“My neighbor sold her house for $300,000 in a weekend. Our homes are similar. Why can’t I sell my home for that?”
In any market environment, this is a common refrain from homeowners looking to sell. Homeowners everywhere often learn the hard way about the impact the condition of their home can have on its value – especially in cooler markets.
How much does a home’s condition contribute to its sellability? According to a new Opendoor analysis, it’s more than you might expect. The condition of a home not only has a significant impact on value, but also how quickly you can sell it. We found that homes in better condition are not only closing at or above their list price nearly 10% more often than comparable homes in worse condition, but are also selling more than 20% faster. More on this, but first, what makes a “good condition” home?
The old saying “someone’s trash is another’s treasure” doesn’t always apply to homes. Using data, we can systematically and objectively assess the datedness of a home, the level of wear-and-tear, building quality and overall appeal. Datedness refers to how modern or out-of-fashion the design of the house is. Wear-and-tear is the general level of maintenance. Quality refers to the underlying status of the materials, finishes, and appliances. Appeal refers to the overall aesthetics of the property.
While there is no single element that signifies a home is in good condition, there are some common attributes: more than 70% have stone countertops (e.g. marble, quartz, granite), 47% have kitchen islands, 93% have stainless steel appliances and fixtures, and 70% have real hardwood flooring.
National resale inventory is approaching its lowest level in 10 years, but the rate at which homes are selling is more than 60% higher than in 2019–a year when new construction rose, home purchases increased, and affordability went up. So why are some homes selling quickly while others are not? We partly attribute this difference in resale velocity to home condition.
We looked at the last six years of listing data and grouped subdivisions (or “markets”) into “Hot” and “Cold” categories (whether the average home sold in fewer or more than two weeks). We then examined the average condition of these sold homes, based on the appraisal industry’s C1-C6 scale* and adjusted for differences in home square footage. We discovered that: 1) home condition matters more in colder markets than in hotter ones, and 2) home condition matters more to buyers in the wake of the COVID-19 pandemic.
Why? Generally speaking, home sales are slower in colder markets, so homes in better condition have a bigger advantage. In hotter markets where competition is fiercer, people are more willing to see through home condition, which is why there can be less impact based on condition. When we looked at home sales pre-pandemic compared to post-pandemic, we found evidence that in more desirable areas, condition plays an even bigger role.
We also observed that homes in good condition relative to others in their neighborhood received a higher premium in cold markets than in hot ones. “Higher premium” means individual home price per square footage compared to the average price per square footage in that area. In a hot market, a home in relatively good condition will sell for 2.4% more than the average in its subdivision. In a cold market, that premium is approximately 3%.
We also observed a slight post-pandemic premium increase in a home in good condition. From 2017 to 2019, homes in good condition in hot markets saw on average a 1.5% premium relative to comparable ones in their neighborhood; from 2021 to 2022, that number increased to 2%. To put into context, the average home cost in America is $436,800, meaning that’s nearly a $2,200 increase in sales price.
Our analysis also found that the premiums on good condition homes helped sellers achieve their target prices much more frequently and quickly. From 2017 to 2019, homes that were in better condition than their comps closed on average at or above their list price 46% of the time. Now this figure has exploded, peaking at 77% in 2021, and 67% in 2022.
Meanwhile, in hot markets like we've seen this past two years, homes in better condition than comps sold six days faster than those in worse condition than comps. And this gap is exaggerated in cold markets – with homes in better condition than comps selling 11 days faster, nearly twice the gap as in hot markets.
This demand aligns with an Opendoor survey that found that close to 70% of buyers indicate wanting a turnkey home right now. With post-pandemic life in full swing, buyers have less time to dedicate to renovation projects — and with higher interest rates construction loans are more costly.
As for the next five years, the number of remote workers is expected to nearly double since pre-pandemic rates. By 2025, 36.2 million Americans will be working remotely — an increase of 16.8 million people. In fact between 2019 and 2022, the average move distance has already increased 38% (from 213 miles to 294 miles on average), indicating that location is less important** than it once was.
“Location, location, location” has always been the adage in real estate, but sellers may want to give greater consideration to how the condition of their home can affect its value, especially in our current market.
Amit Arora is the VP of Investments at Opendoor. Cody Feng, Senior Strategy & Analytics Lead, and Luxi Wei, Pricing Strategy and Analytics Lead, also contributed to this report.
Parts of this article originally appeared on Fortune.com.
*Opendoor determined the condition of homes based on the industry standard C1 - C6 scale. Homes that were one standard deviation higher on this scale were deemed better than comps, and this group was compared to homes that were one standard deviation lower than comps.
**Opendoor examined tax recorder data and identified moves as transactions within 90 days, where the seller name of the first transaction matched the buyer name of the second transaction. Opendoor then aggregated the as-the-crow-flies distance of these moves based on the latitude and longitude of the two transactions.