Thursday, December 15, 2005

How to Spot a Flip or "Lipstick and Rouge on a Pig"

Just for fun...apparently, the Marin PoS blog has spawned some offspring. I especially appreciate their guidelines on how to spot a house that is being "flipped" (item 12 sure sounds like a lot of houses I've seen in Marin and blogged about):
  1. house will usually be empty.
  2. if not empty, the house will be staged - look for decoration that is too perfect (a tray arranged artfully on the bed with an open book and reading glasses), new furnishing, nothing in the closets. One staged house I visited was perfect and looked lived in -- until you saw the cobwebs in the unused bathtub that the staging missed.
  3. crown molding
  4. new appliances
  5. the words "travertine" or "granite counter tops".
  6. Often the selling agent will push creative financing. I actually walked into one open house where the agent gave us the loan terms before the sheet descibing the home. The loan terms will always be the worst sort of suicide financing - I/O, Option ARMs, etc. The loan sheet will usually not describe them as such. They must figure that anyone stupid enough to $150-200K markup is also stupid enough to pay the thousands in extra fees and intrest for one of these loans.
  7. new baseboards
  8. new windows
  9. new door trim
  10. freshly painted interior
  11. Ask a little about why the seller is selling. When they bought it and why they are "moving" (of course they never lived there). The agent will never (my experience) tell you the home is being flipped. The answer will be something like "the owner just bought it, fixed it up and loves it, but had to move for a job."
  12. All this crown molding, granite countertops, etc. will be added to a crappy 1940's - 1960's tract house or a poorly built 1970's-1980's condo. Basically, lipstick and rouge on a pig.


Chuck Ponzi said...

What's even more interesting here in the OC are homes that have had absolutely nothing done to them and relisted with a 200K higher pricetag in 2 months. We are seeing a lot of those here in South OC.

They generally aren't pigs as the homes here are mostly <25 years old; hence the asking prices are even more ludicrous. If a buyer hasn't done anything to the home, nor have they needed to, yet it appreciated 200K in a matter of months, what makes them think that they can get that price...

Answer: It's all about the greater fool. It's easy to do in a limited supply market; but once supply becomes comfortable, it falls with no resistance to a fair price.

Anonymous said...

Wow! People don't check price histories of a particular house they invest or buy? There is a sucker born every minute.

I noticed there was a house in Newport Beach. Someone paid $800k 4 years ago to own it and after a year they realized there was a major mold problem with this house. Apparently they were not informed by the previous owner regarding this mold problem. They decided to sue the insurance company to get compensated for cleaning it up. Now the same house is selling for $1.5 million

Anonymous said...

I guess that is a wonderful metric for where houses will be priced after the correction

Anonymous said...

yeah, -50% sounds just about right for NB.

Anonymous said...

Anonymous - NB house

If the owner of this particular trouble house could find another sucker willing to pay $1.5 million for it, then the current owner is no longer qualified as a sucker because he found a bigger sucker. This current owner will be looking pretty good for a hefty return on his ROI. It is all about playing the musical chair.

Anonymous said...

Yes, but if the previous sucker who-is-now-no-longer-a-sucker sells at 1.5millto a bigger sucker, then he has to buy another house and so has become a sucker again (unless he buys down or rents of coure).

Anonymous said...

What about the fools that are buying $375,000 houses in Florin (part of Sacramento where the bullets fly nightly)?

These dumps don't even have lipstick on the pig! I have seen houses with weeds in the front and people in the front yards smoking weed selling for $375 - $400. This is in the land of AFDC and state parolees!

Anonymous said...

Weeds on the lawn, and smoking weed on the porch?

I know how to list it!

"Perfect for alternative gardening!"

Anonymous said...

All you needed to know, and never knew about Lipstick are mentioned in this article. Read it to confirm our views!