2005 vs. 2012

Once upon a time, when the housing market was overheated — like 2005 — a home that needed $100k in updates might be discounted only $50k -$75k.


The same home might easily be discounted twice the projected updating cost, or $200k or more.

Why the shift?


I see two main reasons:

One.  There are fewer Buyers out there willing and able to tackle such homes.

That’s partly due to the still-soft economy.

But it’s also due to the stark reality that many serial, Do-it-Yourself types got bit — psychologically, financially, or both — by the housing downturn, and have exited the business.

Fewer such Buyers equals less demand, which equals lower prices.

Two.  The DIY Buyers who are still in the market are more cautious.

Whereas in 2005, Buyers routinely overestimated future appreciation, today they’re often spooked, and assume the worst.

Given that so much of a sweat equity project turns on expectations, psychology, etc., more conservative (if not defensive) assumptions translates into lower offering prices.

My sense?

In 2005, Buyers accepted too small a discount for homes that needed significant updating.

Today . . . they’re insisting on too big a discount (translation:  such homes are often a screaming deal now).

About the author

Ross Kaplan has 19+ years experience selling real estate all over the Twin Cities. He is also a 12-time consecutive "Super Real Estate Agent," as determined by Mpls. - St. Paul Magazine and Twin Cities Business Magazine. Prior to becoming a Realtor, Ross was an attorney (corporate law), CPA, and entrepreneur. He holds an economics degree from Stanford.

Leave a Reply