A recent CNBC story reported that a home in Walnut Creek, California, just sold for $1 million, well above the original asking price of $850,000. In this hot seller's market, this would not normally be newsworthy. But the four-bedroom, two-bath home had been badly damaged in a fire last year and is currently uninhabitable.
Yes, you read that right: A home that was burned down to the beams (thankfully, no one was injured) sold in a bidding war days after it went on the market. The selling agent wasn't too surprised, describing the house as just another "fixer-upper."
Now, to be fair, this is not the first time in real estate history that a home described as a "fixer-upper" is more aptly a "tear-down-and-start-overer." But if this is the new face of the "handyman's special," buyers and house flippers are in for a rude awakening. And it does make one wonder: What were those homebuyers thinking?
The allure of a 'pre-disastered' home
There's a scene in the movie The World According to Garp (though it's not in John Irving's book of the same name) where the title character and his wife are being shown the exterior of a home by an overzealous real estate agent. The home is beautiful, but Garp (played by the late, great Robin Williams) is reticent. That is, until a small plane crashes into the top level of the home; the pilot is hilariously unscathed.
"We'll take the house," Garp announces. When his wife protests, he says, "The chances of another plane hitting this house are astronomical. See, it's been pre-disastered! We'll be safe here."
Garp has somewhat of a point. It might just be superstition, but perhaps these buyers subscribe to the "lightning never strikes the same place twice" philosophy. However, it is worth noting that the cause of the Walnut Creek fire is still under investigation and yes, lightning can indeed strike the same place twice.
It really is all about location
Walnut Creek is in California's Contra Costa County, where median home prices have been hovering in the $900,000 range this summer, up from $785,000 in July 2020, according to the California Association of Realtors. Suffice it to say, there is high demand for homes in the Bay Area, a market that's still highly competitive even as other parts of the country start to cool off.
It's understandable that location is everything when it comes to a home. Land is valuable. Plus, deep-pocketed buyers are looking to put their own stamp on a home. But why not buy a parcel of land and start fresh? Why not find a home whose "good bones" don't look like they've been fried? Beauty is in the eye of the beholder, and it's clear that the buyer sees a future in the ruins.
What it means for buyers and investors
Buyers who are already stretched behind their budgets during their home search could take this news to mean it's time to call off the hunt until the market cools off. After all, there are some fixer-uppers that need a ton of work, but it's possible to still move in. Not so in the case of the Walnut Creek home. Granted, not every homebuyer wants to live in the Bay Area, but there will always be stories of homes everywhere that fetch head-scratching prices for their current condition.
On the other hand, the Walnut Creek home might give flippers some hope for their renovation budgets. If buyers are willing to pour a ton of money into renovating, investors can simply smooth out the canvas for them, only making small fixes to make the properties comply with local codes. No more top-of-the-line materials or high-end upgrades to woo buyers -- consider the buyers already wooed. When a house has those all-important good bones, a bare-bones approach might be best.
The bottom line
The real estate market is cooling off in some areas but clearly not in others. It's likely that there will be other too-crazy-to-believe tales of home sales. For now, buyers and investors should understand that "fixer-upper" is a term that is used very loosely, though only the latter group stands to benefit.