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Buying a "Flipped Property," part 2

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In the last article, I discussed the importance of obtaining a physical inspection for your property. The next thing to be sure of is that you obtain a home warranty for the property once it closes. If the seller is not willing to provide this, you should do so, but most sellers are happy to provide a warranty from a third party (First American, Old Republic, and many others offer them), because this often prevents a lawsuit. Since most rehabbed properties are sold through an agent, the agent through whom you buy the property will be able to give you guidance as to which company to choose, and what specifics you need in your warranty (air conditioning, pool, code upgrades, for example). The reason a home warranty is so important is that, for the first year, it warranties all the major systems in the property you've purchased. It will cost you a "travel fee" from the contractor who does the repair (typically $35-50), but the records of home warranty companies are replete with stories of people who've been indemnified for very expensive repairs by their home warranty. Home warranties are not perfect (plumbing outside the boundaries of the house are typically not covered, for example), but they help immensely. Be sure all the systems work during your physical inspection, and wait a few days or a week before calling the warranty company if something is wrong. The reason for this is that if you call the day after close, the warranty company may deny it, based on their theory that the particular item you called on was broken when escrow closed.

Costs for home warranties are typically based on two things:

  • The level of service you want (pool, a/c, etc.)
  • The size of the home you've purchased.

The pricing is relatively close between the specific companies, so select the company that agents have good experience with (we regularly poll the agents in our office to determine what experience their clients have with a given company, and discuss these results in our office meetings).

So be sure that you do these two things:

  • Get a physical inspection
  • Get a home warranty, whoever provides it.


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