Best Method To Determine Location Adjustment?

[DWiley]

In our region, building costs are pretty uniform, cement, workers, etc. are charging pretty much the same.

Well, builders in my area charge a premium to build in Belle Meade. Why? Because they know they can.

 

[George Hatch]

It goes without saying that your comparisons will be on properties that are similar except for the variable you're testing.

My problem with using site sales as a proxy for improved sales is that a 25% difference in site value may not translate to a 25% difference in home values, and a $25k difference in site values may not translate to a $25k difference in home values. And inasmuch as its home values that we're analyzing we wouldn't have any way of testing and refining your adjustment without circling back to the direct comparisons of improved properties to each other.

There's no point in developing an adjustment that you can't test.

 

[DWiley]

Are the homes in Green Hills and Belle Meade the same? I think what you are observing is that the price/value difference being more than just the difference in site value is differences in the improvements or other differences unrelated to the physical location.

Well, if I am doing that, I would classify it as a rookie mistake As I said in another post, builders in BM just charge more - because they can. As a result, the difference is more than just the difference in site value.

 

[Terrel L. Shields]

builders in my area charge a premium to build in Belle Meade. Why? Because they know they can.

Ours do charge a premium when they have a Californian for a client ...same reason, because they can.

 

[Michigander]

Well, builders in my area charge a premium to build in Belle Meade. Why? Because they know they can.

Which is why grouped data works nicely for this type of adjustment.

 

[George Hatch]

Ours do charge a premium when they have a Californian for a client ...same reason, because they can.

The first rule of coming from California is you do not talk about California.
The second rule of coming from California is.......

 

[Joe Flacco]

Well, if I am doing that, I would classify it as a rookie mistake As I said in another post, builders in BM just charge more - because they can. As a result, the difference is more than just the difference in site value.

I don't know. I think a extra profit incentive in one neighborhood would quickly bring in more competition for sites bringing the site value up. If you can make 25% profit in BM and only 15% profit in the other place then why would anybody choose to build in the other place instead of BM? I see certain builders that can charge a higher builder fee but that is because of their reputation and not really because it is a certain neighborhood.

 

[Joe Flacco]

It goes without saying that your comparisons will be on properties that are similar except for the variable you're testing.

My problem with using site sales as a proxy for improved sales is that a 25% difference in site value may not translate to a 25% difference in home values, and a $25k difference in site values may not translate to a $25k difference in home values. And inasmuch as its home values that we're analyzing we wouldn't have any way of testing and refining your adjustment without circling back to the direct comparisons of improved properties to each other.

There's no point in developing an adjustment that you can't test.

I don't know what you mean by you can't test. The way I explained why site value comparison is best is that builders build the same product in difference locations. Site value for example ranging from $400k to $800k for the same size lot. Finished house selling for $1.4 million in one location and $1.8 million in another location or $1.6 million in another location with site value in between. That is paired sales with improved properties with identical improvement and also paired sales with site sales. Can't get more reliable than that.

25% difference in site value is definitely not 25% difference in total property value. Unless the site value makes up close to all of the total property value. Like 90%.

 

[NachoPerito]

Land sales are the best way to get a location adjustment IMO.
If sites sell for $80k in Armadillo and $60k in Westchester then the adjustment is $20k.

It is a lot harder to pull out that $20k adjustment if you are comparing a home sales, individual or group sales.

 

[DWiley]

Land sales are the best way to get a location adjustment IMO.
If sites sell for $80k in Armadillo and $60k in Westchester then the adjustment is $20k.

It is a lot harder to pull out that $20k adjustment if you are comparing a home sales, individual or group sales.

Comparing site values is certainly one way, and it is certainly better than nothing, or PFA. However, based on 25+ years of observing/analyzing my market, using only the difference in site value would result only in the minimum difference and may not reflect the full difference for improved homes. YMMV