Home ownership has historically been the most common way for families to grow wealth and pass it on. This can be a risky strategy, new research shows.
A paper from the Federal Reserve Bank of Philadelphia found that older home owners, particularly those aged 70 and up, earn lower prices when they sell than their younger counterparts. The gap increases with age; an average 80-year-old seller would likely get paid 5 per cent less than a 45-year-old, all other factors being equal.
In the most extreme scenario, a home that fetches a significantly lower price can limit people’s future living options, if they wish to downsize a large house or need nursing care. A lower sale price could mean the difference between buying into a retirement community versus renting, or a smaller apartment.
The research found that older home owners don’t invest as much in their properties. This can take the form of less renovation, more deferred maintenance and higher rates of disrepair. About 25 per cent of the difference in sale prices is attributable to this discrepancy.
“Unless something’s broken, they don’t fix it,” said Ms Amy Bubes, a real estate agent in Atlanta. She said home owners, especially those who have been in the same house for decades, have a tendency to look past flaws like peeling paint and water damage that would jump out to a prospective buyer.
“Deferred maintenance is a real issue,” said Ms Beverly Grace, owner of Grace Realty and Property Management in Seminole, Florida, an area popular with retirees. There also can be an aesthetic mismatch if the most recent kitchen or bathroom renovation was decades ago.
Ms Beverly Evans was puzzled that her condominium in Plymouth, Massachusetts, spent nearly six months on the market, even after she reduced the asking price. “I don’t understand,” she said. “There’s nothing run down about that house.”
Ms Evans, 87, said she needed her home equity to pay both the rent in her assisted living community as well as the rising cost of living. “I didn’t realise inflation was going to go that badly,” she said. “I need money to live.”
Her daughter Linda Evans acknowledged that her mother’s style might not be to everyone’s taste. “She doesn’t want to talk about trends,” she said.
Running out of money is a common fear among retired homeowners, according to financial professionals. But such frugal impulse can backfire because delaying those repairs could potentially have a negative impact on the resale value.
This is because today’s buyers are leery about homes that require renovation, given sharp inflation in both building materials and labor over the past few years, said Ms Dillar Schwartz, a real estate agent in Austin, Texas. “The cost of getting into home ownership scares them,” she said. “Buyers don’t have the cash reserves to put into a house like they used to.”
Experts say older sellers and retirees sometimes settle for a lower price because they don’t have the stamina or financial resources to oversee a big renovation, or might be reluctant to spend part of their savings on what they perceive as unnecessary changes.
Experts also identify a knowledge gap. Home owners who last purchased property 30 or 40 years ago might not be familiar with the current market, what comparable properties are worth and how much equity they could be leaving on the table.
Conversely, the levelling-off of pandemic-era home value appreciation – or outright reversal in some markets – has left some long-time home owners with whiplash.
Some retirees still think that there will be bidding wars. As a result, they sit on it and wonder why it’s not selling. And the longer they sit on it, the worse it is for them.
Some older home owners facing rising property taxes and insurance rates have concluded that gambling on prices to return to their peak isn’t worth the risk.
In 2024, Mr Bob Bozek and his husband Dan Driscoll sold their condominium near Fort Lauderdale, Florida, after several factors created a sense of urgency, including an arduous surgical recovery for Mr Driscoll and home owners association dues that had more than doubled since the couple bought in 2012.
“Ageing is becoming more in our face,” said Mr Driscoll, 81.
Mr Bozek, 73, also said the area didn’t hold the same appeal that it once had. “I love the warm weather, but global warming was causing all kinds of problems,” he said, from spiralling home insurance costs to oppressive heat and disruptive storms. “All the expenses in Florida were getting unlivable,” he added.
Although the local housing market had softened from its peak two years earlier, the couple decided cutting their losses was safer than waiting and hoping for a rebound. They ultimately sold to an investor after even a US$30,000 (S$38,400) price cut didn’t attract offers.
“Even though what we settled for was lower than what we’d hoped for, it was cash in hand,” Mr Driscoll said. “We were so grateful.”
Although their current home in Maryland is considerably smaller than the one they left, the couple said the financial trade-off is worth the peace of mind. “We were lucky to have done it when we did,” Mr Bozek said. “We still have friends down there and my goodness – the condo market fell completely.” NYTIMES
