Is this price point too HIGH? - Posted by sld7

Posted by Nate(DC) on July 11, 2002 at 22:01:54:

Right. That’s the exact point I was making. A newly rehabbed home is not “average”, it’s above average. Therefore, why would it sell at the “average” price for the area? :slight_smile:


Is this price point too HIGH? - Posted by sld7

Posted by sld7 on July 10, 2002 at 21:50:07:

SFH where owner wants $45k. I offered $35k and he said no way, but I figure we can agree on $43k. The house needs about $10k in rehab work with comps ranging from $69k to $100k for similar houses in the same neighborhood.

My question is whether their is enough room in this deal to assign the contract to a rehaber. Adding $10k to the price equals $55k (worst case) with a worst case ARV of $75k which puts the LTV at 73.3%.

Is this practical?

Re: Is this price point too HIGH? - Posted by Nate(DC)

Posted by Nate(DC) on July 10, 2002 at 22:45:43:

What is the real ARV. $69K to $100K is too wide a range. You need to narrow it down better before you can know for sure.


Re: Is this price point too HIGH? - Posted by sld7

Posted by sld7 on July 10, 2002 at 23:14:14:

It is difficult to determine. Once comp is 50 sq/ft smaller and sold for $100k while another is 63 sq/ft bigger and sold for $87k and then lastly one is 130 sq/ft smaller and sold for $69k.

To play it safe I estimated a ARV of $75k.

Pricing theory (somewhat long) - Posted by Nate(DC)

Posted by Nate(DC) on July 11, 2002 at 02:15:50:

First of all, I’d say that size differences of around 100 SF or so are probably not that significant - unless we are talking about homes that are under 1000 SF to begin with. The difference between a 1400 SF home and a 1463 SF home is not perceptible to most people. What you really have here are basically three of the same house, right?

Second - this kind of “averaging” is bound to get you in trouble. If three of basically the same house sold for prices ranging very widely - $69K to $100K, over a 30% variation - at roughly the same time - that tells you something was different about them. You need, in order to have your research complete, to find out WHAT the differences were. Maybe one has a much larger or smaller lot than another. Maybe one has a pool. Maybe one is a corner lot. Maybe one has a view of a trash dump. Maybe one house was a brand new renovation. Maybe one was in bad shape.

Only when you know all the details and know WHY these homes sold for the prices they did, will you be able to determine what your house should be able to sell for in a particular condition.

This type of “averaging” amuses me because it’s just NOT accurate. I know people who will look at all the comparable sales on a block of identical rowhomes, which range from $60K to $140K. In this case the $60K homes need rehab while the $140K homes have been fully renovated. I have had people tell me before that the average selling price for a home on this block is $100K and therefore buying at $60K to do a rehab doesn’t make sense to them. My response is that you have to look at all the characteristics of the houses. Rehabbed homes are not selling for $100K, they are selling for $140K.

I made this point in a post just slightly down the message board about Baltimore, and I hate to repeat myself, but it just comes in so handy in a variety of situations: in a free market, things sell for a particular price for a reason. It’s not random.


Re: Pricing theory (somewhat long) - Posted by sld7

Posted by sld7 on July 13, 2002 at 24:31:16:

Actually the house I am looking at is 800sq/ft and the other one is 100sq/ft less so…

Re: Pricing theory -4 Nate - Posted by Winston, CT

Posted by Winston, CT on July 11, 2002 at 20:44:06:

Based on your comment, then it is safe to bet that the ARV is going to be as much as the highest sold home, since you are going to do a full rehab?
Of course assuming that the lots are similar, no view of the dump etc.

Re: Pricing theory (somewhat long) - Posted by Nate(DC)

Posted by Nate(DC) on July 13, 2002 at 13:09:48:

OK, well in that case (a 12%-15% variation in size) I might make some kind of adjustment for the size. I’d price it at about half the cost of the property on a per square foot basis. This is because the marginal value of an additional square foot of space is declining.

Example (real simple):

Property is 1,000 square feet and costs $100,000. $100 per square foot.

Comparable property is 850 square feet. I would adjust by ($100 * 150 * 0.5) to get a $7,500 adjustment = $92,500 total.

Note that this is just a very rough calculation, certainly not gospel or an accurate method of valuation. More a “back of the envelope” method if you will…