How to Approach Detroit Real Estate in Today’s Market
I’m Lisa Virkus, Founder of Realty in the D. Across the United States residential real estate values are starting to level off and days on the market for homes for sale is increasing. So what does that mean to someone looking to buy or sell a home in Detroit?
Detroit is a very unique market and is very early in its recovery where other markets have exceeded the highest values their respective markets have ever seen. A lot of my clients, both buyers and sellers, are confused about how to approach Detroit real estate. So I thought I would share my advice.
A few things to know about the current Detroit market:
Inventory of Homes for Sale – Inventory of homes for sale in the most popular Detroit neighborhoods has increased significantly over the past six months. For example, in one of the Detroit’s best neighborhoods, Boston Edison, there are currently 22 homes for sale. A year ago, there may have only been 6 or 7 homes for sale. Why the increase? A lot of the long-term Detroiters’ are seeing houses sell at prices higher than they ever thought would be possible. So they see the opportunity “cash out” and are putting their house on the market at prices that are not justified. Here is why…
Currently Overpriced Homes for Sale – The houses that have sold at these high levels have been completely restored to the highest standards and have incorporated many modern amenities into the renovation, such as gourmet kitchens, master bathrooms, second floor laundry, etc. The issue is a lot of the houses coming on market are from homeowners looking to “cash out” and believe their house is in the same condition as the restored homes and should command the same pricing. Unfortunately for them this is not the case. The result is more properties coming onto the market that are overpriced and, as a result, do not sell causing inventory and days on market to increase. This issue will resolve itself over time as sellers come back to reality.
Detroit’s “Value” – Detroit home prices are still a fraction of comparable properties in the suburbs. For example, the average sold price per SF in Birmingham over the past 90 days is $231/SF. Click Here to see the market report. The average sales price per SF over the last 90 days in one of Detroit’s best neighborhoods, Boston Edison, is only $100/SF. Click Here to see the market report. So logic should tell you that Detroit is still very undervalued. As Detroit continues its comeback, Detroit home values -vs- what we are seeing in the suburbs may simply be in a minor correction in an overall up-trend as people’s desire to move closer to the city and their focus on “value” continues.
Read Why it is Time to Sell Your House in the Suburbs and Move to Detroit, Click Here!
Read So Who is Actually Moving to Detroit, Click Here!
Here are some thoughts on How to Approach Detroit Real Estate in Todays Market:
If you are a seller
Be honest with yourself. Take a good hard look at the condition of the property you are trying to sell. Tour the other properties for sale in your neighborhood and see how you compare. If you find your property is not really at par with the others, you may want to consider lowering your price to a level that is appropriate.
Once you have your property fairly priced, determine how quickly you need to sell it. If you need to move it fast, you may need to again lower the price to a level it gets the attention of todays buyer. Due to the higher level of inventory for sale, buyers are starting to look for a “good deal” rather than just something to buy. On the flip side, if you don’t need to move it fast, just sit tight and let the market come to you.
If your property is vacant or is an investment property and you have it priced right but still no interested buyers, consider alternative revenue producing/marketing strategies. Here are a few interesting strategies:
- Allow people to take a “test drive” by giving them the ability to rent it for a period of time. Once their lease it up, give them the option to buy the property with all rent that was paid being applied to the purchase price. I’ve incorporated this strategy with several of the properties I’m the listing agent on and are getting great results. Why this may be? A lot of the buyers moving to Detroit don’t really understand the Detroit market and are afraid of making the wrong decision on which neighborhood to buy in. I’ve also found some buyers love historic homes, but honestly are not sure what comes with buying a historic home. This approach gives them the ability to “take it for a test drive”. If they find they don’t like the property or neighborhood after living there, there is no commitment. No buying mistake made. They simply move on. On the other hand, if they find they love the house and neighborhood, they have the option to buy it with all rent being applied to the purchase price as if they bought it in the first place. No wasted money on rent…
- Another strategy is to Air BNB the property. This strategy is working very well for several investors I know. There is currently a shortage of hotel units in Detroit, but very high volumes of people traveling to Detroit. Travelers are more frequently than ever turning to Air BNB for alternative places to stay. The Air BNB strategy also gives any potential buyers to again “take the property for a test drive”. The positive of the Air BNB model, is you can keep your property on the market for sale, but still generate revenues until it ultimately sells.
If you are a buyer
The current market is a good market for you! With the higher level of inventory for sale, sellers are more willing to negotiate. A lot of sellers are starting to realize their home is not truly in the condition to command premium pricing. For example, they may have originally put the house on the market for $350,000 because they saw their neighbor sell their house for $350,000. Six months later, they have had no traction and through a series of price reductions are now at $299,000.
They are now starting to come back to reality. This does not mean prices are approaching a level they are not willing to sell. Remember, in a lot of cases in Detroit, the person selling the house may have purchased it when prices were really depressed and only paid $50,000. They now may be at the point they are tired of having their house on the market and dealing with showings. They may also now be realizing how much work they need to do to the house to get a buyer interested in it. In most cases, this is a very sobering moment for the seller as they may not have the money or ability to do the work. So now they are stuck…
Why are they stuck? A lot of todays buyers have no interest in buying a “fixer upper”. On the flip side, if you are a buyer that doesn’t mind a “fixer upper”, this is a good time in the market for you. With the work needing to be done to the house to truly bring it up to todays standards, the house may only be worth $250,000. So make the offer. Remember, the seller may be getting tired and have come back to the reality of what they own and what it is really worth in todays market. At this point a “real offer” with that profits them seller over 400% on their original investment may get done… Both parties win. You get a good deal. They make a significant profit.
- I believe the Detroit real estate market is in the beginning phases of a long up-trend and the suburbs are at the peak of a 10 year run.
- If you are a seller, you need to value your property accurately and get more creative with your marketing.
- If you are a buyer, this is time to negotiate. A lot of the false inventory is overpriced and the sellers are starting to realize it.
Want to know how to navigate Detroit real estate?
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What is my Detroit Property Organizer?
To be competitive in the Detroit market you have to react very quickly when something hits the market. So we created “My Detroit Property Organizer”. My Detroit Property Organizer allows you to receive real time alerts on the hottest neighborhoods in Detroit. So you don’t have to wait for your Realtor, who may NOT Really know Detroit. Realty in the D does that for you! And yes we know Detroit. In fact I live in the Historic Neighborhood of Boston Edison. So I practice what I preach.
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If you’re interested in Investing in Detroit, Moving to Detroit or Selling your Detroit home, I’d enjoy the opportunity to help!