Comps are all over the place. How to valuate?

[Cyndi Fleming]

The house is in a neighborhood where every street now has at least one million dollar home. This street has two. Builders are coming in tearing down these 1950s houses and rebuilding. The sold comps range from $131 sq. ft (low) to $399 sq. ft (average) to $1000 sq. ft (high). The leased comps run $2200 to $2500/mo for the same age/size as the subject property. The lots are going for $300K average. This home is about 1600 sq. ft, 2/1 double carport, with formal dining, converted garage family room, and den. The home has some wood rotting on the rear of the home (perhaps termites) but otherwise well kept and should be a lipstick rehab for a buy and hold. The seller thinks it would be a great tear down and wants the lot price of $300K. Being a wholesaler, I want to make sure I buy right to be attractive to both rehab/tear down buyers and buy and hold buyers. Please advise on purchase price and selling pricing.

[Jean Norton]

Hi Cyndi - this is going on in Austin as well.  You are right to price at lot value.  Do more research and see what the new builders paid prior to building their property.  The bottom line is the builder will tell you what they have left over to pay for the lot.  This is the builders formula:

Expected selling price of the property (minus) sales costs (minus) profit they need to make it worth their while (minus) construction/permit/holding costs = what they have leftover to pay for the lot.

They will tell you if it will work or not - don't be afraid to get the property under contract and shop it around.  If no bites, then find out what the builders are willing to pay and go back to negotiate with the landowner.  

Everyone has to make money in these deals, or nobody makes money.