Emerging Residential Neighborhoods and the Millennial Relocation Home Buyer
Many corporate relocation clients—i.e., the employees who are being relocated and buying homes—when faced with limited time to chose a home and neighborhood in which to begin a new life in a strange city, usually don’t explore “emerging,” or “trending” neighborhoods during their relocation process. Most often, when faced with the daunting task of purchasing a home in a limited time frame, relocation buyers tell their REALTORS, almost universally, that they want one collection of attributes for their home: A move-in ready home in a safe, established neighborhood with good schools and a commute to work that is under 30 minutes.
Both the buyers and their REALTORS are selling the relocation process short if emerging and trending neighborhoods aren’t part of the equation when it comes to the relocation process. This is particularly true with one of the largest demographics currently in the housing market: Millennials.
As more and more Millennials enter the home buying market, the “status quo” with regard to the typical relocation client of a REALTOR is changing. Not only are more Millennials being relocated by their employers, but they are a larger part of the home-buyer market generally. Because of the 2008-era recession, Millennial were already a bit late to the party when it came to home ownership. However, they are now entering the market in a big way. Too, as Millennial buyers are often looking for a different set of “value-adds” when it comes to their home purchase than Generation X or Baby Boomer buyers, Millennials who are renting in their current city may find buying a home an even more appealing prospect when handed a set of benefits from their employer to relocate which may include paid closing costs, rebates for moving costs, or other financial assistance packages provided as a part of relocation.
From our team’s extensive experience working with Millennial buyers—both as relocation clients and as traditional home buyers—and from research, it is a well-realized fact that this class of buyer has different wants, needs, and values in mind when buying a home than other buyers in the marketplace. This makes them far more likely to consider and purchase in emerging and trending neighborhoods. This means the REALTORS helping guide these buyers in making their purchase must be especially attuned to both these needs and these neighborhoods.
What is an emerging or trending neighborhood?
In order to understand what relocating Millennials may be looking for in terms of an emerging or trending neighborhood, it is first important to understand what the characteristics of a typical emerging or trending neighborhood are—and they will vary by city.
Typically, these neighborhoods are closer to the “urban core” of a city, and not in the suburbs. They are typically also close to major intra-urban arteries (larger two and four-lane divided streets that run east-west and north-south and carry more traffic than a residential street, but aren’t state or Interstate highways) and provide convenient access to freeways or major state highways or inner/outer “loops.” They very likely saw a downward trend in terms of single-family purchases during the late 1990s and early- 2000s, and also were typically hit hard by the foreclosure crisis, and also may have previously been considered heavy rental property neighborhoods. In addition, neighborhoods built from the Post-World War II building boom to the early 1970s that have transitioned from original- and second-owner occupants to fully remodeled or “flipped” homes that are being purchased by single adults, childless couples, and younger families are typical signs of emerging and trending neighborhoods.
Too, you won’t likely find the city’s top schools in an emerging or trending neighborhood. You will most likely find strong, second and third tier public schools where state and local district statistics will show a mix of incomes, ethnicities, and steady but strong year-over-year improvement in test scores and other metrics used to grade schools by federal or state education authorities. In most instances, commercially available data sources like Great Schools will not give these schools good (or even realistic) rankings, and are more likely to utilize computer-generated formulas and algorithms that are very slow to actually “catch on” to the kind of upwardly trending schools that are often one of the hallmark of an emerging or trending neighborhood.
Look also at commercial and government development. In Dallas, for example, a brand new, well-designed, fire station with architecture you wouldn’t expect to see on a municipal project might be a good sign of an emerging neighborhood nearby. So are extensions of bike or walking trails, or what may be listed as a coming improvement in your city’s latest bond package or long-range recreation plan. In terms of commercial development, look to those intra-urban arteries for a clue. Are tired, old strip-malls getting a facelift? Are apartment complexes nearby seeing major investment? Do you see a good mix of independent businesses and franchise-based businesses cropping up or moving in to once vacant space? In some areas, commercial follows residential and in some areas, residential follows commercial, so having an understanding of what is happening in terms of commercial development nearby is vitally important.
Neighborhood associations are another important clue: is there one? If there is, has it recently been revitalized? Is there a neighborhood crime watch? Is the neighborhood association pro-active in relating with the city concerning nearby commercial development and with planning, zoning, and code enforcement (unkempt lawns, abandoned homes, construction projects) within the neighborhood? Is the neighborhood on the social media site NextDoor?
Finally, remodeler activity and sales history is very important in identifying an emerging or trending neighborhood. Have there been a lot of sales recently of homes that were long-holds? Have those homes been remodeled and “flipped?” Were they bought and still held by rental investors? If so, have they been rehabilitated significantly?
