CA AB 968 (disclosure mandates on flippers): Who's Really Bearing the Impact?

[Andres Murillo]

As many of you know, Assembly Bill 968 will take effect on July 1, 2024, mandating flippers of residential properties to disclose recent repairs and renovations if they sell within 18 months of acquisition. While the intent behind AB 968 is clear—adding transparency around recent repairs and renovations—this bill may not accomplish its aim in the ways its proponents hope. Here’s why I believe the real impact won’t fall on flippers, but rather on wholesalers, sellers of distressed properties, and buyers.

1. Higher Costs for Distressed Properties
To comply with the new regulations, flippers will need to rely on licensed contractors for repairs, who typically charge higher fees than non-licensed labor. Flippers will have to price in these added expenses to maintain their margins, leading to lower offers on distressed properties. Sellers looking to offload such homes quickly will likely receive lower offers, translating to less cash in their pockets. The ripple effect of AB 968 could be that fewer distressed properties hit the market at affordable prices, ultimately impacting those looking for a fixer-upper to build their equity.

2. Lengthier Escrow Periods
New flippers, unestablished in the market, will feel the weight of this bill most acutely. With the necessity to disclose repairs and renovations by contractor information, flippers will face added time and complexity in sourcing quotes from licensed contractors, extending the escrow process. Expect buyers to experience delays as new flippers scramble to navigate these requirements and pin down reputable contractors willing to handle the work within reasonable timelines and budgets.

3. Workarounds for Established Flippers
For seasoned flippers, AB 968 presents an inconvenience rather than an impediment. Established flippers have the resources and networks to build close relationships with contractors, making it relatively easy to coordinate compliance at minimal cost. It’s likely that some contractors will offer a sign-off service for a fee, allowing flippers to comply with the letter of the law without significant extra labor costs. While this isn’t ideal from a transparency perspective, it’s a foreseeable outcome when the regulation doesn’t directly impact flipping economics.

The Bottom Line: While AB 968 may promote transparency in theory, its real impact will likely create more complexity and hurdles for sellers of distressed properties and newer market participants rather than significantly altering the business strategies of established flippers. For those impacted, it may mean less money, longer sales processes, and fewer affordable homes available to buyers.

Would love to hear your thoughts—do you agree that this bill’s impact might miss the mark?