There’s a reason brokers describe residential rehabs as “gut” renovations — a buyer either intuitively loves or hates the prospect of the challenge.
However, buyers are increasingly resisting properties in need of major renovations, brokers say.
The typical overhaul takes equal measures of vision, faith in the market, and the capital and expertise to manage contractors on what can become an unpredictable timeline.
But despite the proliferation of DIY reality shows on television and a wealth of renovation financing options, Manhattan brokers say they are finding fewer customers who are willing to take on such projects in the current climate.
Jill Sloane, a senior vice president at Halstead, said requests from DIYers have virtually dried up.
“People just really want to close, paint and move in. Two years ago, I’d get calls all the time asking, ‘Do you have a fixer-upper?'” noted Sloane. “What I’ve sold is a lot of new developments. Every person either just had a baby or something else that didn’t make sense for a big renovation project.”
Projects can seem daunting to buyers wary of having to wrangle permission from co-op boards or ending up with a nightmare contractor story.
“Taking on a renovation is really a full-time job. You’ve got to be on top of contractors, who I find are usually 95 percent [on the ball]. But the 5 percent is where the slip-ups happen,” said Sloane, a veteran of her own renovation projects, including a property that hadn’t been touched in 40 years before she rehabbed it herself. “It’s one thing to buy a place that needs one bathroom versus doing a whole re-do. I think people are shying away from them.”
Perry Roth, a broker with Prudential Douglas Elliman, said it’s clear the majority of buyers are not looking for a big project. In fact, time and budget constraints are what most determine the likelihood of a buyer’s interest in full renovations. “Most people would rather buy a place that they could move right into right away.
“But for the people who like getting a bargain, [they view] an apartment that’s going for $100,000 less — and they see that as $100,000 worth of renovation that they could do, rather than paying full price,” Roth said.
But sellers typically don’t want to offer discounts on those fixer-uppers — and if you’re not getting a break per square foot for your trouble, why do it?
Roth said it’s about identifying clients willing to stomach renovations and figure out the right property match.
“I had a buyer I took to new construction condos at Horizon [in Murray Hill],” said Roth, who estimated that 20 percent of his clients are in the market to do their own renovations. “Then we walked into a unit right out of “Scarface,” and that was it. He was interested in those that needed work and saw potential — that he could get for $100,000 less.”
For Halstead’s Sloane, the diminished interest in renovation properties that she’s seeing requires some creative approaches to marketing fixer-uppers.
“Our ads say ‘Do you want to create your own dream apartment?'” said Sloane. “When we have a bigger re-do exclusive that involves new bathrooms, kitchens, we create several floor plans because buyers really need to see it in black-and-white to imagine what’s possible.”
In one case, a photo can also tell a compelling story. Sloane has a listing for a studio on 64th Street in the desirable Lincoln Center neighborhood, “just steps from Central Park,” that has languished on the market for more than four months at $399,000. The reason? “As you walk in, the first thing you see is an ugly and outmoded kitchen,” said Sloane. “And it’s got the original bathroom, too.” She provides buyers with glamour shots, relatively speaking, of a unit three floors up that sold at the listed price. It boasts a clean, appealing look that resonates with her clients — and offers a glimpse of how the clutter and ugly fixtures can be transformed.
Not everyone agrees that the pace of renovations is slowing. The market for renovation loans is growing, according to Wells Fargo, which saw loan volume jump 46 percent between May 2006 and May 2007.
John Sway, vice president and national renovation manager at Wells Fargo Mortgage, said that owner-occupants, not flippers, are driving record lending for such projects in the New York metropolitan area.
“[In previous years] investors were buying a lot of properties in Harlem to renovate,” said Sway. But now it’s the end users who are buying rehab properties, renovating them for their own use and making up an increasing percentage of borrowers.
When New Yorkers do take on renovations, they spend more than most of the rest of the country. With the exception of the West Coast, New Yorkers also borrow greater amounts than the rest of the country.
“The average [renovation loan] is $1.1 million in the New York City area, while the national average loan is $300,000,” said Sway, pointing out that only Los Angeles surpasses that figure, weighing in at $1.2 million on average. “Most of them in [the New York] area are pretty extensive, though in terms of a gut renovation they vary.”
While there are fewer opportunities to renovate for a quick flip today, with more property on the market than during the boom period, some sellers may want to renovate to give their property a leg up.
A heightened resale value clearly drives some buyers to factor renovation into their buying plans.
“It still pays to renovate when you sell, so a marvelous kitchen that cost only $25,000 could have added $100,000 of value in the future,” said Roth, who cautions his buyers against design choices that are “too unique or too specific because if it’s too much of you, it’ll scare away future buyers.”
Whatever the pitch, not as many buyers are getting bitten by the remodeling bug, according to Sloane: “The result is, I’m seeing buyers who are looking in a higher price range and saying, ‘I’m spending a little more not to renovate.'”