As a REALTOR, don’t depend on local media—even independent media—to help you identify these neighborhoods. Typically, “Best of” lists will be years behind where neighborhoods are actually trending—especially in large urban areas with literally hundreds of neighborhoods packed between major freeways. Journalists aren’t usually on the front-lines of neighborhood re-emergence, even if they work for your favorite, hip-and-trending alternative weekly because they do not have access to the same sales statistics you do as a RELATOR.
Helping The Millennial Relocation Buyer Understand Emerging & Trending Neighborhoods
Now that you have some idea of where and how to find emerging and trending neighborhoods in your area, the most important part is understanding what you do when a relocation buyer is asking about such areas—and how to identify if your buyer is seeking these areas without actually articulating that request.
The fact is that most buyers don’t quite know what to say when they want to ask their REALTOR to introduce them to neighborhoods like this. They may use phrases like, “I want the most value for my dollar,” or “I want a neighborhood where I can see good appreciation,” which we are used to hearing from most buyers. They may also use other language, such as, “I don’t want a neighborhood where EVERYONE is going right now.” (That’s one we’ve heard quite a lot lately). They may also say something like, “schools won’t be a concern for us for five years, so we want to find a place that is unique and we can grow in to.” Also, query your buyer: ask them if they are interested in exploring the value of emerging and trending neighborhoods, and be prepared to introduce your buyer to them and help your buyer understand why these neighborhoods are trending upward, and the value—present and future—that can be found in these areas.
With Millennial buyers especially, when introduced to what a trending neighborhood has to offer, and the realization that they can be part of something very close to a ground-floor redevelopment in a trending area during the 5-7 years (or longer) they expect to own the home, the value-set they bring to the table in the buying process very well may help you find your client a match in the perfect home and neighborhood they never expected, but have always wanted. Understanding this is particularly important in markets the National Association of REALTORS has identified as being the most Millennial-friendly housing markets.
One other major consideration with relocation buyers and emerging neighborhoods is commute times to work. Millennials have lost, for the most part, the well-documented American fascination with the automobile. They may expect a 30 minute commute because it is an urban area and we are culturally conditioned to commute times, but they most likely don’t want a 30 minute commute if there is a way to avoid one. It is your job, as a Relocation REALTOR, to help your clients understand that what they think may be the norm is entirely avoidable. We frequently introduce our relocation clients to emerging neighborhoods within a 7-15 minute drive of the downtown area and allied urban core through intra-urban arteries, and find that close proximity to public transportation is an unexpected bonus for our buyers. “If you take X-street to Y-street to your office downtown, instead of the nearby Interstate, you can get to work in 15 minutes instead of 30,” is a huge selling point for Millennial relocation buyers many REALTORS don’t think about because we are, ourselves, so conditioned to freeway transit in urban areas. Too, emerging areas, especially, because they are often in areas where they are transitioning from lower- to middle- and higher-income neighborhoods, tend to be close to public transportation infrastructure (light rail, buses, park and ride) that is valued both by Millennial buyers and relocation buyers coming from parts of the country with such well-developed public transportation infrastructure not often found in the urban centers of the South or Midwest.
In addition, the reemergence of the single-close remodel loan product (and not just the FHA 203(k) rehab loan—check with your lender to see what is available in your area) in to the lending market is a major aspect of the lending business REALTORS need to understand when working with Millennial buyers. Their discerning tastes and desires and ideas about space usage may make even the best and most exquisite remodels undesirable for them. Helping them understand the value of diamonds-in-the-rough that they can purchase in emerging neighborhoods with a remodel loan product, and remodel within 30-180 days of closing (often including financing for extras like rental while the house is completed)is helping buyers transform homes and neighborhoods. Too, government and non-profit programs such as those available in many cities like Buffalo to restore historic neighborhoods are especially attractive to Millennial relocation buyers, and are something every REALTOR needs information about in their toolbox. Having a referral network of quality remodeling professionals you can turn your busy Millennial clients to in order to help them understand the price and scope of particular projects is also a must if you are working with Millennial relo buyers.
For REALTORS working with relocation clients seeking to explore emerging neighborhoods and the relocation companies, lenders, and service providers helping them, here are a few handy tips to keep in mind:
- Know your buyer’s timeline: are they being relocated for a three-year maximum commitment to open a new office, or for a longer term? This will impact whether or not an emerging neighborhood, and if so, which emerging neighborhood, may be right for them.
- Make this a part of your exploration process, especially with Millennial relocation clients. While you are exploring multiple neighborhoods in the earliest part of the process, take them to emerging and trending neighborhoods and homes in them so they can truly understand and make an apples-to-apples comparison of these neighborhoods to other neighborhoods they may be considering.
