Understanding Why Comps Are So Cheap On A Sf Basis

[George Hatch]

If we're talking about comparisons....

Some components of an SFR build are more expensive of a price/sf basis than others. The site prep and utilities costs for a 3500sf home are more/less the same as for a 4500 sf home. The kitchen and bath elements will be similar. Most of the difference will occur in the lower costs living and bedroom areas. Also, local fees/permits can vary by jurisdiction.

 

[Meandering]

I've got 4200 SF houses in one close by (.5 mi) going for what one would expect for 3500 SF. I read the listings, noting granite, wood floors, laminate, crown moldings, etc and they look comparable.

If you have a 100 SF shack on a $100k lot then the price per SF would be $1,000 per SF. This is basically taking site value and dividing it by the size of the improvement.

this is the evidence of the two micro economic concepts.

Economy of scale
and
Marginal utility

http://www.investorwords.com/1653/economy_of_scale.html

http://www.economicshelp.org/blog/glossary/marginal-utility-theory/

.

 

[Peter LeQuire]

I'm in the middle of a gnarly assignment in a relatively new, SD (one builder, built out between 2012 and 2015) with very similar quality houses. Slam dunk piece of cake, do it, bill it, go buy the ribs and fireworks and go home, right?

Wrong. The way living areas are reported is so erratic as to be frightening. The county's areas, the areas reported in the current MLS briefs, and those reported in the prior MLS briefs for the properties are the same for only one of the 17 houses to have sold in the SD in the past year. Two of the MLS briefs use living areas that are 15% less than that shown in the county's record; two briefs use living areas that are up to 24% higher than those of the county. The package prices per SF ranged from $133 to $182, which is a very large range given the similarity of the houses in the SD (age, quality, design, site, no basements, etc,).

The most meaningful unit of comparison appears to be its room count, which appears to be a more relevant and more defensible than relying on obviously conflicting information. Thoughts?

 

[J Grant]

I'm in the middle of a gnarly assignment in a relatively new, SD (one builder, built out between 2012 and 2015) with very similar quality houses. Slam dunk piece of cake, do it, bill it, go buy the ribs and fireworks and go home, right?

Wrong. The way living areas are reported is so erratic as to be frightening. The county's areas, the areas reported in the current MLS briefs, and those reported in the prior MLS briefs for the properties are the same for only one of the 17 houses to have sold in the SD in the past year. Two of the MLS briefs use living areas that are 15% less than that shown in the county's record; two briefs use living areas that are up to 24% higher than those of the county. The package prices per SF ranged from $133 to $182, which is a very large range given the similarity of the houses in the SD (age, quality, design, site, no basements, etc,).

The most meaningful unit of comparison appears to be its room count, which appears to be a more relevant and more defensible than relying on obviously conflicting information. Thoughts?

When you drive by the comps, can you see from the facades/ext which ones look like the same models as each other / thus would have same sf despite county records?

Also see if you can find online the builder website ( name of subdivision) Even after a community closes sometimes the website with floor plans and pictures of home elevations with corresponding model names is still avail. Also check the listings, a current or older MLS listing of a comp might have the model name of the house on it that you can correlate to sf for that model.

After that, the usual advice, call RE agents...have a beer...

 

[Terrel L. Shields]

Thoughts?

Boeckh, the best cost book of the ages, RIP... used to allow you to value a home by SF and by room count...It worked remarkably well. The figures were often very close, and dovetailed with M & S. So if they can do it, so can you do it with Sales Approach.

SF sales prices to me are a combination of quality and condition along with marginal utility.

This monstrosity has been on the market for years and is badly over-priced. It started out life as a 1450 SF 1960's rancher... totally ugly to boot. Instead of dropping the price, they have raised it from $499,000 to over $1,000,000 insuring no sale for a long time short a miracle.

 

[Riick]

The most meaningful unit of comparison appears to be its room count, which appears to be a more relevant and more defensible than relying on obviously conflicting information. Thoughts?

Around here, you're liable to find two seemingly identical houses where the assessor's office says A is 2,000 sq.ft., while adjacent house B is 2,800. When there's a finished basement, our local assessors like to include it in their GLA, since that bumps up the taxes on the property. Luckily, I can usually get an assessor's sketch of 1st floor with square footage.
Bingo, 2,000 sq.ft. colonial has 800 sq.ft. of finished basement.
Maybe same situation in the subdivision you're doing??

