Flipping Houses and Functional Obsolescence

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I’m a bit of a snob when it comes to audio and video entertainment consumption. When high definition televisions first hit the market in 2004 I quickly snatched up a Samsung 42” DLP. Within months I completely abandoned any programming that wasn’t broadcast in 1080p. I just couldn’t stand watching standard definition broadcasts anymore. The image quality was too poor.

Unfortunately, the only shows available in HD at the time were wildlife related. Apparently the only cameramen that could afford the expensive equipment needed to record this stuff resided on the polar ice caps of Antarctica, or the African Serengeti. Needless to say, I watched a lot of penguin marches and cheetah vs. wildebeest chases back in those days.

Less than five years after I purchased that fancy TV, it died. The cost of repair exceeded what a new, lighter model with the same screen size was sold for at my favorite electronics store. The DLP rear-projection television had quickly become functionally obsolete.

About a $1,000 later I was the proud owner of a new 42” LCD HD TV, which will no doubt be worthless by year’s end.

Removing Functionally Obsolete Items from a House before you Flip It

Retail homebuyers are a funny bunch. You may find this surprising but they expect everything in a fully remodeled home to work perfectly. That’s why whenever I acquire a property with functionally obsolete items like whole-house intercoms or central vacuum systems I have them removed. The same goes for aboveground swimming pools and spas.

Why?

It’s unlikely they work correctly. And even if they appear to be working properly when I purchase the property it’s highly probable they won’t be when the home inspection is done.

And then guess what happens?

The retail homebuyer expects me to pay to fix something that’s cheaper to replace. Or worse, they demand I drop the sales price so they can choose their own replacement.

I’m much better of just getting rid of these items. Take it from me – the buyer will not miss something they never knew was there. I highly recommend you remove anything inside or outside a property that isn’t essential to basic operation – before you market it for sale.

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About Author

Marty (G+) is the Chief Financial Officer for Rising Sun Capital Group, LLC, a real estate investment firm based in Gilbert, AZ. His firm purchases homes at the courthouse steps and public REO auctions. They have two exit strategies, either fix and flip or seller financing.

23 Comments

  1. Funny should say that. We’re planning to sell our existing house to move to another one. We’re planning to take everything that we don’t want to negotiate over.

  2. This is an unusual short but important article that can ONLY be learned through DIRECT EXPERIENCE. Murphy’s Law, if it has potential to interfere with the sale, it will!

    When I interview home buyers for wants and needs, then find the house according to those wants and needs, and they want a pool or spa (I am in Los Angeles, so it is very common), I can be assured that when I present the home they will want it. I have their wants and needs sheet. so if they vacillate, I can pull that out. And I go over the property inspection that the seller has paid for and explain that to them.

    I remember @Sharon Vornholt offering on Probate Sales to pull all the stuff out and store it or sell it for a profit (I guess antiques?)

    Nice job, Marty! Well done!

    • Sharon Vornholt

      You are right Brian. I always offer to clean out the house and as a matter of course I put a figure in my offer just in case they take me up on it (which they usually do).

      You can sometimes get something worth re-selling, but mostly it’s junk. But it accomplishes the one thing they don’t want to deal with; cleaning out the house! It allows them to move forward with the deal. I always make that same offer to absentee owners too.

      Sharon

      • Sharon, you mean people aren’t capable of ridding their homes of worthless crap own their own? Say it isn’t so.

        It’s a good thing though or my wife would miss out on all those hoarder reality shows.

    • Brian, people are funny. Sometimes they don’t really know what they want until they see it.

      I believe there’s a special place in Heaven for people like yourself that work with homebuyers. They drive me crazy. Heck, I drive myself crazy. I few years ago when shopping for a home my wife and I looked at over two dozen of them. I swore we wouldn’t buy a two-story house, I wanted a single-level.

      Guess what we bought? A two-story. Good thing I was my own client. I learned a valuable lesson from that experience.

  3. I generally agree with this premise, but would also offer that some higher end items like the central vacuum, if working properly, could be a selling feature that helps clinch a better deal.

    • I agree John. The central vacuum can be a nice selling feature, especially on a higher end home. However, most homebuyers don’t expect to see one in a median priced home, or in my case in Arizona homes under 500K. That’s why I remove them unless the unit is practically new.

  4. We have this problem with pools… When we buy them, we think, “Oh, what a great extra selling feature.” Then at the end, we say, “We are never buying a house with a pool again!” Every house we have had with a pool has cost us at least $1000 in the buyers inspection. Thanks Marty!

    • Jason, in-ground pools are worth the trouble in my opinion because they add significant value to the home. I’ve spent up to $1,500 fixing up pools – here in Arizona they can add 10-15K or more. I guess it just depends on what part of the country you live in.

  5. There are other types of functional obsolescence as well.

    For example, poor floor plan layout.

    Another example is too few bathrooms compared to number of bedrooms; I’ve seen some 5 bed 1 baths on the market.

    Another is the built in range. Not talking built-in oven or cooktop, but those combined units that are built-in. But maybe these might make a comeback. Looks something like this:
    http://products.geappliances.com/MarketingObjectRetrieval/Dispatcher?RequestType=Image&Name=127003.jpg&Variant=SpecPage

  6. Sharon Vornholt

    I agree completely Marty. You always end up in trouble.

    Here is another problem. If you have rental property and let’s say you don’t provide appliances When you leave that working stove or refrigerator in the unit that the tenant left behind, the next tenant will want you to take care of the problem when it is no longer working. Even when you point out in the lease that you don’t provide them, they still somehow feel like they have been cheated.

    Sharon

  7. This happened to me on my second home rehab. I had to add central heat in order for the home to get a mortgage and thought leaving the direct-vent heater would add to the home’s appeal. I spent a few hundred bucks to get it in working order. The darn thing broke right after closing and I got a nasty letter from the buyers. Next time I’ll sell in on Craigslist!

    • Amy, we have issues here in Arizona with swamp coolers. They are less expensive to operate than HVAC. I once left one on a house, in addition to a new HVAC system I had installed, and the buyers busted my chops on the swamp cooler. I should have just ripped it out. Great example! Thanks for the comment.

  8. When we rehab, we take out everything that could or may stop working. An intercom is a perfect example. They look cool, but who actually uses them anway? If it doesnt add tot he price you can fetch for the house, then why bother. Id far rather spend money on extra closet space or a first floor laundry to really add value, than mess around with stuff that probably will need replacement or a fix.

  9. My pet peave is satelite dishes and all of the cables routed around eaves and through walls. I dispose of them and fix the holes. I have yet for anyone to ask it the house is “cable ready”. I spent a lot of time and effort installiing cable jacks in my first flip. It didn’t add poo poo to the selling price.
    Don

    • Don, I knew there was something I was leaving out! Thanks for adding that here. I hate wires and dishes. They look messy and don’t add any value. We rip those out too and have never had a complaint.

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