Contributed by Chris Thiemet

The term "rehabbing" is, without argument, a hot phrase in the Saint Louis real estate market. It’s tough to locate a pocket of our City where there aren’t ‘rehabbers’ who are ‘rehabbing’ buildings. Within the modern context of real estate, the term rehabbing — based from the root verb to rehabilitate — might be defined as "the process of ‘bringing back to life’ a building that has, over time, lost its useful purpose and in turn found itself invaluable and unusable."

Market Conditions
The City of Saint Louis has undoubtedly undergone the beginnings of a renaissance within the last 5-10 years. From a real estate sales perspective, the signs are evident nearly everywhere. For the first time in many years, the U.S. Census Bureau reported an increase in — rather than a loss of — population of residents residing within the City limits. Our downtown infrastructure has seen over $3.7 billion in investments since 1999, making way for adaptive reuse of warehouse buildings into residential living spaces and new commercial offerings. Building permit figures for the City have been reported to be at an all-time high in several decades. Our regional Multiple Listing Service (MLS) shows countless examples of purchasers buying and residing in the fruits of rehabbers’ labor who have developed properties and rejuvenated some of our City’s previously neglected neighborhoods.

The market conditions in mid–2006 took a slightly different direction from the comfortable seller’s market conditions of the early–mid 2000’s. Interest rates began to slowly rise into the 6-7% range for average loan products, versus the incredibly lucrative 4-5% interest rates as seen circa 2003 – 2005. Buyers shied away from snagging properties off the market at or above list price as inventory increased and the absorption rate quickly decreased. Momentum as seen in 2004 and 2005 visibly began to slow as buyers realized their spending power decreased, so their negotiating and willingness to "wait it out" inversely increased. Total days on market for a home to sell have begun to double from 45-60 to 100-120 in many City neighborhoods, truly testing the patience of even the most smug seller.

Current market conditions in late 2006 show buyers becoming more critical and demanding of rehabbed properties in the marketplace. Buyers’ expectations are changing and maturing, and this marks a potential disconnect between the expectations of a buyer and those of a rehabber. Rehabbers may not be staying as informed (perhaps innocently, or perhaps unwillingly) with the feedback buyers are giving as they continue to refine and develop their "style" of rehabbing properties. Buyers are emphasizing the distinction within the type and, more importantly, the extent of the change made to the property. Not only are they demanding more for their dollar in these market conditions, but are becoming sticklers on the finishing details found in City homes.

A Buyer for Anything?
While there might be some validity behind the cliché "There’s a buyer out there for everything", there is no denying that the real estate market functions under the simple principle of supply and demand. How to make your product "more buyable" than the several other rehabs on the same block is a key factor to today’s rehabbers.

Too often, as a REALTOR® working with buyers in the field, I hear the following "deal-killing" phrases:

"Now, why would they have…?"
"Boy, they really dropped the ball here where they…!"
"You can really tell the sellers skimped on cost here by looking at how they…!"
"Wouldn’t it have made more sense if they would have just…?"
"I would love this house if they just hadn’t…!"

These "deal-killing" phrases, as one might infer, are ones that no seller would hope to overhear being a "fly on the wall" in a rehab project they poured their heart, soul and bankroll into for months on-end. Proactively avoiding those comments should be all rehabbers’ goals, and can in-part be accomplished with 1) proper planning for the finishing details, and 2) field research — seeking out what buyer’s current expectations are, based on the target demographic, and how to meet and exceed them in a competitive marketplace.

There’s no arguing that the "big ticket" items in rehab are vitally important: roof, exterior shell, electric, plumbing, and HVAC. Often it seems rehab projects start out with full steam and great intentions, yet seem to finish on a soft note as seen in the finishing quality and details. Perhaps it’s easy to get overwhelmed with big-ticket items, only then to find one’s self behind schedule and over-budget. When it comes time to round out the finishes to a project, it can be tempting to cut corners or substitute products and finishes. However, this is exactly where not to do such things, as here lies the source of the "deal-killing" phrases.

What Not to Do
The following are some examples that have, per experience, envoked a buyer to use one of the "deal-killing" phrases:

• Use of improper or visually ‘cheap’ materials — examples: tiny baseboards/no quarter-round baseboard trim, hollow-core interior 6-panel doors, mix-and-match brushed nickel/chrome/bright, shiny brass (eek!) in the same room together.
• Spending extra money on elaborate color schemes / unique fixtures / special woodgrains that might now be palletable to a wide variety of buyers.
• Using all "off the shelf" items available at the local big-box hardware store.
• Adding multiple "themes" within a home that vary too widely from room to room.
• Trying to force the home to be something it isn’t.

Without suggesting to custom-order every fixture or door in a rehab project, the point being made is that there is a place for everything. Being aware of the generally negative reactions to certain things to many buyers is something not to shy away from learning and seeking out early-on.

Avoiding the "Deal Killer"
How else might you avoid hearing those phrases?

• Consider the neighborhood.
• Consider the street and the homes immediately surrounding the subject property.
• Consider the desired ultimate sale price.
• Consider the predicted buyer:
  • The first time buyer
  • The move-up, 2nd-time buyer
  • The higher-end, more than 2x buyer
  • Will the buyer have children?
• Consider the demographics of the existing homeowners surrounding this home.
• Consider hiring a design professional.
• Consider enlisting, at the beginning of a project, the advice of a real estate professional who specializes in the neighborhood.

Ultimately, examining a variety of criteria is essential before launching into a rehab project: location and overall neighborhood; demographic make-up of the area; how the building fits into the environment (setback from street, scale to other homes, etc.); any functional obsolescence within the property; the comparable sales history with the area; and of course the proven salable characteristics of an end product. When a rehabber selects a home to rehab, all of the above should be factored into the overall equation. However, the art of placing oneself in the mindset of the target buyer who, at the end of the day, will be the one who writes the check to purchase a rehab is a skill many strive to achieve.

Those who master it find it can be a very satisfying and profitable art to practice.