About Home Flips & Renovations In Washington DC
Exercise caution when considering DC home “flips” and renovations in the District. They’re are not new construction, though they’re sometimes listed that way. Read on to learn about the pitfalls of flips and renovated-for-sale homes, and what buyers can do to minimize risk.
What Is A DC Home Flip?
Flips are homes that have been purchased by a rehabber and “improved” for quick resale.
It’s important to know that these homes are not new construction and do not carry the same warranties and protections as those built from the ground up in new home communitites. While permits may be required for some work, flippers often stretch the limits of unpermitted work, and buyers should not expect that because some work was permitted the house is up to code throughout.
Renovations & Remodels
What are the differences?
Renovation should restore a property to a good state of repair. Homes that are run down, even dilapidated, can be rebuilt structurally and mechanically.
“Renovation” is a bucket term used for a variety of improvements. It should not be assumed that use of this term implies that a home has been mechanically or structurally repaired, updated or altered. A renovation-for-sale is something like a flip, except that the home has been owned longer. In order to ready it for the resale market, the seller contracts to have some or all of the home updated, renovated or remodeled.
The terms ‘renovated.’ ‘updated,’ and ‘remodeled’ are often misused or used interchangably, and this can be misleading and confusing for buyers. Sometimes, homes referred to as ‘renovated’ have merely been cosmetically updated.
A ‘flip’ or ‘fix and flip’ as they are known, can be either a renovation, or a remodel. It’s important to know what you’re dealing with so you can research accordingly.
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Bullet Points
- Flips and renovations can be risky purchases
- Buyers must perform their own due diligence
- Even multiple inspections can’t reveal many hidden issues with homes
Caren L
While other agents said, “This is what you need to do;” The Isaacs Team said, “We can do this for you!” Our process was smooth and quick, and they designed a strategy and negotiated a sale well above our asking price; and a purchase price below asking – both in the same market.
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Here's how we break it down
Gut Renovation
"To The Studs"- A ‘full gut’ occurs pre-rebuild, stripping a dwelling down to the skeletal framework, replacing plaster and drywall, plumbing, electrical, HVAC and other mechanical systems, roof, windows, doors and trim, internal fixtures and finishes and sometimes exterior elements. The space remains as dedicated by the framed floor plan. Bedrooms remain bedrooms, baths are still baths, etc.
- A ‘partial gut’ occurs when only a part of this process has been performed. The flipper may have retained the staircase, for instance, windows, fireplaces, doors and door frames, frames, wiring, etc. It is a non-specific term that requires further definition. If you’re buying a ‘partial gut’ remodel, you’ll want an outline of the exact scope of work.
- A ‘gut renovation’ is an inaccurate term. A ‘renovation’ refers to restoration of existing components, which would no longer exist in a ‘gutted’ home. The correct term would be ‘guting,’ or ‘gut’ with a modifier attached, such as ‘gut-remodel,’ meaning that the floor plan of the home had also been altered.
- ‘Full renovation’ would be the accurate term for a home which had been completely updated. Some portions of the home may have been replaced in this scenario, such as floor, ceiling or wall material, fixtures, even mechanicals. But it is not a ‘gut.’
- Gutting requires permitting. Certain components of renovation require permitting.
Remodel
Changing Spaces- “Remodels’ can alter the design, use and structure of homes. Functionality of space can be reassigned, such as restructuring a home’s third floor two-bedroom, one bath floor plan to create one large owners’ suite. A remodel changes the layout of a home. It may involve adding or removing walls to create or modify spaces for new uses, windows, fireplaces and closets may be added or eliminated, etc. Some of these changes may involve a ‘partial gut,’ taking the affected rooms down to the studs. Others involve simple repurposing of space, such as turning a den into a bedroom, where required components are already in place.
- Additions and expansions are also considered remodels.
- A ‘full remodel’ means all of the home’s space has been altered to some degree.
- A “light remodel” is one where only a few changes have been made to the home. The rest of the work, if any, may qualify as ‘cosmetic’ updating or renovating.
- Historic home remodeling may be limited or prohibited by HPRB and/or DC historic districts.
- Remodeling is more extensive and expensive than renovation.
- Remodeling typically requires some degree of permitting, except in the case of repurposing space.
Renovation
Restoring & Refurbishing- Renovation is a term that refers to restoration, repair, or refurbishing of existing components. This is why there’s no such thing as a ‘full gut renovation.’ It is a contraduction in terms.
- Renovation can include the replacement of elements of the home, such as paint, tile, flooring, cabinets, countertops, appliances, windows and doors, trims and mouldings, light fuxtures, hardware and even portions of a roof or outdated/failing mechanical components like a water heater or HVAC components.
