Homes that need extensive renovations are scaring off already cash-strapped buyers, real-estate agents say
They want to buy a house. They just don’t want to hire a contractor.
Real-estate agents say buyers right now seem in no mood to take on the additional costs and headaches of major renovation projects. There is no national data tracking how much quicker renovated homes sell than unrenovated ones, but there are signs of this change. It is one reason sellers are receiving an average of three offers now, compared with around six a year ago, according to the National Association of Realtors.
The drop in demand for unrenovated homes is mostly driven by high mortgage rates, buyers and their agents said. Fixer-uppers are always a risky proposition for buyers, but now they are more costly as the rates for home loans and construction loans have both increased, on top of high property prices.
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This push higher in rates has widened the gap in sale time between turnkey and non-renovated properties, say agents. For sellers, this means a home in need of repair often sits on the market longer unless they attempt to do more work before listing.
The appetite for renovations is lower both for those shopping for their main property and second homes, say agents.
Susan Boyd, 72 years old, looked at about a dozen unrenovated homes in his hunt for a vacation house in Santa Fe, NM. She recently decided to limit her search to only renovated homes as she doesn’t want to manage the renovation from another state.
“I’d prefer to purchase a turnkey property,” she said.
Sellers can also no longer count on a frenzy of offers from buyers willing to waive inspections on properties in need of repairs, said Lawrence Yun, National Association of Realtors chief economist. In New York City, fixer-uppers are generally sitting on the market for longer, said Benjamin Dixon, a real-estate agent there.
This means buyers can usually be choosier about homes that need upgrades, such as new hardwood floors, kitchens, bathrooms or even a fresh coat of paint, Yun said.
When Tom Zamora, 66, put his two-bedroom condominium on the market last spring, he figured a couple looking for a starter home would look past the dated décor and jump at the roughly $200,000 asking price.
In the five months or so it was on the market, about 60 people toured the 1,400-square-foot home that had carpeting and dark wood kitchen cabinets. Not one made an offer.
“They just couldn’t get past the ’80s-style décor, I guess,” he said.
Zamora is spending about $20,000 to remodel the unit himself, gradually making upgrades such as removing the carpet to show the original wood floors. He plans to relist the condo later this year for about $250,000.
Anything that sits on the market for more than a month is usually either overpriced or in need of significant repairs or updates, said Taylor Marr, Redfin’s deputy chief economist. Homes stay on the market for a median of 27 days, up from 19 days a year ago, according to Redfin.
“Most home buyers right now simply don’t have enough money left over to invest in major repairs or remodeling,” said Marr.
Mary Monahan, 32, and her husband initially thought they’d buy a fixer-upper. Starting last fall, they looked at nearly 30 homes, six of which needed complete remodeling.
They started to get second thoughts about buying a home that needed significant renovation as they were worried about surprise work, rising costs and higher interest rates.
The couple is in contract on a roughly $1.8 million home in Water Mill, N.Y., and are set to close in a few weeks. Before move-in, the house is getting a fresh coat of interior paint and then they plan to enjoy their first summer as homeowners near the beach.
“We’ll paint it, move in, and enjoy it,” said Monahan.
The decline in home buyers wishing to renovate hasn’t put a dent in overall spending on remodeling. In fact, the market for homeowner improvement and repair projects in the U.S. is projected to reach $484 billion in 2023, up from $471 billion last year and $328 billion in 2019, according to Harvard University’s Joint Center for Housing Studies.
The people willing to take on these projects are often existing homeowners who want to upgrade their house without giving up their ultralow mortgage interest rate, real-estate agents and economists said.
In some real-estate markets, so few homes are for sale that buyers may have little choice but to purchase one that needs work, real-estate agents said. In other areas, bidding wars remain common and buyers can still get top dollar for unrenovated houses—it just may take longer.
Even homes that need renovations are still selling near list price or slightly higher simply because there aren’t enough homes on the market to meet demand.