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Signs that your flipped house could actually be a flop house

CNBC logo CNBC 3/19/2017 Trent Gillies
© Provided by CNBC

House flipping is hot again, with investors flipping property at the fastest pace in a decade. Yet behind their walls, that picture-perfect dream home could conceal a nightmare.

A flipped house is one that has been sold at least twice within one year. Real estate site Trulia said more than six percent of last year's home sales were flips—the most since before the financial crisis.

With flipped property soaring in popularity again, so are the risks associated with buying a lemon, experts say.

"What you have to watch out for is if a house has been totally renovated, everything , not just the kitchen or a bathroom, but the whole house, "Frank Lesh, executive director of the American Society of Home Inspectors, told CNBC's "On the Money" in an interview.

"That's a good sign that it was probably flipped fairly quickly," he warned.

In the speed to fix-up a house and re-sell it at a profit, corners could be cut. Work could be completed without required permits, or Lesh said, appliances or lighting could be installed without "proper connections in the electrical panel."

In especially hot property markets, fixer-uppers that mask flaws are more prevalent, he said. "Because people are trying to turn around houses very quickly and if a market is hot, sometimes people forego the home inspection and that is never a good idea," Lesh added.

Some quick turnover homes have only had cosmetic fixes that mask mechanical or structural issues that even trained eyes may not be able to catch.

"There are a lot of things that a home inspector can do but there's just some that we can't," Lesh acknowledged.

According to ASHI—which since 1976 has represented 8000 certified and vetted inspectors— a home Inspection is a professional, written opinion of a home. It is based on a visual evaluation and operational testing of the systems and components to determine current condition.

Still, even some details can get past an expert.

"Keep in mind that a home inspection is done over a few hours' time period. So that's sort of like taking a photograph of a moving train," Lesh said. "We see it today, right now. So we can't predict what's going to happen."

Lesh said a home inspector could very easily "tell if an electrical outlet wasn't installed properly," but wiring can be trickier. "We can't see behind walls," he added.

Meanwhile, plumbing can be an even bigger problem for homeowners. Lesh told CNBC that sometimes, "slow problems that you may not see, like a small leak behind a wall because it wasn't taped properly, could become a problem that an inspector just wouldn't be able to see."

During an inspection, there's a limit to what an inspector can do, he explained.

"Although we run the water in the bathtub and the shower, we don't get in the shower or in the tub and actually sit in there or stand in there. So it's hard for us to actually live in the house, but we're there for a few hours so we try to check it out as thoroughly as we can," Lesh said.

In stressing the importance of a home inspection, Lesh added that "everybody should know that your house does not have a 'check engine' light. It's not a car."

Unless an expert can really dig into the home's nooks and crannies, " You're just not going to know what you're getting."


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