- Unlike remodeling, renovation doesn’t reconfigure, expand or alter spaces in the home.
- Renovation may or may not require permitting, depending on the scope and nature of the work.
- Renovation is typically less expensive than remodeling (exception being historic homes in certain DC neighborhoods) and takes less time and a smaller labor force.
Updating
Updating and Frankenhouses- “Updating” is a term that applies to work very similar to renovating, the difference being the scope of work. Updating would not involve permitted work, and it usually refers to homes that have partial improvements made, often over time.
- Updating is a frequent contributor to what we like to call the “Frankenhome,” a hodgepodge of updating, renovating, and partial remodeling performed over the life of the home.
Why Flips & Renovations Pose Risk For Buyers
The riskiest thing about flips and renovations is the unknown. And almost every important aspect will fall into that category.
Who is the home flipper?
Commonly, flip property titles are held in an LLC for tax purposes, to limit liability in case of a lawsuit related to the property, and to shield their identities.
New LLC disclosure laws effective in 2024, require many businesses to report beneficial ownership information to FinCEN to identify individuals who exercise “substantial control” over the company, or own/control 25%+ of its equity. The law requires identification of humans, not just more companies. But this information will not be made public.
As an exercise
Try searching a DC flipper online to find out who the principal actually is. While a few (primarily those building brands, and rank amateurs) are easily traced, you're much more likely to find an LLC, registered agent for the LLC (typically not the owner), a holding company for the LLC, then either arrive a dead end, or discover another chain of LLCs, JV's, venture capitalists or investment groups, often located outside of the DCMA. On DC Scout you'll often find the 'Owner Name' line blank, and permits issued to a third party, usually the general contractor. Tax records for the property will often show the LLC, not a human, and a P.O. box or address of a registered agent instead of a street address.
Anyone can become a home flipper.
Read this section twice! There is a low bar to entry in flipperverse. It’s no bar. Flippers are not required to hold a license, earn credentials, or acquire any particular training or experience in construction or renovation. Literally anybody can call themselves a home flipper or rehabber. They are simply the owners of properties purchased to turn a profit. As such, they direct the scope and quality of work performed by the contractors hired to make improvements. quite possibly without adequate knowledge or experience for that role.
And let’s remember that the sole purpose of their endeavor is profit. In order to make a flipping equation work, the flipper has to buy low, control costs, sell quickjly and high. Buying low often means purchasing distressed properties. Controlling costs may mean limiting the scope of repairs and replacements. Selling quickly can mean rushing through work and skipping steps.
Who’s doing the work?
While contractors and ‘handymen’ are mandated to be licensed, bonded and insured in the District of Columbia specifically (not out of state or under an “umbrella” license) in order to perform work on a home (not just permitted work), it is often the case that this can not be verified. A flipper may use many different persons or companies to perform a variety of work, each of whom, in turn, employ workers who may or may not be licensed, or assugn the job or portions of it, to a subcontractor, whose workers’ licensing statuses are unverified. Who is keeping track? Supposedly the contractors. Is there a verification process or venue for the home owner or buyer? No.
As an exercise
Try searching a DC flipper online to find out who the principal actually is. While a few (primarily those building brands, and rank amateurs) are easily traced, you're much more likely to find an LLC, registered agent for the LLC (typically not the owner), a holding company for the LLC, then either arrive a dead end, or discover another chain of LLCs, JV's, venture capitalists or investment groups, often located outside of the DCMA. On DC Scout you'll often find the 'Owner Name' line blank, and permits issued to a third party, usually the general contractor. Tax records for the property will often show the LLC, not a human, and a P.O. box or address of a registered agent instead of a street address.
As an exercise
Visit a single family home actively being renovated by a flipper when a full crew is on site. Do you think each one of those workers is individually licensed, bonded and insured in DC? Are they performing work for which they have the skill and credentials? Good luck finding out.
Flipping is a business and time + scope of work can be the enemies of profit
The truth is that there’s little transparency and a good amount of risk in purchasing any home. But a flipped property is one that specifically presents a property as visually ‘new,’ and offers sellers the opportunity to cover flaws, wear that hints at a potential defect, damage from elements such as fire and water, even serious patent defects without addressing or disclosing them.
Key factors for a successful flip are speed and profit. For this reason, flippers may place greater emphasis on improving the cosmetic aspects of homes they know will attract buyers rather than structural integrity, condition of mechanicals, electrical, plumbing and other expensive elements such as windows, roofs and decks.
Flippers may not perform their own due diligence and remain ignorant of issues, but sometimes they prefer to turn a blind eye.
Flippers are under no obligation to repair or replace every component of a home. What they should not be doing, however, is failing to disclose structural issues, cover up code violations or mask issues like mold, converting patent defects to latent defects.
