This is the second contribution of how real estate and lending is recalibrating. The first article focused on how the lending climate has changed. This second article touches upon Buyers’ changing expectations and how the Lending model is evolving to meet the new expectations.
Younger buyers are seeking turnkey homes. In the recent past, it seemed that most young buyers were looking for homes that offered the sweet return of sweat equity. Today, however, with ever changing expectations and an improved economy, new home buyers expect a finished product. Because of these expectations, there is an emerging industry where developers can take a “tired” home and add equity by updating it to meet new buyers’ expectations. This process has earned the nickname, “fluff and buff”, whereby an otherwise structurally sound home is aesthetically improved—mostly kitchens, bath, floors, and paint. Another reason for “fluff and buffs” is that the lending climate is such that new buyers are mostly required to pay a 20% down payment, to avoid Mortgage Insurance (PMI). Home prices are such, that after making that type of investment, new buyers simply don’t have any savings left over to renovate the home to match their standard of living. So, this equation doesn’t work (put down all your savings and be left with a home where you are unwilling to live).
To solve this problem, buyers are seeking the help of contractors before they purchase. The buyers find the property, identify the upgrades that they require before calling it “home”, and then have their contractor purchase it and make the upgrades. Once the work is complete, they purchase the home from the contractor. It is much easier to purchase the finished product–for one thing, they ultimately get to finance the home and the contractor’s work.
In addition to these, “fluff and buffs”, there are also, “build ups”, which are slightly more involved, in that the contractor is also adding a living level—building up (a second floor). For more about build ups, or for details on how all this works, who is available to fund the purchase for the contractor, or for ways to protect yourself if you are the contractor, please feel free to contact me, or, stay tuned for part three.