraisal? That's how we do it here in California, so the buyer has two "outs" if something really nasty rears its head.
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