Kari McCoy: New laws for home flippers in California

Question: Dear Kari, My dad and I have decided we need to earn a greater income. We have been talking about getting into flipping homes as a side job for both of us. We are not sure if this is wise or not, as we have heard some chatter about new laws that might cause us to change our minds. Could you explain this new law? Answer: Thank you for your insightful question. First, let's look at what home flipping means. Home flipping is when an investor, Individual or company buys a home, makes improvements and then sells it for a greater price. This is in the hope it is done in a very short amount of time. The idea is to buy low and sell high for a nice, fat profit. Typically, the time between the initial purchase of the home and the final fixed-up home sale could be done in just a few months or possibly more than a year. This depends on the amount of work necessary to complete the desired outcome of the project. On July 1, 2024, Assembly Bill 968 (AB-968), went into effect. This bill launched significant changes that mandate a comprehensive disclosure of repairs and renovations from sellers who flip residential single-family homes or multifamily homes up to four units within an 18-month period. This period starts from the date the said property was initially purchased, also known as the close of escrow. The purpose of the new flipper laws is to protect buyers of renovated homes. This is done by requiring the sellers to disclose any recent repairs or renovations to the property. The law aims to prevent buyers from purchasing homes with shoddy renovations. Some key provisions required are as follows: · Disclose any new room additions, structural modifications, alterations or repairs made to the property. · Investors/flippers are required to use licensed contractors, not handymen. · The necessary permits must be obtained for all work and then shown to prospective buyers. · If permits are unavailable, the seller must assist the buyer in obtaining them from associated third parties or the principal municipalities. · Provide prospective buyers with a record of all repairs and receipts of major and minor adjustments that cost more than $500. · Contractors' names and contact information will be disclosed to the prospective buyers. Before California's new flipper laws, there were no particular regulations for sellers who flipped homes. Some flippers avoided full disclosure by claiming they were exempt due to lack of residency. In a considerable number of cases of flipped homes, after being recently updated with the latest trends in home styles and tastes, they have been known to harbor substandard and potentially wrongful renovations. In addition, there have been quite a few situations in which the flippers did not obtain necessary permits in order to shorten the time process and save money. This hasty practice can lead to grave problems causing severe health issues, safety risks and unforeseen expenses for the innocent homebuyers. The new flipper laws will now be much more declarative about the work being performed, ensuring everything is up to code, fully disclosed and fully documented. For flippers, this will add extra costs to their bottom-line expenses, which will take away from their profits. This may make home flipping less attractive to some investors. Kari McCoy has been a Realtor for more than 30 plus years and owns the Kari McCoy Group, Residential Real estate, at Lyon Real Estate. She can be reached at 916-933-5274 or by email at sold@karimccoygroup.com. 00841588