Buyers in Lexington, Kentucky, have started evaluating houses the way investors do. Before they make an offer on a home that needs work, they itemize the repairs – the floors, the roof, the HVAC – and subtract the cost from the asking price. Sellers who list at the price the house would command after renovation, without having done the work, are watching their homes sit.
“If you look at a buyer today and one in 2021, it’s nothing the same,” says Bob Sophiea, founder of the New Home Collective, a Lexington real estate team. Sophiea also co-founded B Property Ventures, a company that buys homes for cash, which gives him a view of the same houses from both sides of the transaction.
The change in Lexington lies less in how many buyers are shopping than in how they reason through a purchase. According to Sophiea, buyers have slowed down and now run the same analysis his company runs on a property it might buy. “They’re doing the same thing we’re doing when we’re analyzing a property,” he says. “Their numbers are just different.”
In practice, buyers start from the online estimate of what a house is worth and work backward. “They’re saying, well, we got to do the floor, we’ve got to do the roof, we’ve got to do this,” Sophiea says. “Well, we got to take this off the price.” His own team hasn’t lost many deals to that arithmetic, but other agents tell him transactions are falling apart over the gap between what sellers ask and what buyers will pay for unfinished work.
Sophiea doesn’t attribute the shift to owners clinging to low-rate mortgages, an explanation common in other markets. That constraint has held since rates topped 7% in late 2022, so it can’t account for a change in buyer behavior this year. Instead, he points to the combined weight of current rates, available inventory, and broader cost pressures such as fuel prices, which have left buyers unwilling to pay for improvements they will have to make themselves.
That behavioral change barely registers in the region’s headline numbers. Across Central and Southern Kentucky, sales and prices are still rising year over year. The softening shows up instead in contracts and supply: fewer homes are going under contract than a year ago, and inventory has reached its highest September level in seven years.
Sophiea reads the market as looser than those figures suggest. “What I feel in the market is that there’s a big gap, that there’s way more houses and availability for purchasing here,” he says. With more homes to choose from, buyers can pass on any house priced as though the work were already done.
The math of today’s rates also rewards buyers for holding out. Sophiea frames it with a hypothetical: a buyer who pays $300,000 at a 7.5% rate for a house appraised at $350,000 comes out ahead over time compared with paying the full $350,000 at 5% or 6%. A buyer who rolls equity from recent appreciation into a discounted purchase gains even more, and can refinance once the first 12 months have passed. “To be able to buy something for less than it’s worth is a huge opportunity,” he says. “And that’s what’s happening in our market.”
For sellers, the real question is how much of the renovation the asking price has to absorb – and the answer is less than the full cost. Comparing the close to 200 cash offers his company has made since January with what the same houses could fetch on the market, Sophiea has found that sellers who cut their list price by roughly 40% of the estimated renovation cost tend to net more than a cash offer would pay them.
A cut covering less than half the repair bill can beat a cash offer because a cash buyer deducts far more than repairs. Each of Sophiea’s offers subtracts the full renovation cost, a 6% commission on the eventual resale, holding costs, and a profit margin. A seller who lists at a realistic price still hands the renovation to the buyer, but without also paying for a cash buyer’s resale costs and profit.
The seller who refuses any cut fares worst. “Buyers aren’t letting that slide anymore. It’s just not happening,” Sophiea says. “Your house is going to be sitting on the market.” For a vacant house, the wait carries its own cost. “Every month, whether they have a mortgage or they don’t, they’re getting further away from how much they want to get for it,” he says.
Many sellers now look for that threshold before committing to anything, and they use a cash offer to find it. A homeowner who requests one pays nothing for the information, so the request comes before any spending on the house. “They’re going to do that before they paint the kitchen, before they fix the deck,” Sophiea says. “They’re going to find out, what can I get for it if I don’t do anything?”
Sophiea’s offers answer that question with three figures side by side: the projected price after a full renovation, a realistic as-is list price, and the cash offer, with every deduction itemized. He bases the first figure on the online estimate because that is the number sellers already have in mind. His company applies set per-square-foot costs for work like flooring and paint and a target profit, but no fixed ratio between the cash offer and market value, since each house’s condition produces a different result. Sophiea, a licensed agent, discloses the connection between his team and his buying company when he presents an offer.
Most sellers who see the full breakdown choose to list. “More times than not, people are listing,” Sophiea says, adding that the process gives them “clarity that they couldn’t get from the internet.”
Sellers who want a fast cash sale have to separate buyers who intend to close from those who don’t. Out-of-state wholesalers are active in Lexington – “I get calls twice a day from different companies trying to buy some of my houses,” Sophiea says – but he doesn’t see them actually closing on houses.
When wholesalers do approach owners, Sophiea warns, the contracts they offer tend to bind the seller while giving the buyer every right and no real obligation to close. “The sellers think that they’re closing in a certain amount of days for a certain amount of money,” he says, but the agreement only holds the house off the market.
Local investors, meanwhile, are adjusting to the same rates, inventory, and cost pressures that changed buyer behavior, and Sophiea’s company has changed course with them. “We’ve pretty much stopped flipping houses right now,” he says. “We’re just flipping them into rentals.”
About the Expert: Bob Sophiea is the founder of the New Home Collective, a residential real estate team in Lexington, Kentucky, and co-founder of B Property Ventures, which buys homes in the Lexington area.
This article is based on information provided by the expert source cited above. It is intended for general informational purposes only and does not constitute legal, financial, or real estate advice. Readers should conduct their own research and consult qualified professionals before making any real estate or financial decisions.
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