Beware of bad flips when buying a house in metro Phoenix

A day after Katie Lebowitz and David Dronning closed on their newly renovated north Phoenix house last summer, they found water all over their kitchen floor.

A plumber scoped the sewer and told the couple it had collapsed, and the house would flood if they ran water. It was just the beginning of the problems.

The former foreclosure house that government-backed Fannie Mae had fixed up and sold to the couple also had hidden mold, asbestos and electrical problems that cost more than $100,000 to fix.

“It took five painful months of living out of storage units and spending all of our money to fix the house,” Dronning said. “It’s been a nightmare.”

A record number of Valley homes have been renovated and flipped during the past few years. But the rush to fix up bargain homes and sell them for a profit has led to big headaches and costs for some buyers.

Check for mold, asbestos, filled-in pools

Swimming pools full of construction trash, drywall covering moldy walls, kitchen remodels with no permits, vents that aren’t piped to the outside, electrical wiring not up to code and attics emptied of insulation are some of the recent problems reported with flipped Valley homes.

Those examples come from inspectors, attorneys and real estate agents who see the shoddy work.

“Some flippers just want to put enough lipstick on a house to sell it,” said metro Phoenix home inspector Tim O’Neall, who teaches classes to the real estate industry about disclosing home problems to buyers. “About 85 percent of my examples of bad work in homes come from flips.”

Lebowitz and Dronning, like many recent Valley homebuyers, signed an “AS IS” agreement to buy their home because of the competitive housing market.

But the couple is suing Fannie Mae because neighbors and others have told them their house’s problems were known about and not fixed as part of the renovation.

Fannie Mae said it doesn’t comment on pending litigation.

“I haven’t ever seen this many lawsuits for home flips,” said Valley real estate attorney Patrick MacQueen. Almost 70 percent of his cases now are homeowners suing over bad flips.

“I had one client who bought a flipped home and then tried to put in a pool,” said MacQueen, who is representing Lebowitz and Dronning. “As their contractor started digging, he found the house had a pool that had been filled up with an old toilet and other stuff from the house’s renovation. It was bad.”

Watch out for amateur investors

Demand for renovated older Valley homes helped spark the fix-and-flip frenzy.

Metro Phoenix is one of the top housing markets in the U.S. for flips, with as many as 10,000 so far this year, according national real estate data firm CoreLogic.

But that number likely includes some homes purchased and sold by ibuyers Opendoor and OfferPad that aren’t completely renovated.

Housing market watchers say there are many qualified and licensed contractors who do a good job with flips, get the building permits required and build to code with city inspections.

But not all builders working on homes that investors want to flip fast are licensed. And the pressure to flip for the most profit quickly can lead to problems.

“There are amateur investors trying to flip homes fast, who are relying on contractors who may be going too fast, too,” said Arizona housing analyst Tina Tamboer with the Cromford Report. “Investors or buyers go and see everything looks and smells good, but they don’t know what’s behind the walls.”

The DIY craze has led to more people trying to get into the fix and flip business, but even TV home improvement guru Ty Pennington said people are taking on projects they aren’t qualified to do.

“This, sadly, is sort of my fault. On shows, I encourage people to take on almost any home improvement project,” said Pennington, who is currently on TLC’s Trading Spaces show and was in Phoenix for a home show last month. “It’s good to try, but if you get in trouble, hire an expert — particularly for certain projects.”

O’Neall said too many flippers will try to do big projects like electrical work themselves because they think it looks easy. But it’s not, and it can be very dangerous.

“And they shouldn’t be paying Uncle Bob, who isn’t qualified, a six-pack to do the work either,” he said.

MORE: ‘Trading Spaces’ star Ty Pennington shares renovation tips during Valley visit

Pay for a detailed inspection

Christa Lawcock of Realty Executives advises her clients get an inspection and pay for the extras like scoping through the walls.

“There are some really good home flippers out there, but the bad ones can cost you a lot of money and grief,” she said. “I advise my clients to invest in a detailed inspection and then follow up on getting problems fixed.”

She advises getting signed receipts from the contractors for any work done to fix problems from an inspection, too.

The typical basic home inspection costs about $500 in the Valley. The price can double for an inspector to use tools to look behind the walls and really check out sewers.

Lebowitz and Dronning paid for an inspection before they bought the house and planned on making little fixes, but said none of the big problems came up in the inspection.

The couple’s home insurer paid for the first round of fixes, and then dropped their coverage.

MacQueen said a recent law means home inspectors are only liable for refunding the fees paid by homeowners if they are sued for problems not found or disclosed.

Investors and real estate agents selling the home can be found liable if they know about problems with the home but don’t disclose them to the buyer, he said.

Homeowners can find out if Arizona contractors are licensed on the Registrar of Contractors site.

If they are licensed, a homeowner unhappy with work can file a complaint with the state regulatory agency. Also, if a licensed contractor goes out of business, the homeowner can get some money back from a recovery fund administered by the registrar.

Homeowners can sue contractors that aren’t licensed over bad work and can sue real estate agents who knew about a house’s problems and didn’t disclose them during the sale.

“Suing is the only recourse some homeowners stuck with badly fixed up homes have,” MacQueen said. “It’s not an easy process, but some homeowners are so mad they are doing it.”

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