Nonprofit media organization ProRepublica recently published a piece drawing attention to disturbing allegations against one of the biggest corporate house flippers in the industry. Their journalistic scrutiny brings to light several tales of the unethical, bordering on horror. It’s demanding a distinction between service and abuse; two completely disparate concepts with a surprisingly blurry line between them when it comes to this real estate niche. But with house flipping companies providing a viable service, what can be done to protect the vulnerable from the few bad eggs?
The High Costs of House Flipping
When flipping houses started to become a common term decades ago thanks to reality television, it seemed like easy money. But reputable house flipping companies know this couldn’t be further from the truth. Managing house flipping companies, even franchises, is a costly business, riddled with plenty of risks.
Sure there are the costs associated with fixing up a home in disrepair. But then there are also the fees associated with the sale of the home. Then the marketing fees, staging costs, open houses… these all add up.
Established house flipping companies typically have the financial backing to cover these costs and play the long game. But newer companies or new franchise owners can find themselves quickly drowning in costs. And that’s where the desperation to cut corners or go unethical routes is at its most seductive. Former corporate house flipping franchisees confirmed as much to ProRepublica.
And, if these accounts are to be believed, they point to an almost rabid hunger for deals at any cost. It’s not an ideal business model for the house flippers. And it’s certainly not an ideal business model for the clients.
House Flippers at Home in Unregulated Territory
The fact that house flippers are widely unregulated across the country means that, should a rogue flipper choose an unethical route, there are few repercussions. Real estate agents are strictly licensed, harboring a legal obligation to ethically represent their clients. By comparison, most states (California included) don’t require house flippers, corporate or otherwise, to obtain a license.
Fortunately, the stories of abuse exemplified in ProRepublica’s journalistic investigation and beyond are putting corporate house flipping under scrutiny. Certain states and cities are beginning to examine the matter and institute their own regulatory systems. In the meantime, accounts continue to surface of aggressive house flippers pressuring the disadvantaged into deals that seem far from ethical.
When Service Becomes Abuse
The ProRepublica piece centers around an 82-year-old widow who sold her three-bedroom home to one of the leading corporate home flipping companies in the industry. Allegedly, it was later revealed that she had recently undergone a neurological assessment that found she was unclear as to the city she lived in or the present year. When her son confronted the franchise owner with this information, he was said to have doubled down on the contract, fighting for the home sale in court for years. Several similar accounts are detailed in the ProRepublica article.
However, these corporate house flipping companies are on record as forbidding franchisees from deceiving clients. Likewise, these professional organizations claim to adhere to principles promoting entering into negotiations with sellers who are strictly of sound mind. But a company handbook isn’t quite the same as the law. And in the unregulated landscape of house flippers, it’s not a stretch to imagine a corner-cutting, opportunistic rogue operative.
House Flippers vs. Wholesalers: Money for Nothing
Believe it or not, matters can actually get even more controversial. Enter another level of house flipping called wholesaling. With wholesaling, house flippers cut out the flipping.
Instead, they simply purchase a property, jack up the price, and sell it to an investor without making a single improvement. Wholesaling is yet another reason why states and cities are taking a closer look at this corner of the real estate market.
House Flipping Companies Operating with Authenticity
It’s easy to hear all of these accounts of house flippers acting at their worst and dismiss the whole service as deceptive. But house flippers actually provide a unique service that helps people out of sticky situations all the time.
Think about the out-of-state property owner who just wants to be quickly rid of a bad investment. Or an executor of a Last Will who needs to quickly sell a property to divide an estate without hassle. Or the retired empty nesters looking to downsize to a more sensible property with cash in hand for a more competitive offer. There are plenty of scenarios in which corporate house flippers are genuinely helpful.
Take for example the company that JohnHart partners with, @HomeOffer. Many of the alleged horror stories detailed in ProRepublica’s article would never have happened had an honest, ethical company like @HomeOffer been handling the purchase.
For one, @HomeOffer allows clients to remain residing in a property even after the sale. They also work with JohnHart agents to help homesellers find new properties that fit their situations.
Yes, there could be rogue house flippers out there making lowball efforts to disadvantaged clients, then taking their money and running. But there are also plenty of legitimate corporate iBuyers like @HomeOffer doing honest work.
Research is Still the Best Safeguard
There’s no doubt that ProRepublica’s report brought disturbing practices to light. Is there truth to the accusations? We can’t weigh in on that one way or the other. But we can say that, as with any business, house flipping has its good and bad eggs. If you’re in doubt, it may set you at ease to go the old fashioned route with a talented agent’s help.
But it’s also a building belief that iBuying, a streamlined, contemporary approach to real estate transactions, is the future. That’s because house flipping isn’t an inherently bad concept. Still, house flippers operating without integrity are revealing how this helpful concept can be exploited.
The idea of rogue house flippers preying on clients who aren’t of sound mind is too complex an issue to adequately address in a blog. In the meantime, we stress the importance of researching corporate house flippers and iBuying companies if you’re looking for a quick home sale. Read reviews and client testimonials. Understand the contracts you’re signing.
Of course, we’re going to vouch for our partners with @HomeOffer, but this is a bigger concept than referrals. With diligence, you could easily use a reputable house flipping or iBuying company to your advantage.