- If your Millennial relocation buyer is concerned about schools or stuck on that poor rating for the neighborhood school from a commercially available source, be proactive: help your client visit the school, meet the principal, and even tour the classrooms and sit in on a class. Most campus administrators are happy to accommodate a relocating buyer, and are quick to help the buyer understand why the upward trends in their school will make it one of the next “it” urban core schools in your city.
- Work with a lender with in-house underwriting capabilities who understands your cities and these emerging and trending areas. If you are a relocation company, be sure to have flexible guidelines that will allow your partner REALTORS to help you and the client understand that, for a particular purchase, the typical “RELO package” lender with underwriting in Saint Louis or Houston may not be the right fit for a buyer seeking to purchase in a re-developing area of Oak Cliff in Dallas. Lenders, be prepared that the typical appraiser assigned by the “wheel” at your Appraisal Management Company may be like a lost puppy in some of these neighborhoods and simply won’t understand the comparables or trends they are seeing. Be flexible, and be prepared for a second appraisal, and to condition the AMC as much as legally allowable to use an appraiser familiar with that general area. For example, in the Dallas market, an appraiser from the suburbs of Mesquite or Plano sent to The Dells District in Oak Cliff will be a fish out of water, and may not understand that the $335,000 full remodel of a Spanish-style mansionette your client is purchasing cannot be compared to the remodeled ranch down the street, and that the closest comps within the required radius are in an adjacent neighborhood that has already trended, or a highly similar neighborhood that has already trended across an intraurban artery but well within the typical one-mile comparable radius.
- Work with a title company, or escrow attorney (varies by state) who understands the difficulties that may arise when purchasing in emerging or trending areas. Creekside lots, for example, are common in many emerging neighborhoods we work in, and these pose different boundary and deed challenges than typical lots in a subdivision. In some states, a completely different set of riparian rights and regulations may also apply to the buyer. Too, the provenance of the home may be a challenge when it comes to the abstract and title work. Was it flipped after being bought on the courthouse steps? Did the re-modeler buy it without title insurance (common with re-modelers)? Work with abstract, title, and escrow attorney providers who are familiar with these neighborhoods and the potential challenges that may crop up in order to ensure your buyer has clear title at the time of closing.
- Keep your buyers informed, help them research, and guide them to do their own research. We recently had a client relocating from California who was moving in to one of the soon-to-pop emerging areas of East Dallas. She went door-to-door and met the neighbors adjacent to the home she was considering to help gain a better understanding of the neighborhood.
- Help your buyers understand that, in an emerging neighborhood, speed is king. Yes, a house may be on the market 45 days when your client looks at it, but if there is a pending sale a street over that is about to close, when that comp hits MLS, other REALTORS will be taking their buyers to that area who previously weren’t looking in that area. Time is still of the essence in choosing a home in an emerging area if your buyer wants the home of their dreams. Just because a flip has high days on market doesn’t mean you shouldn’t act fast. As a REALTOR introducing your clients to emerging areas, you need to understand that the market demographics of an emerging and trending neighborhood are such that you will see a mix of great houses with long and short cumulative days on market that are atypical of what you are used to seeing in so-called established neighborhoods. Typically a house with high DOM may be too high priced, a bad remodel, or something similar in an “established neighborhood.” This is not necessarily so in an emerging neighborhood. DOM is driven by the number of REALTORS and their clients who actually understand the neighborhood and its trends. Less REALTORS who know the neighborhood and take their clients there mean higher DOM.
The bottom line for us as Relocation Specialists and REALTORS, and for our clients, is to find them the best possible home at the best possible price to make their home in a new city. We are all selling ourselves, the process, and our clients short if emerging and trending neighborhoods are not a regular part of our relocation practice.
Vince Leibowitz, REALTOR, is author of “2014 Emerging & Trending Neighborhoods of Dallas,” a whitepaper identifying the city’s most heavily emerging and trending neighborhoods for home buyers in Dallas, for LTZ & Co., a real estate group he founded at Nathan Grace Real Estate in Dallas. He is a member of the Texas Association of REALTORS’ Professional Standards & Government Affairs Committees, and serves on the MetroTex Association of REALTORS’ Professional Development and Government Affairs committees. He specializes in unique and historic homes and emerging and trending neighborhoods in his buyer practice. Approximately 70 percent of his team’s buyer practice is comprised of Millennial home buyers, and it is his favorite demographic to help find a home. Nathan Grace Real Estate is a boutique real estate company that is dedicated to the client, community and industry. Established in 2010, the company brings fresh perspectives to REALTORS, their clients and the industry. Nathan Grace has been recognized by the Dallas Business Journal – Best Places to Work and the Dallas Morning News – Top 100 Places to Work.