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Business/Economy

Buying a house that may have been flipped? Here's how to avoid costly mistakes

Television dramas have replaced foreclosures and short sales as the main motivator for amateur investors to try their hand at "flipping" a home. TV shows chronicle real-life decisions and ordeals as flippers learn costly lessons before finally selling the property and recouping their costs — plus, hopefully, a tidy profit.

A recent report from RealtyTrac and ATTOM Data Solutions indicated that flipped homes made up 5.7 percent of the nation's home and condo sales, with units sold in 2016 up 3.1 percent from 2015, the highest level since 2006. (A flipped home is defined as one purchased, repaired and upgraded, then sold to another buyer in less than 12 months.)

However, what happens after the cameras call it a wrap and leave?

A recent CNBC real estate report showcased a segment on flipping — from the perspective of a couple of unfortunate buyers. The nightmare started when a Washington, D.C., inspector called to see the home six months after the buyers purchased it. Even though the buyers had a home inspection done, the result of the visit was a list of permit, code and zoning violations estimated at more than $100,000 to fix.

While you might think that situation couldn't happen here, Anchorage's aging housing inventory creates potentials for flipping. As a buyer what can you do to avoid purchasing a "flop"? Here are a few questions to ask the owner/flipper of that newly renovated home:

  • Was a home inspection done when the flipper purchased the property? Any before photos?
  • What work was done? Are there receipts? Is any of the work under warranty?
  • Did a licensed contractor perform the work?
  • Were permits obtained? Were inspections conducted and the permits closed out?
  • If you structurally change a home, a building permit is needed. This sets the expectation that the flipper/contractor adheres to structural building code standards for such things as: footing/foundation, structural framing, plumbing, mechanical, electrical, well and septic systems, fire code compliance, zoning, drainage and flood hazards, and more.

    A municipal inspector, as the unbiased professional, verifies that the work meets building code standards during certain set points of work. For example, before the Sheetrock is put up, the plumbing and electrical are inspected. Any code violations are noted for the contractor to complete. Once items are corrected, a final inspection is done; then the permit is approved and closed out. This protects the new homeowner by ensuring the contractor does not overlook building codes or health safety issues.

    Permits are not required for the following examples of common remodeling work:

  • Fences under 8 feet;
  • Painting, tiling, carpet, cabinets, countertops or similar interior items;
  • Window and door replacement of the same size as the original.
  • Open or expired permits can cause problems when the new homeowner does work that requires a permit. Beside concerns the original work may not have been done to code, or that critical items have not been completed, the potential exists for: fines, the additional cost to complete unfinished work, and the cost to have an inspection to verify work was completed properly.

    Some information may be provided on the state-required property disclosure statement. However photos, receipts, a previous home inspection and work description can help clarify if the work was cosmetic or structural. Understanding warranty limits (if any) gives you an idea of your exposure.

    For more information and frequently asked questions about permits, checking if a contractor is licensed, and zoning requirements, go to the Anchorage municipality's website (www.muni.org/bsd).

    If you want to check permits for a specific property, look at the lower right side of the page under "Quick Links" and click on "Permit Status." Scroll down, key in the property address to search for any permits for a particular property. To talk to a live body about specific questions regarding the above topics, contact Building Safety at 907-343-8211.

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