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AB-968 Raises the Bar for House Flippers
House flipping in California has always been a high-stakes game, but with Assembly Bill 968 (AB-968) now in effect, flippers working with SB-9 properties must navigate new challenges. This law, which took effect on July 1, requires extensive disclosures for home renovations and flips (1 to 4 units) completed within 18 months of purchase.
Provisions of AB-968 and How They Affect SB-9 Projects
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Under AB-968, anyone flipping a single-family or small multifamily property (up to 4 units) must provide comprehensive records of renovations. If you’re working on an SB-9 unit, that means meticulous documentation of every repair over $500, along with permits and contractor details.
Here’s what you need to disclose:
- A record of all repairs exceeding $500
- Copies of permits for all permitted work
- Assistance for buyers in obtaining missing permits
- Names and contact information of all contractors involved
For SB-9 projects, where investors frequently subdivide lots and construct multiple units, these requirements create additional paperwork and potential delays, particularly for those accustomed to working quickly and under tight budgets.
How This Law Impacts SB-9 House Flippers
Many flippers handle parts of the renovation process themselves or hire subcontractors without pulling official permits. AB-968 makes it nearly impossible to cut corners on essential work like electrical and plumbing, requiring all work to be done by licensed professionals and properly documented. For SB-9 investors, this means:
- Higher costs due to increased reliance on licensed contractors
- Longer project timelines due to permit requirements
- Greater legal exposure if a buyer discovers unpermitted work
These added challenges come at a time when speed is essential in the flipping business, particularly in SB-9 projects where investors aim to quickly maximize the potential of newly subdivided lots.
Legal Risks and Compliance Strategies
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Failing to comply with AB-968 carries steep consequences. If a buyer finds undisclosed work or unpermitted repairs, they could sue for rescission of the sale and damages. This makes legal compliance non-negotiable for SB-9 investors.
To stay ahead, flippers should:
- Keep thorough records of every repair, even minor ones
- Obtain all necessary permits before starting any work
- Hire a real estate attorney to review disclosures before listing
Flipping SB-9 Units in an Increasingly Regulated Market
Despite tightening regulations, California remains one of the most profitable states for house flipping. According to Highland Cabinetry, California ranks seventh nationwide for flipping profits. While rising costs and compliance requirements may deter some flippers, those who adapt to the new landscape can still find good opportunities.
Conclusion
AB-968 is reshaping the way investors approach SB-9 projects, adding layers of transparency that demand strict compliance. While this law increases costs and slows down projects, savvy flippers who embrace full legal compliance can still succeed. The key is meticulous documentation, compliance with permitting laws, and strategic legal guidance to avoid costly missteps in an evolving regulatory environment.
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