Summary
What is this Assembly Bill about? Disclosures
Who is it targeting? Sellers of homes bought to quickly “flip” them.
Why is it important? It provides transparency for buyers—some call it empowerment.
How will it work? Every flipped home seller will provide a list of all changes to the property.
Time frame: This bill passed into law in 2023 and will begin to apply to a single-family residential property transaction where the seller accepts an offer on or after July 1, 2024.
What is this Assembly Bill About?
If you read the key phrase from the bill, you may still not know, but here is most of the meat of it, verbatim:
“…This bill would require a seller of a single-family residential property who accepts an offer for the sale of the single-family residential property within 18 months from the date that title for the single-family residential property was transferred to the seller to disclose to the buyer specified information, including any room additions, structural modifications, other alterations, or repairs made to the property since title to the property was transferred to the seller that were performed by a contractor and the name of each contractor with whom the seller entered into a contract with for the room additions, structural modifications, other alterations, or repairs, as specified.”
It's about disclosure. Sellers of “flipped” homes designed to buy, fix, and sell quickly, must now adhere to the letter of the law regarding work done on any property. This is particularly aimed at sellers who flip homes within 18 months, as noted in the paragraph above.
Who Is It Targeting?
The bill/law targets sellers (flippers), but its intent is to give transparency and power to buyers in this “wild west” section of the residential real estate industry. It doesn’t take a genius to guess that the law comes at the behest of homebuyers who have stories of unethical, under-qualified contractors who are intent on doing the minimum to get the fixer-upper patched and put on the market with the least cost to exact a handsome profit.
The “reality TV” stories would have you believe that happy young people in Levi’s and tee shirts, tool belts, and all the correct licenses are making a killing in real estate and having a great time doing it. We know some upstanding, honest house flippers. The bill is not targeting them. However, it does provide a sea-change of exposure and record-keeping on the part of all house-flipping companies.
Why Is It Important?
This law signals another area of change in the California real estate industry. Buyers have access to yet more information about flipped properties. Residential buyers will celebrate new attention toward knowing everything about their new domicile, the biggest single purchase in their lifetimes. The “good” and honest companies should also be happy. While they have been quietly doing the right thing all along, their less-than-honest competitors have been cutting corners and making a bad name for this segment of the fabric of real estate, not just in California but everywhere.
Flipped homes represent about 8% of all California home sales.
It's a blow to the home-flipping industry. According to this report, “the number of homes flipped by investors in the U.S. represented 8.4% of all home sales in 2021, which seems impressive. The problem? “Gross profit margins in 2022 sank to their lowest level since 2008.”
Another website, “How to Flip a House in California in 5 Steps,” says 1 in 13 homes [about the same percentage as the national figure] were flipped in the second quarter of 2023, with an increase in raw profits on typical flips increasing by 18% quarterly from Q1 to Q2 of 2023. These figures show increases, not decreases, in profits.
Going forward, it’s anyone’s guess as to what will happen to sales and profits for flipped homes. However, if we were to predict the future, we’d expect “seismic” shifts in the home flipping market. This is California after all.
How Will It Work?
It is an addition to Section 1102.6h to the Civil Code relating to Real Property. Home flippers will provide a list of all additions, changes, repairs, etc., and the names of the contractors who performed the work. They will be obligated to supply copies of permits issued along the way.
Time Frame
It’s soon. The law’s provisions will apply to any property for which the seller accepts an offer on or before July 1, 2024.
Conclusion
California’s Department of Consumer Affairs (DCA) oversees all types of transactions. Real estate transactions represent a family’s largest expenditure and a large chunk of California’s economy. The legislature passes laws that it thinks will create the best climate for the state and its residents.
While caveat emptor (let the buyer beware) tells us as consumers that we need to be responsible and research our purchases, sometimes we just aren’t equipped to do so. Without plumbing and electrical licenses, for example, we are at the mercy of the tradespeople who do that work. In those situations, we need protection as consumers. The state is putting house flippers on notice. Caveat venditor. (Let the seller beware.) Either way, it represents a Richter-scale upheaval in California’s real estate market, and the 8% of all sales attributable to house flipping.
Time will tell how it all shakes out.
To Learn More
If you have questions regarding this topic or any other real estate related matters, please contact The CREM Group. This real estate brokerage specializes in trust, probate, and conservatorship properties in Southern California, but The CREM Group team is well-versed in standard residential and commercial properties as well. The owner is an attorney and CPA, and the company’s Core Values are integrity, simplicity, reliability, knowledge, and dedication.
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