An associate and I were excited to be touring a large and unique property that was on the market. It was breathtaking in my eyes with its large moss-draped live oaks, meandering tree-lined driveway, fenced green pastures, and cute house perched overlooking a gorgeous marsh brimming with all manner of wildlife. It was absolutely picturesque and had a lot to offer a buyer looking for a life in the country. I eagerly asked him what he thought about the place and he rather disappointedly said simply, “deferred maintenance.” 

We had both seen the beauty but he, being far more seasoned than I, had also noted that the buildings were all in a bad state of disrepair, new fencing was needed before any livestock would be safe in the pasture, the driveway was rutted and broken, and the pasture itself was overgrown and choked with weeds, several downed trees, and derelict pieces of farm equipment. The property still held a lot of beauty, but it was tempered by the amount of maintenance that would be required to put it into working order. Whoever purchased the property would have a lot of work ahead of them if the property was to be restored to its full grandeur and potential.  

What is Deferred Maintenance?

It’s likely that we’ve all driven by a property and lamented its present condition, wondering what it must have looked like when it was in its prime or at its best. Often this might be a splendid old house fallen on hard times or perhaps an architecturally significant commercial building that has lost its former glory and brilliance. However, rural properties are no strangers to “deferred maintenance” where a barn has fallen into neglect, access to the property has become overgrown or restricted by vegetation, and perhaps a well or irrigation system no longer functions as it should. The features and characteristics of a rural property may be a little different than a residential lot but the principle remains the same; maintenance that should have been done has not been conducted. 

The reasons why maintenance gets deferred can be as varied and complex as the properties and owners themselves, but it’s generally due to a lack of capability to conduct repairs or unwillingness to invest in the upkeep of the property. Typically this is from some change in ownership or a change in the owner’s life such as an owner being absent from the property for extended periods of time, a lack of funds, or financial hardship on the part of an owner. It could also be a change in the health or fitness of an owner that precludes them from doing the work themselves or the death of the owner leaving a spouse or family member to unexpectedly care for a property.  

Regardless of why deferred maintenance has occurred, the consequences or costs of it can be quite significant when the time comes to sell a property. Deferred maintenance can result in:

– increased time on the market 

– increased repair costs 

– depreciation 

– potential for a more protracted and complex negotiation process

– Lower sales price 

Increased Time on the Market

There are buyers who like to do maintenance and don’t mind a “fixer-upper” when it comes to a property, but more often buyers are looking for well-kept properties that are less likely to need repairs. A well-kept property imparts peace of mind that there will be no repair surprises. Buyers want a property that’s ready to go immediately after closing and won’t require lengthy repairs…time is important to buyers. So when a property appears to need a lot of work, they discount it as an option and move on to the next property. The result is that a property in disrepair will sit on the market for a long time and either sell at a discounted price or not sell at all. 

Increased Repair Costs

It is almost always more expensive to delay needed repairs versus completing them when initially required. Often a problem will only become worse (think of a leak or water damage) if it is allowed to continue and is not repaired when it is discovered. Also, due to inflation and the fluctuating costs of materials, parts, and labor, it may often be significantly more expensive down the road to initiate the same repairs. 

Depreciation From Deferred Maintenance

The importance of an appraisal can’t be overstated when discussing a purchase that relies on a buyer securing financing. A key part of an appraisal is determining the depreciated value of structures. Deferred maintenance, over a protracted period of time, will often result in the depreciation of a property’s appraised value. This could mean the loss of profit for the owner or perhaps even a missed opportunity as the lender and/or buyer declines to go forward with the purchase.

Protracted and Complex Negotiation Process

It’s not uncommon for it to be difficult to reach an agreement on the sale/purchase of a piece of real estate, but when there are major repairs needed, it offers increased opportunities for a protracted and complex negotiation process. Consider that needed repairs offer a buyer numerous points of contention and added justification to negotiate a decrease in the sales price or other desired concessions from the owner. The final result is often an extended timeline to close, an increased risk that a deal fails to close due to pending repairs, etc., and ultimately lost profits for the owner.

Lower Sales Price

One of the most obvious and arguably the worst consequence of deferred maintenance is a reduction in the agreed-upon sales price. This might be the conclusion of a long process where the property sits on the market and is incrementally reduced in price or it could be that a property is initially marketed at a substantial discount because it has problems and issues to effect a quick sale. Regardless of the scenario, a property will close for less than it likely would have if necessary maintenance has been completed before listing. 

Deferred maintenance can’t always be avoided as things happen in life and it just isn’t always possible to keep up with needed repairs and the upkeep on a property. However, it’s important to understand and acknowledge that not keeping up a place today will likely mean paying a lot more in the future when it comes time to sell. The old adage of “pay now or pay later” almost always holds true when it comes to deferred maintenance on a property.