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Unrenovated Units Sell For 19% Less Than Renovated Ones In Manhattan

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Currently, renovated units trade at a 19% premium compared to their unrenovated competitors. This price difference is crucial in today’s Manhattan real estate market, where affordability concerns remain a front-and-center issue for many buyers. The distinction between renovated and unrenovated properties remains a study in contrasts, where prices for otherwise similar units are driven by perceptions of value and appeal, which are heavily influenced by condition, readiness for immediate occupancy, or the prospect of necessary time and effort required. These distinctions become particularly pronounced as the market slows, with less buyer competition illuminating the value proposition—or lack thereof—of these property types. As prices for turnkey units moderate and the premium for renovation dips back toward historical levels, bargains may soon be found in both renovated and unrenovated units. Below, we’ll take a look at current market trends, including the premiums associated with turnkey properties and the volatility in the pricing of fixer-uppers.

While the current premium of 19% for renovated units is down from the 32% peak seen during the third quarter of 2022, it remains well above the 10-year average of 14%. This premium is supported by the speed at which renovated units sell, currently almost two weeks faster than non-renovated units. These factors speak to an enduring buyer preference for turnkey properties. However, with mortgage rates higher and deal volume lower, the era of paying significantly more for convenience may be coming to a close. As prices for turnkey units moderate and the premium for renovation dips back toward historical levels, bargains may soon be found in both renovated and unrenovated units.

Costs on the Rise

The wide spread between renovated and unrenovated units captures what buyers imagine are the costs and time needed to get the unit back into livable shape. In terms of costs, inflation has certainly added its fair share, with prices for labor and materials up sharply over the last few years. Additionally, the time needed to complete a renovation has grown. While supply chain constraints are less of a concern today, permits, approvals, and sometimes summer-only work rules mean time to completion can easily exceed a year. Add in the headaches of design and construction, along with permitting and approvals, and the value of convenience becomes obvious. However, as the inflation rate slows and appliances and building materials become more readily available, the acute need for immediate convenience may be fading. At this point, time is likely the biggest driver of the renovation spread, and with more logistic bottlenecks now than ever, it doesn't look to be narrowing any time soon.

Convenience Pays

Like grabbing a snack or water at a bodega instead of the grocery store a few blocks away, renovated units offer convenience and ease. They provide the advantage of immediate occupancy and a seamless transition into a desirable living space, saving considerable time, effort, and worry. Additionally, renovated units are often equipped with new appliances, energy-efficient features, technological upgrades such as smart home systems or integrated entertainment systems that appeal to modern buyers, and fashionable materials and fixtures that reflect today’s trends. Still, prices speak louder than words. The ebbing of the convenience premium, while still nascent, may speak to the fundamental truth that cash is king.

Bargain Plays

Buyers seeking absolute value often turn to units that need more than a surface refresh, thinking that even after tallying up the resources and work needed, the final entry price will be less than that of a comparable turnkey solution. Sellers acknowledge this fact by trying to price the cost of work into their discount calculations to induce buyers to take on the project. This discount tends to rise and fall with the market but is usually non-zero. Indeed, as noted above, the spread or difference between where renovated units sell and where non-renovated units sell can be significant. At the peak of the post-COVID market rally, the premium rose to 32% compared to the average over the last 10 years of 14%.

The demonstrated, time-proven willingness of buyers to pay up for less work suggests a generally strong preference for renovated units. This preference is also shown in the median listing discount and time on the market for renovated versus unrenovated apartments. On average, sellers of renovated apartments negotiate less (4.9% median listing discount from the original ask versus 5.7% over the last 10 years) and sell faster (73 days on the market versus 82) than sellers of unrenovated apartments. While that’s great for sellers of renovated units who can command a premium, it’s also great for buyers of unrenovated units, who benefit from lower initial pricing, lack of competition, and, perhaps, seller anxiety.

Implications for Sellers

For sellers, the slowly ebbing premium for renovated properties could signal increased competition. As buyers begin to weigh the pros and cons of higher prices and elevated mortgage rates against the lower costs and potential of unrenovated units, the market dynamics may shift. Sellers should recognize that while the premium for renovated units remains significant, it may no longer justify aspirational pricing based solely on mint condition quality. The competitive edge might now require a more strategic approach to pricing, considering both the property's condition and the current economic climate.

Implications for Buyers

Buyers should take note of the current trends and their potential advantages. The narrowing gap between the prices of renovated and unrenovated units suggests that turnkey properties may soon be within closer reach financially. As this shift occurs, unrenovated units might face increased pricing pressure, making them an attractive option for value-seeking buyers. Although ready-to-move-into units will likely remain more expensive in direct comparisons, the decreasing premium makes unrenovated units an increasingly compelling choice for those willing to invest time and effort into renovations. Indeed, as summer rolls around and the typical seasonal slowdown begins, intrepid buyers may find some goldilocks opportunities.

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