The New Way to Flip a House: Let Buyers Weigh in Before Renovations

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In Baltimore, builders are flipping the way that homes are normally flipped. Instead of fixing up an older home and hoping that a buyer likes the improvements, builders are welcoming buyers into the process much earlier, allowing them to customize the renovation with their choice of countertops, cabinets, colors, tile, and more.

Normally, a model home is a brand-spanking new, never-lived-in property that serves as a showcase for a new real estate development. A company in Baltimore called Charm City Builders is in the process of building its own model home—only theirs is a rowhouse that’s more than 100 years old.

The Baltimore Sun recently highlighted how Charm City Builders and a few other local builders are rehabbing old neighborhoods and changing notions of what house flips and model homes can be.

In the typical house flip, an investor purchases a home, puts some money into the place to fix it up, and then sells the finished property (ideally, at a profit) to buyers who don’t want to deal with the hassles of renovating it themselves. Charm City Builders, on the other hand, is putting a few hundred thousand dollars into a rowhouse that the company has no immediate plans of selling. Instead, the property will serve as a model home. On the top two floors, Charm City can show off to buyers how it might renovate similar homes in the city. The bottom floor will serve as a sales office, where customers can pick out colors and browse samples of tile and fixtures.

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This kind of sales model, which real estate experts say hasn’t really been tried before, not only allows builders to demonstrate the quality and craftsmanship of their rehab skills, but also gives buyers a much better idea of what they’re getting themselves into. Walking through an actual renovated home has a much greater impact than viewing computer-generated images of potential rehabs. “There’s nothing like walking through and kicking the tires,” Stephen Melman, director of economic services for the National Association of Home Builders in Washington, told the Sun.

Charm City Builders’ model home idea was inspired by Come Home Baltimore, another local venture that is renovating dozens of rowhouses in the city and uses an already-rehabbed property as a sales center. Yet another Baltimore company, City Life Builders, is opening a rehabbed model home to show off its renovation abilities this summer.

One of the benefits for the builders with this model is that it allows them to pre-sell homes before they put time, effort, and dollars into a renovation. It also removes the guesswork of figuring out what details and design tweaks would appeal most to some theoretical buyer.

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Do buyers catch a price break considering that these companies are basically purchasing and rehabbing in bulk? Probably not. But Michael Corbett, a real estate expert for the house-shopping site Trulia.com and the author of Find It, Fix It, Flip It!, says the system certainly winds up saving buyers time, and probably winds up saving them money as well. “They’re going to pay market rate for a fully renovated house,” Corbett said. “But what you are going to get is the opportunity to customize the place like you want. That saves you money because you don’t have to go in and change things. It’s similar to the appeal of a new construction home, because you get to pick exactly what you want.”

Corbett described the model home strategy in Baltimore as “a very smart business move,” and said that he could easily see the concept employed in other parts of the country. Specifically, it would work in large metropolitan areas where neighborhoods are loaded with homes with three key qualities: They must be designed similarly (i.e., rowhouses), they must be in need of some renovations (otherwise buyers seeking move-in quality homes would be snatching them up), and there must be a high percentage of them that are in foreclosure. Detroit and Camden seem ideal, as do some neighborhoods in the outskirts of Chicago and Atlanta.

“This is a unique point in time because flippers can come in and buy an entire neighborhood,” said Corbett. “The company can buy 20 or 30 distressed homes, all with the same design, and then fix one of them up as a great showcase for their work.”

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The concept won’t work everywhere, however. It probably couldn’t translate into rural or suburban areas where every home is different. And it wouldn’t be financially feasible in cities where prices and demand are sky high. “San Francisco? Never gonna happen,” said Corbett. “New York? Not a chance.”

3 comments
SmurphLin
SmurphLin

Hmm, this is a very interesting idea. I feel like sometimes a flipper can end up being a flopper because they can't find a buyer who wants the home they made, but this idea will make their plans fool-proof. As a buyer, I would love this as well, because I'd be able to choose the countertops (like those at http://www.haristoneslimited.com/resources/countertops) that I want. Thanks for posting this! 

lvpv84
lvpv84

I would think TIME would be a little better than this.  Innovative? Model homes work when you are selling the exact same layout and model over and over again, only in that scenario would this method work effectively.  When you are flipping different types of houses of different sizes and layouts, having a model home serves little to no purpose. Not only is it a gigantic waste of money, but bringing buyers into the flipping process could delay it significantly.  In addition, if any appraisal problems arise because of these little tweaks, people may not be able to fork up an additional $15,000k especially first-time buyers.  Doesn't seem like a well-thought out idea in my opinion.