California’s Flipper Disclosure Law will have an impact on professional flippers and developers, there’s no doubt about that.
In essence, it demands a much greater level of transparency from flippers who sell renovated properties.
This could add to the cost of flipping properties as well as the type of properties flippers target.
The spirit of the law is to protect real estate buyers from being duped into purchasing properties with sub-standard workmanship or patch-ups by unqualified tradespeople.
But it stands as a real game changer for the industry.
That applies especially to those who have cut corners in the past and attempted to conceal work.
Let’s take a closer look at the new Flipper Disclosure Law and its likely effect.
The legislation
Assembly bill 968 (AB-968) or the Flipper Disclosure Law has been in place since 1 July, 2024.
It applies to the sale of a residential property of up to four units unless the seller has held that property for at least 18 months.
It requires flippers to disclose all recent repairs and renovations to the property in addition to all other existing disclosures.
Where renovations or repairs were performed by a contractor with whom the seller entered into a contract, it requires the seller to disclose to the buyer:
- any room additions
- structural modifications
- other alterations
- repairs
- a copy of any permits if obtained
Additionally, if the cost of any labor or materials is $500 or greater, the seller must also disclose the name and contact information of each contractor.
The laws also apply to any work flippers undertake themselves.
In layman’s terms
To break it down, it means flippers must be up front about any significant work that has taken place during a renovation.
It may include but is not limited to:
- rewiring
- new plumbing
- knocking down walls
- floor plan alterations
- reroofing
It requires work to be undertaken by licensed contractors rather than unlicensed handymen.
The full contact information of these contractors must be given to buyers.
Additionally, necessary permits must be obtained and where unavailable, sellers must assist buyers to obtain them from third parties or principal municipalities.
The consequences
This doesn’t have to be a tombstone for the profession of house flipping.
But it does demand a much higher level of diligence, ensuring all work is documented with necessary permits obtained and accurately reported to sellers.
The requirement of using licensed professionals aims to ensure all work is up to standard and the distribution of their contact details holds them to account if it is not.
The unintended consequence of the law is the potential higher cost to flip houses.
That’s because unlicensed flippers are banned from performing even minor work on the cheap.
It may result in projects taking more time to complete and at a greater cost for two reasons:
- having to rely on tradespeople who are prone to delays
- the cost of finance for the project if it takes longer than expected
In a strong real estate market, this cost will be passed on to the buyer in the form of a higher sale price.
In a depressed market, it may mean a lower sale price and smaller profit margin for flippers.
The future for flippers and developers
Flippers who are licensed tradespeople and can undertake much of the renovations themselves are at some advantage.
In addition, greater consideration is needed when assessing properties for flipping regarding the extent of renovations needed.
This could impact the type of properties that flippers target.
Quick fixes with minor cosmetic updates could now be more appealing than properties in need of significant overhauls.
Get support today
Flipping properties can be extremely lucrative.
But there are traps and pitfalls and the new Flipper Disclosure Law undoubtedly demands a reassessment of strategy for flippers and developers.
It also makes finding the right finance even more critical.
In California, Equidy has an intimate and personal history with property, and has covered all aspects of real estate and property development in California for more than 40 years.
Equidy is a hard money lender with one of the most respected and enviable reputations on the west coast.
They stand by their core belief that anything is possible and they try to prove it every single day.
Even in difficult economic times, they strive to reward entrepreneurship and always help their clients crystallize their wealth creation dreams.
But best of all, Equidy is not just a financier.
They have an intimate knowledge of the business including the new Flipper Disclosure Law and can advise clients on the merits of a prospective flip.
Equidy works creatively with their clients every step of the way, providing their wealth of knowledge and support network as their projects begin to take shape.
They enjoy long and established relationships with serious investors, sellers and real estate professionals while leveraging their reputation and trust, using clear communication to minimise the risk to all parties.
Contact Equidy today to book your free strategy call.