More than a few flippers have been caught drywalling over serious issues that became costly or dangerous homeowner nightmares.
There should be a special set of seller disclosures for flips that provides buyers with a list of improvements, contractors and permit numers. Unfortunately, that doesn’t exist.
Flips are typically classified as ‘renovations’ rather than remodels or ground-up construction, so they’re subject to spotty permitting and inspection rather than the more rigorous requirements for new builds. Inspections are often performed by third party inspectors, who can be selected by the flipper, not assigned by the DOB.
While there are flippers who do strive to do a good job and care about the quality of their work, even the most comprehensive flip does not make a home “new.” Those labeled ‘gut renovations’ (again… a contradiction in terms) may not actually be full guts. The extent and quality of work involved–or lack of it–varies greatly. Much of it can’t be seen or inspected, and is undisclosed. As a result, this is an area of great concern for home buyers.
As the popularity of flips and renovated-for-sale homes increased, the number of serious construction issues and lawsuits also rose. With the restructuring of the DCRA and creation of the new Department of Buildings, oversight of residential construction in DC improved, but bad behavior can still occur.
Buyers can perform every possible home inspection and still be unaware of serious issues.
How Buyers Can Minimize Risk
When considering the purchase of a renovated home, buyers should take these 8 steps to protect their interests:
- Review the home’s history; how long did each owner occupy, note vacancy and periods. Note the length of time the flipper has owned the property. Did they put it on market as a ‘full renovation’ two or three months after purchasing? A short turnaround like that may indicate rushed, unpermitted or incomplete work;
- Research the property’s condition, components, layout and structural integrity of the property prior to the point when most recent updating was performed;
- Get a general home inspection, separate roof inspection, evaluation by a trusted general contractor, and an inspection by a structural engineer;
- Obtain a comprehensive list of all improvements made and materials used
- Confirm license status for contractors, subs, workers, and check their names against the DOB’s Contractor Ratings List and their Targeted Enforcement list
- Learn the types of work that require permits in the District on DC.GOV, then confirm on DC SCOUT (create an account if you don’t have one) that permits were issued for work outlined on the flipper’s list of improvements. Check for violations and stop work orders;
- Call the DOB for verifications, missing information and more detail and to confirm that all permitted work passed inspection(s);
- For unpermitted work, research the flipper’s materials list to make a layman’s assessment of quality, durability and value. Consult experts as needed.
- Call DC Water and ask if any sewer line repairs or replacements have been made over the last 20 years. All residents, private companies and government agencies must obtain approval from DC Water prior to performing any work that directly or indirectly affects the public water and/or sewerage systems. DC Water has its own permitting process.
Do half of these seem impractical, time-consuming, expensive and/or utterly impossible? They probably are. In realty:
- Coordinating multiple pre-offer inspections within the time period typically available to DC home buyers is difficult, expensive, and in competitive situations, contingencies are not a realistic option;
- Few or no flippers will provide a comprehensive, detailed (or any) list of work and materials;
- Few or no flippers will provide a comprehensive list of contractors, sub-contractors, vendors and workers who touched the property, let alone their licensing information/status. They may not know themselves;
Any contractual provisions for the above are likely to cause flippers to back off from an offer;
DC Scout provides basic permit and inspection information buyers can access, but obtaining meaningful details from DOB is a time-consuming, difficult and often fruitless endeavor.
Still want to buy a flip?
There’s only one foolproof way to protect yourself from issues related to purchasing a DC home flip. It’s not to buy one. This advice often falls upon deaf ears, however. We understand. They’re pretty. The work is already done (you think), by licensed professionals (probably at least one), you can move in right away, and you don’t have to pay out-of-pocket for all that rehabbing. We get it.
If you’re intent upon purchasing a flip, understand that no action you can take prior to settlement will guarantee that the flip you want to purchase is a ‘sound’ home.
Due diligence is your responsibility, not that of your real estate agent. As our client, you will have been advised to read this page, and follow the steps outlined. You will also have been warned that buying a flip is risky and inadviasable. You may be asked to sign an adverse conditions waiver.
A 3 Part Cautionary Tale
Disclaimer
The information presented on this site and page is derived from reliable sources, but may be paraphrased, incomplete, or outdated and should not be considered legal, construction, financial or investment advice. It is provided for educational purposes only. Citations and source listings do not constitute endorsements. The Isaacs Team LLC, DOMO of Compass, and Compass, their principals and/or representatives, do not guarantee or warrant its accuracy, completeness, or applicability to any specific transaction. Homebuyers should read applicable D.C. code themselves, and consult licensed, qualified professionals for assessments related to their specific transaction.
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