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How much do you have to tell buyers if you flip houses?

On Behalf of | Oct 14, 2021 | Real Estate/Construction Law

There is a saying that there is always money to be found in real estate, and that is certainly true on the current residential property market. Demand is high, and so are prices. If you purchase distressed or improperly maintained properties, you can potentially make a profit on them.

You invest your time and money to fix them up or pay off their financial obligations, and then you can flip them or sell them for a profit, possibly within months of becoming the owner. A booming real estate market is an opportunity for substantial income.

However, properties with questionable histories and major defects won’t bring in as much money as properties in turnkey condition. Listing off everything wrong with the property could limit the pool of interested buyers.

How much do you have to tell buyers about the property as the seller?

State law mandates that you disclose known defects

Did you buy a house with a bad foundation and then decide that the cost of repairs was far too high to justify doing that in addition to the rest of the work in the house? Would you rather make cosmetic repairs than pay to replace the wiring?

If you decide not to address a defect that you knew about when you bought the property or discovered while working on it, you have a legal obligation to notify the buyer about that issue. In fact, you have to disclose every defect that you know about. You should provide the buyer with a written list of defects and a disclosure about the overall condition of the property before you go to closing.

Disclosing what repairs you made might help you make more money

You might think that buyers would shy away from properties with a laundry list of recent repairs. After all, an extensive list of defective systems reflects poorly on the property’s condition when you purchased it. However, the opposite is often true.

Most people recognize that properties require maintenance and upgrades frequently as they age. The more repairs and upgrades you make to the property before you list it, the fewer repairs the buyer will have to make. Knowing that you have invested in new floors, new roofing, new windows or entirely new PEX plumbing might be enough to push someone on the edge of making an offer into a competitive bidder for your property.

Being honest and upfront about unresolved issues with the property and what improvements you made to it will protect you from potential litigation when you flip properties.