Never use that as a guide - Posted by Ed Wachsman
Posted by Ed Wachsman on October 18, 1998 at 05:20:09:
While I have to concede you might hit on the value by pure dumb luck every once in a while, relying on any insurance related measure is an absolute guarantee of substantial financial loss in most cases.
Think of a few gross examples and then understand that more subtle examples are at play on practically every property. Example 1. Find the worst neighborhood in your city. Put on your kevlar vest, higher off duty police to guard your work site and, if the “friendly” neighbors don’t manage to steal all the building materials and construction tools first, build a 1200 sq ft house. If construction cost and insurance replacement cost are $60/sq.ft. the house, by your standards, should be worth $72,000. Except that in neighborhoods like that in my town, I can buy them all day long in the low 20’s or lower. And if - a big if - you can find a true cash (via bank loan) retail buyer (not a lease option or land contract buyer)the absolute most it will typically sell for in my town is low to mid 40’s - and the truth is, it probably won’t sell at all at any price above mid-30’s. Example 2. You are a retired railroad engineer and love being near trains. So you build a house near a switching yard. What’s the chance that someone else is going to share your passion and want to live there and pay price comparable to a house of the same size and amenities in a quiet neighborhood. Practically zero.
Use the sales of comparable properties in comparable neighborhoods close to the subject property - the closer in proximity and the closer in size, style, age, amenities, neighborhood character the better. Forget insurance.