What makes flipping (real estate for example) illegal?

A seller could neglect to disclose major problems with a property. The person who buys the property to flip it could use shoddy materials and poor workmanship to create a place that looks great on the surface but will fall apart quickly. Those are two that things that would,be unethical.

Thank you @SuperMouse.

I don’t there is anything illegal about quick financial transactions of this nature—unfortunately.
It’s just plain old market speculation.
Ethically, this sort of financial transaction is morally bankrupt because nothing of value is created yet the flipper extracts wealth out of the transaction. It’s parasitic.

Buying properties, fixing them up, and then reselling them (presumably for a profit) is not illegal, generally speaking. But what is illegal is colluding with other buyers to get an artificially low price.
The properties that are flipped typically are distressed properties under foreclosure and being auctioned off on the courthouse steps. What was happening was that a group of people would get together beforehand and decide who among themselves would get to buy a certain property that time. This person, call him “A”, would make a low bid, and no one else would bid. “A” got the property. Similarly, with the next property, “B” would get the low bid, and so forth. Thus all the properties would be sold at artificially low prices, and these were no longer arms length transactions. THAT’s illegal.

House flipping is perfectly legal. For the writer to say can be is an incorrect use of terms in my opinion. When I worked in real estate in FL people flipped property by just buying and selling. They often fixed nothing. The market was going up quickly, buying real estate was like buying stock or anything else, it appreciated on its own. A lot of people also bought houses and condos before they were ever built, assuming by the time it was built, they could sell it for much more. Eventually some builders did not allow properties to be transferred before the closing, the original person who signed the original contract had to be the one to close at the time the property was finally built.

From what I understand hedge funds are buying up properties in areas that are starting to come back. Down in FL and other markets. I always felt like financial instutions used buyers like scouts going back 8–10 years ago. Approving stupid loans, because even if the owner foreclosed the property was worth much more than what the mortgage was, that is until the bubble burst. This seems like an unfair advantage to me for financial instutions and companies to buy up tons of property, it does force prices up. I guess it is legal, but maybe it shouldn’t be.

@2davidc8 How often was that happening? Are you sure that is illegal? I agree colluding is a problem, but people can bid higher, not everyone in the room is in on the scam. I think of colluding as people or companies charging a high price, not a buyer paying a low price. If everyone in my community decides they are not going to pay more than a certain amount for a product tht is perfectly legal.

@JLeslie Yes, at an auction it is illegal. If someone initially was not in on the scam, he or she was quickly “educated” and brought into the fold. You could look it up.
I’m not sure how rampant this practice was, but some pockets of this type of activity were going on, and last time I checked, the authorities were looking into prosecuting some cases.

@2davidc8 Interesting. When I first read the Q was not even thinking about auctions, just individual buyers and what seems to be corporations buying up property that can be in short sale or foreclosure, but not necessarily. Still, I take issue with the author saying flipping can be illegal, it is the buying method that can be illegal. Or, even the selling, but not the practice of flipping per se. Would you agree?

I would say local law. In Florida you can flip three houses a year without a real estate license. Number four and you’re breaking the law.

@Seek_Kolinahr I have never heard of that law. I’m not saying it doesn’t exist, just saying I never heard of it. I wonder what the point of that law is? To get more people to take the test for a real estate license? There was a federal law that people could not sell within 90 days, it might have only applied to certain types of mortgages I don’t remember, but that has been waived for a few years now.

Thanks all.