Good Bones, Needs Work: Fixer-Uppers Are on the Rise

For first-time home buyers who scrimped and pinched to save a viable down payment, the last thing on their mind is taking on a rehab project. But since entry-level homes are scarce, buyers who are desperate to get their hands on something move-in ready might end up paying a lot more for a starter than they anticipated. Or, they might be open to seeing a less-than-perfect home as a diamond in the rough.

Zillow research shows an increase in the number of homes for sale that are being listed as fixer-uppers or needing work. With the collapse of the housing market, new construction slowed considerably and hasn’t rebounded. In the 50 largest markets, the number of homes listed for sale overall dropped 10 percent between 2011 and 2015. But during the same time frame, the number of fixer-upper listings grew by 10 percent.

Here’s what you can do to help clients who are considering buying or listing a fixer-upper.

For buyers, an open mind can mean an open door

A buyer who is willing to take on a fixer-upper might get a home in a swankier neighborhood than they originally thought possible. Nationwide, homes needing some work list for just 8 percent below market value, which translates to about $11,000 in savings on a median fixer-upper that a buyer can divert to renovations. But if you encourage that same buyer to view homes in a more upscale area within a low-inventory market — for example, San Francisco or Seattle — a bigger price reduction on a more expensive home needing work can yield even more upfront savings to use on fixing up the place.

Be prepared to translate

Prepare your buyers and sellers to understand what particular words can mean in a home’s listing description. You might have already visited the home and seen what condition it’s in, but buyers and sellers most likely won’t know the difference between “well maintained” and “adheres to 1951 building codes.” When housing inventory is low, sellers might feel they can forego making updates, but you should let them know that calling their home a “handyman’s special” can cause it to languish on the market or not sell at all.

Buyers can make it theirs

Another benefit to your buyers considering a TLC-challenged home is that the required renovations can be made according to their personal taste. If a kitchen needs to be redone anyway, why not remind buyers that it’s an opportunity to customize the design to match their dream home?

But it’s also a good idea to keep in mind which renovations tend to have higher resale values. Even though your buyers probably aren't thinking years ahead to when they might be selling, you can help them prioritize their renovations. If they’re considering an upscale bathroom redo, suggest they consider a midrange window replacement instead, which can generate a higher ROI when they resell.

Homes across the country are still in demand, selling fast and going for higher prices. More sellers are taking the opportunity to list their homes “as-is,” presenting buyers with the chance to get a home when they might otherwise have been edged out. The combination of still-low interest rates, sluggish new construction growth and aging stock of for-sale homes most likely means that the number of available fixer-uppers will also continue to increase.