Home Obsolescence

Home Obsolescence

our lives are increasingly dependent on computers and digital
processing, houses have “resisted the change”. After all, what is a
house? Some kind of a shelter with a few walls with windows, a roof over
it, with bedrooms, a kitchen and bathrooms inside. No more, however. A
new generation of buyers expect homes to be automated and to allow
control of home devices and systems with voice commands. Additionally,
buyers expect their homes to be energy efficient and built from
sustainable materials.

As houses in the US
, the
issue of desirability is becoming increasingly important for home
buyers. More and more people prefer to buy turnkey (as defined below)
properties; home buyers today do not want to live in old houses and they
do not want to fix them up either. Thus, the number of available houses
is misleading as we need to understand the number of houses people
actually want to live in.

Real estate professionals understand what home
buyers want to buy. Some houses bring multiple offers (even 30 - 40, and
sometimes more) and sell at 30-100% of the listing price. Then other
don’t receive much interest and sell at or below their listing price.
This phenomenon continues now, even as the market is weakening.  “Good
homes” sell at a premium while others don’t sell or sell below
expectations. So, what sells and why? What has changed?

In 2013 as
housing was emerging from the recession the Wall Street Journal
mentioned a new trend in 2013 in the article “Everything and the
The article referred to “turnkey houses”, i.e. ready to move in
properties with all repairs done, even fully furnished. This trend
developed further and today’s home buyers want modern houses with
amazing kitchens (preferably with white cabinets, open to the dining
room with best appliances available) and large, spacious bathrooms with
latest faucets and shower heads. They do not want to deal with
remodeling or live in older houses. Home automation is in and a Nest
thermostat is a minimum of home automation that is acceptable. The more
Alexa or Google controlled devices in a house, the better the chance of
selling the property for a premium price.

The importance of a house’s
appeal and the impact of new technology on it’s desirability was largely
unnoticed by market research until recently. One of the leading market
intelligence sources, CB Insight, recently stated in their Housing of
the Future Report
as of May 29, 2018, that “ technology obsolescence is
now an important factor affecting the property prices downward”.

price gap between properties that are technologically advanced and those
that are not is rapidly growing.  Homeowners and rental property owners
are facing the dilemma of whether to significantly upgrade their
properties or deal with the financial effects of trying to sell or rent
a technologically obsolete property. Rebuilding or replacing all major
house systems is expensive and many property owners do not have access
to the capital necessary to renovate and modernize their houses.
Unfortunately, many do not realize the upside potential of their house
and the value they might walk away from.

As a matter of fact, a real
estate professional’s advice to the question, “Should I sell my house?”,
today, should be, “No, do whatever you can to keep it”. After all, homes
purchased for $30K twenty to thirty years ago sell for over $4M today
(or, after subtracting $1M for improvements, they yield more than
$3M). A key reason behind the low supply of houses for sale in the Bay
Area in recent years is that the average person understands how
important it is to hold onto their property. Low real estate taxes have
further reinforced the desire to “hold real estate”. Property owners
thinking about selling their property today should compare today’s value
to a maximum possible property value in the near future. Once people see
the difference between these values, they will never consider selling
their property with an obsolete home structure and home systems.

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