Housing market is ripe for fixer-uppers

If you look at the trends among home buyers in the Philadelphia market today, the Dolans appear to be a bit out of step:

Daniel Dolan, a chemical engineer, and wife Shaliz, an ob-gyn physician at Temple University Hospital, have just remodeled the kitchen in the Center City townhouse they bought in July.

Instead of the "perfection" real estate experts say today's buyers crave, the Dolans chose a house that needed work - a "fixer-upper," for want of a better description.

"It let us buy more house," Daniel Dolan said, and, just as important, "lets us put our personal stamp on it."

Fix-up buyers are largely rare birds in a market with a huge supply of houses for sale and a continuing shortage of takers - tax credit notwithstanding.

In some markets that have seen huge price declines, "flippers" - those who buy cheap, renovate quickly, and turn houses around for profitable sale - are at work again.

Trends are tougher to nail down with any accuracy in the local market, where prices have dropped only about 11 percent since the housing downturn began, according to data from Philadelphia economist Kevin Gillen.

Flipping opportunities, though rare here, "are really the earmark of a stabilized market, where developers and rehabbers have come to the conclusion that the market has indeed bottomed out," said Center City real estate agent Mark Wade.

In this market, flippers are looking at the limited supply of foreclosures, short sales (in which the lender agrees to accept less than what is owed on the mortgage), and corporate relocations, seeking what Wade calls a "wholesale" price level.

But for the most part, observers say, house hunters in this area know a buyer's market when they see one and want perfection without working for it.

Ruth Feldman, of Weichert Realtors' Mount Airy office, described what the Dolans bought as an "in-between," a four-story townhouse at 23d and Race Streets in Center City that had been for sale for seven months.

At about $445,000, "it is priced $100,000 below the very same style house next door, which sold in June for $549,000," Feldman said. Yet "every buyer who looks at it (and we've had lots of showings) says it's priced too high and needs too much work."

These days, she said, buyers "want the totally redone, tasteful decor, granite-and-stainless-steel kitchens and fancy tile baths - which are everywhere, even in much-lower-priced rehabs. These buyers all watch too much HGTV."

Patrick Campbell has an unusual perspective because he sells real estate and, in the late summer, chose to buy a fixer-upper in Fitler Square as his primary residence.

The house, in the 2400 block of Pine Street, was owned by Penn professors who had rented it out for 30 years, he said.

What sold him was the house's location and price, said Campbell, who paid $370,000 - $20,000 over list price - to outmaneuver two other prospective buyers. He considered the block, especially its proximity to Rittenhouse Square, "perfect."

But the house was "falling apart," he said. The ensuing months have been spent tearing out drywall to create an open floor plan; refinishing the hardwood floors; redoing both bathrooms, the kitchen, and the basement; and upgrading the electrical work.

Flippers in this market focus on properties they can buy for $150,000 and resell for $300,000 - in limited supply in Center City and its adjacent neighborhoods, as well as in most of the desirable suburbs, Campbell said.

Because of the tax credits for qualified first-time and move-up buyers, the market's sweet spot remains $350,000 and below, while $850,000 houses just aren't selling.

Campbell learned his lesson as an investor in Northern Liberties, where he and a business partner did a project and lost money on it.

"Real estate remains about location and price," he said.

The Dolans relocated to Philadelphia more than 18 months ago from the Worcester, Mass., area, and rented in East Falls until they sold their rancher in April.

"We'd gone through the whole experience [of renovating]," said Daniel Dolan, adding that proceeds from the rancher's sale didn't match prices in Center City.

They looked at 20 properties before finding their $442,100 townhouse.

"It was a location issue, primarily," he said. "We also weren't looking to gut a place. This house not only had good bones; it was one we could move in first, upgrade later."

The first floor had been broken into four rooms. With a contractor's help, the Dolans took down all the non-load-bearing walls and created an open plan with kitchen and great room.

"We think it looks fantastic," said Daniel Dolan, who has set his sights on redoing the master bath - at some point.