Land value factor in home price

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Submitted by infoseeker on November 12, 2009 - 2:49pm

Trying to get and idea on how to factor lot size into a purchase price of the home. Without getting into specifics lets say a 2000 sq ft, 10 year old, 5000 sq ft lot home in poway school district sells for $620K. What is fair price for the exact same plan, year home, similar upgrades home but with only 3200 sq ft lot. BTW 3200 sq ft lot is fine for us since less maintainance but want to make an informed decision about value and resale before making an offer.

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It's a tough answer because
Submitted by uneven on November 13, 2009 - 2:36pm.

It's a tough answer because there's usually more to a lot than just the size. Views? Privacy? Neighbors on all sides? But, for what it's worth, we just bought a new house and the builder charged $35K on top of a $700K house in Carlsbad for a 7500 lot vs ours which is 5300. We both have ocean views, but we;re on opposite sides of the street, so its complicated. the other one has better ocean views now, until the next street down is built and he'll loose the views except from 2nd floor. We have ocean out the front and side and canyons behind. Hope that was all of some help.

When I built houses in
Submitted by jficquette on November 13, 2009 - 2:41pm.

When I built houses in Atlanta in the 80's the lot cost was about 15-25% of the sales price.

This aint Atlanta. Good rule
Submitted by sdrealtor on November 13, 2009 - 3:35pm.

This aint Atlanta. Good rule of thumb: 1/3rd for land, 1/3rd for construction and 1/3rd for margin.

sdrealtor wrote:This aint
Submitted by jficquette on November 13, 2009 - 3:47pm.

sdrealtor wrote:
This aint Atlanta. Good rule of thumb: 1/3rd for land, 1/3rd for construction and 1/3rd for margin.

I don't think even Atlanta is that low any more. However I was a Controller for a large homebuilder and the conventional wisdom at the time which was in the early 80's that you couldn't make money if lot cost was > 25%

However that was back when they wanted lower ratio's, down payments. Back then our mortgage company would call the buyers employer to make sure they were still working there on the day of closing (g).

The relationship got out of wack when the underwriting standards were revamped along with the bubble in raw land prices.

John

Good historic boomtime
Submitted by oxfordrick on November 13, 2009 - 6:16pm.

Good historic boomtime rule.

Land prices fall faster than construction costs and house prices in a crash. If things get bad enough land may not even be worth the unpaid property tax and Mello Roos debt thta has attached.

Which would be a problem for the bondholders, not to mention the other residents of the subdivision.

oxfordrick wrote:Good
Submitted by jficquette on November 13, 2009 - 6:26pm.

oxfordrick wrote:
Good historic boomtime rule.

Land prices fall faster than construction costs and house prices in a crash. If things get bad enough land may not even be worth the unpaid property tax and Mello Roos debt thta has attached.

Which would be a problem for the bondholders, not to mention the other residents of the subdivision.

Thats why builder's can always make money even in the worst of markets if they can get the land cheap enough.

Lot Price = Home Price - Home
Submitted by sd_owner on November 13, 2009 - 8:07pm.

Lot Price = Home Price - Home Construction Price - Builder Profit.

In Detroit, lot price is already negative. In San Diego, some homes have negative lot price but most still have good values.

In nearby 4S Ranch, a 5700-6000 sqft lot cost the builders ~$180K-$200K back in 2001 and ~$300K today.