Flippers and Regular Folk

photo credit: rob st

Looking for a deal? Get in line.

We often tell our selling clients that there are two buyer pools out there. One wants a picture-perfect home with all of the goodies (granite, stainless, resort amenities, dancing bears and ponies) and at rollback pricing. The other wants a deal – one that “needs a little work,” the idea being when that they hang up their hammer, they will sweat equity and bragging rights to show for it.

If you are a buyer, the key is in knowing into which category you fall. You can’t have it both ways. One could argue that you have but one choice.

We recently had a client pass on a beautiful turnkey home, one that was fairly priced and within his budget. “I’m looking for something that needs a little work,” he said. It seems he likes to fix stuff. OK, fine. But either you are shopping for a home or you need a hobby.  Don’t confuse the two.

The reality is, he wants a deal – a steal, even. But the other harsh truth is that, in limiting himself to the falling-down-ugly inventory, inventory with the potential for magic equity to materialize with a couple of weekends of cabinet refacing and fixture replacement, he is going to be competing with droves of trained professionals. He is regular folk.

Jim Klinge, writing about the current flipper frenzy, said it well:

How does (the flipper frenzy) affect the regular folks?

1. If you’re an investor hoping to flip or rent-out, good luck.  The flippers have flooded the street searching for the next deal, and are working on thin margins.  They are soliciting property owners directly via mail and email, and working all the usual spots – trustee sales, defaulter lists, FSBOs, short-sales, MLS, etc.  Because sellers get bombarded, the price typically goes up – there won’t be many steals from now on.

2. Primarily, they are looking for fixers.  If you want a house to occupy and thought you’d save some money by purchasing a dog, you won’t save much.  You can avoid the rush by sticking with the turnkey properties, and hope to buy one with all the trimmings for a fair price.

3.  Appreciation – You might think that a wave of flippers selling renovated properties could lead to rising prices.  Maybe, maybe not – buyers usually can find out how much the flippers paid, and would have to be very frustrated to pay a lot more.  With the sophisticated flippers being careful to buy somewhat under market, and able to add cheap Chinese goods to improve them, they can live on thin margins and not count on appreciation. I think this will lead to a very active trading range of +/- 10% throughout the county, and for every lucky sale that pops through the range’s ceiling, there will be another flipper buying a lower sale to keep the pricing trend moderated.

I added the emphasis on Number 2, because most of the clients we represent fall under the category of “regular folk,” people who are looking for a home that they intend to live in and enjoy. Number 2 should be etched on your foreheads, because that is the reality of our current market – unless you have connections and cash.

And a message for sellers, one I have harped on before: In this market, mediocrity is not rewarded. You are either flipper worthy or you are turnkey awesome. The tougher sell is the home that falls somewhere in the middle.

But, then again, all objections are overcome with price.