Home-Flipping Update: California Passes Major Disclosure Law

California just changed the home-flipping game. Fixer-upper home buyers who turn around and sell the homes must follow the new Flipper Disclosure Law, formally known as Assembly Bill 968.

What’s California so concerned about?

Home flippers are, of course, profit-driven. Sometimes, a flip is done quickly, with cosmetic touchups that gloss over the deeper work that needs to be done. A flipped home might look great in a video, but how does a buyer really know if vital repairs were done — and done to last?  

The state’s new requirements help potential buyers understand what they’re taking on.  

The Flipper Disclosure Law Keeps Buyers Informed

Effective now — since July 2024 — this law affects anyone who holds a deed for under a year and a half before reselling the home. Such sellers must take a number of steps to benefit buyers:

• Produce detailed documentation of the repairs made. This requirement will likely prolong the time a flipper owns a home between buying and reselling it.

• Inform the buyer of room additions or other modifications to the home while the flipper held the title.

• Name the contractors who worked on the home. Itemize the work each one carried out. This should ensure that licensed professionals have handled the work.

• State that the required permits were obtained for major changes to plumbing, rewiring, structural elements, etc., ensuring the home is fully up to code. Of course, flippers will have to budget time and money to be sure the permits are in order.

• Give the buyer copies of any permits for any changes and fixes done while the investor-seller held the title. Alternatively…

• Give the buyer the contact details for the third party who holds the permits, where the investor-seller lacks access to the permit records.

Now, residential flippers need to keep painstaking records of every alteration they make — major or minor. The above rules impact all sellers of houses who accept buyers’ offers.

These changes are poised to cut real estate investor profits. But will they protect buyers from running into surprise hazards and unexpected repair jobs? Let’s go deeper.

What This Means for Buyers

Potentially, there will be fewer homes renovated for people who need them. Home flippers might give hard passes to homes that need extensive work from top to bottom. Hard-to-fix houses will take more time than some flippers will willingly invest.

At the same time, California’s more stringent rules could press some of the least capable flippers out of the market entirely.

As for the home flippers who continue working, they’ll need to keep their paperwork in order and make sure buyers are well informed.

But will this make a big difference? Or will buyers ignore the fine print, allowing sellers to gradually become more complacent? Only time will tell. For now, we can expect some degree of added time and cost in the flipping of a home. And we can expect the investors to ratchet up their asking prices accordingly.

While buyers will be getting homes in better shape, they will be spending more to get them.

And That’s Not All… What to Know About California’s Other Recent Real Estate Changes

California lawmakers have kept busy drafting and enacting a slew of consumer-protective laws in recent times. Here are some prominent examples:

• Since 2022, real estate contracts must carry notices stating that the appraisal figures are objective and unbiased. This is another form of disclosure law. Its title is the Appraisal Discrimination and Purchase Agreement Notice (Assembly Bill 948). This law is also part of the state’s mission to deal with race and gender discrimination in real estate deals. It makes the appraisal bias complaint process easier to understand. And it adds to the continuing education requirements for appraisers. They must complete cultural competency and elimination of bias courses.

• The state’s Department of Real Estate now also makes California real estate agents take anti-bias courses. Under this new requirement for ethical and legal competency, professionals must learn about “federal and state fair housing laws relating to the sale and rental of real property” and related topics such as refusing to show property to a potential resident on account of their race.

• On the first day of 2024, a new law on remote online notarization (Senate Bill 696) took effect in California. Its mission? To legalize online notarizations, and install anti-fraud mechanisms to protect the consumer. The law’s provisions are designed to make notary services affordable and accessible. They also create new consumer protections by regulating vendors.

• Also on New Year’s Day 2024, the Residential Exclusive Listing Agreements Act became effective. Formally called Assembly Bill 1345, it bans listing agreements that keep homeowners on the hook for more than two years. This is part of California’s effort to derail predatory Listing agreements that keep deed holders tied up in contracts with particular real estate companies that hold onto the right to sell their homes. The bill also bars automatic renewals for listing agreements.

• California enacted a law to permit revocable transfer on death deeds, too. That law is formally known as Assembly Bill 288. Using the state form, a deed holder declares: “I transfer all of my interest in the described property to the named beneficiary(ies) on my death. I may revoke this deed.” With a TOD deed, the homeowner can keep a home out of probate, passing the home and/or other property along in much the same way as we designate beneficiaries on our bank accounts.

• California is currently tweaking and extending its law on “in-law cottages” too. This is happening through the Prohibition on ADU Owner-Occupancy Requirements, a.k.a. Assembly Bill 976. This law makes local agencies allow deed holders to create accessory dwelling units (ADUs), while barring the agencies from imposing owner-occupancy requirements on these small housing units. It lets investor-owners create rental ADUs on property where they already operate rentals.

That last one is meant to provide more housing, for more people.

Could These Laws Go Nationwide?

That’s the burning question. Lawmakers in other states may want to follow California’s consumer-protective lead. But not all state governments are prepared to defy the lobbyists who prefer an easier environments for investor-buyers.

That noted, these laws do set a tone that other states want to emulate. For example, advocates for seniors throughout the United States have pressed states to ban predatory exclusive listing contracts. And remote online notarization, of course, has become a new norm nationwide.