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Renovations and Market Dynamics

Recently, Leonard Steinberg, chief Evangelist at Compass, wrote an op-ed in our daily newsletter about how critics like to pan home flippers and builders for driving up prices and making houses unaffordable. While most homes gain value after renovations, providing more profits for the seller, it's hardly a burden for those seeking affordable housing. 


During COVID, a small home in Katonah, New York, was purchased by a home renovator as a project. After several months of planning, approvals, construction, delays, and unforeseen expenses, the home, was sold for more than double its purchase price. However, it is important to demonstrate how this home renovation did not contribute to taking away affordable housing from the masses:


1. The home bought was in a state of disrepair and uninhabitable, making it unattractive to regular affordable home buyers.
2. Securing a bank loan for the house in its condition would have been nearly impossible for an affordable home buyer.
3. The extensive renovations required hundreds of thousands of dollars, making it financially burdensome for an affordable home buyer to undertake.
4. Moreover, the extra 20% paid for unexpected costs could have led to bankruptcy for another buyer trying to finance both the purchase and the renovation.
5. Ultimately, the home was sold to a buyer as a move-in-ready property, financed at low-interest rates, without the need for further investment or renovations.
6. The home renovator may have sold the property for double the purchase price, but it was not a significant profit considering market demands and pricing dynamics.


Critics who blame home flippers and real estate agents for fueling housing inflation and limiting affordable options must consider that affordable homes often require substantial cash investments for upgrades and renovations. On the other hand, renovations contribute positively to neighborhoods by improving properties, increasing local tax revenue, and attracting retail businesses and jobs. Renovations also create employment opportunities, reducing reliance on government assistance and generating additional tax revenue.


Given that the average age of homes in the country is around 37 years old, undertaking renovations should be recognized as a valuable effort rather than criticized. Renovated homes are more resilient to weather-related incidents, reducing the strain on the insurance system and minimizing insurance premiums.


It is essential to distinguish between home prices of unrenovated, uninhabitable, and uninsurable properties and those that have undergone significant renovation. While it is crucial to build more affordable housing options through zoning adjustments, tariff suspensions, skilled worker visas, tax incentives, and improved construction technology, influencers should be diligent in providing full and factual context to their audiences. A constructive and positive approach is necessary to influence society positively and address the housing challenges effectively.


By Mark Palermo
President-Palermo Properties Team

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