 

[Louis Hemmi]

As an appraiser, I don't value properties at price per SF the way RE agents do. Differences in SF from one house to another is considered contributory value, and sometimes that value is high, other times low, other times the market does not recognize it.

It also could be the case that construction quality of upgrades vary between the houses which can skew prices per sf...a buyer may pay a lot more for an upgraded/remodeled 3500 sf house than they would an avg condition 3800 sf house.
After you research the comps and see interior MLS photos and attributes of each compared to subject it will become clearer and some of the houses you now see as potential comps may be eliminated. Unless a market is totally random ( which it seldom is), buyers pay prices for a reason. So how your subject compares in location, quality and upgrades to the sales will usually narrow down the comps to those truly more similar to subject which makes adjusting easier.

One thing that might be throwing prices off if you see similar upgrades is if some sales are flip sales , and then you have to see if buyers over paid for them or not

Thanks -- this is quite helpful. I've determined that there are some big differences in upgrades/updates, and will look at the comp site values. One thing I did notice was that the higher-priced houses had the two-story living rooms, and the regular ceiling living rooms were a bit lower.

I am trying to anticipate a comment ". . . why did you not use this comp when it's a recent sale in the same subdivision as the subject" even though it's value melts when adjusted for GLA..

Thanks to every reply.

 

[J Grant]

Thanks -- this is quite helpful. I've determined that there are some big differences in upgrades/updates, and will look at the comp site values. One thing I did notice was that the higher-priced houses had the two-story living rooms, and the regular ceiling living rooms were a bit lower.

I am trying to anticipate a comment ". . . why did you not use this comp when it's a recent sale in the same subdivision as the subject" even though it's value melts when adjusted for GLA..

Thanks to every reply.

Response: not every sale is a comp.

I don't know if your subject is the 2 story living room model or the low ceiling model,, but since you've identified a clear market price reaction, the best comps for your subject would be the similar ceiling height model to it. If you need to use a different ceiling height/model sale adjust for the market premium for high ceiling. Sounds like you are working your way toward resolution! Your own research will answer why the big gaps in price for similar sf homes ( upgrade differences and ceiling height per model), which you can use to explain your comp choices and reconciliation

 

[Michigan CG]

Have you reached out to the listing agent? Maybe they can shed some light on something you're not seeing in the MLS/pics nor from an exterior inspection of the comp. That'd be my next step

OMG, please stop, like actually calling a Realtor and confirming a comparable property with a person involved in the sale who has actually been in the comparable? No, no, we can't do this for many reasons......um, it would take WORK and doing our job. Stop it.

 

[Peter LeQuire]

The point of all this - at least from my perspective - is: information sources are suspect - in this instance, the assignment looked like an easy-peasy, slam dunk, out the door in one day piece of appraisal cake. Finding reported living areas for some houses varying by more than 500 sf (depending on the source cited for the information) makes any value differences developed from reported sf differences illogical. (This is particularly so since the county appraisers do not go into houses and must make guesses about upper level areas, or rely on plans provided by the builder before construction, which may or may not reflect the as built area.) Not only are there significant differences between the county's sf and that in MLS, the MLS sf for current and past listings are, for many houses, significantly different, as well.

When verifying these sales, (er, yes, Virginia, I actually talk to agents) I raised the question about sf inconsistencies: agents either relied upon the county's information, on the owner, on plans (when the houses were sold by the builder) or from a past or current appraisal. Short of shuffling through the subdivision offering to do free living area sketches in exchange for being allowed to measure these houses, I had to rely on this conflicting information. Even then, since the buying decisions were made on some bit of unreliable information, having "accurate" GLA information for the comparables is irrelevant, since "the market" made its individual purchase decisions on incorrect information.

Rightly or wrongly, I chose to dismiss living area differences as a significant component of value AMONG HOUSES WITH THE SAME ROOM COUNT. Rightly or wrongly, I think this more accurately reflects buyers' motivations - that is, once the desired functional needs of a family are met, the value that attaches to larger living areas becomes less almost immaterial.