6 bed / 5 bath 3700 sq feet $175,000

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6 bed / 5 bath 3700 sq feet $175,000

Asher Anthes
Charlotte, NC · Member since 2011 · 107 posts · 13 votes

So, I put in an offer yesterday for this house, there were about 4 other bids and I'm hoping I was the best one. I'll find out today if I won it. It's a short sale, but I'm pretty sure the bank has approved it already at this price.

The house needs about $10k - $15k or so as far as I know now to get it to resale. But, I'm planning on living in it and renting it out to friends for 2 years, and then selling it.

The house was built in 1998, all brick, 6 bed 5 bath, 3700 square feet, and it has an additional kitchen downstairs (could be converted into an apartment).

At my price, the price per square foot is $47. The comps average price per square foot are $80 (pulled 6 comps and threw out the highest and lowest). However, those comps are mostly 4 bedrooms 2.5 baths.

My main question is should I discount my assumed after repair instead of basing it strictly on a price per square foot. If I multiply 80 by 3700 I get $296,000, but I feel like $260-270 may be a little more realistic because people won't pay proportionally the same amount more for a 6/5 as a 4/2.5 per square foot.

Is this good logic? I still feel like its an awesome deal knocking off some of the ARV for this reason. Thoughts?

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Jon Holdman
Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
13y

This stuff varies from area to area. But in my area, here's how I see appraisers handle this.

First, you MUST distinguish between ground floor, second floor and basement footage. Value is largely determined by ground floor footage. Second floor footage might be worth half the value of ground floor and basement is worth maybe 10-20% of ground floor.

When looking for comps, you have to have similar styles of houses. Sounds like yours is a ranch with basement. So, ideally you would only use other ranch with basement houses for comparisons.

Now, look at the comparison floor by floor. An appraiser will figure out some value for each floor. Say they decide ground floor footage is worth $100/sq.ft. and basement is worth $20/sq.ft. And yours is 1850 ground and 1850 basement. Lets guess one of your comps (the 3112 one) is also equal up and down for 1556 sq.ft. each. Now the appraiser will make an adjustment for the difference. It IS NOT the $/sq.ft. overall number. The appraiser might say the adjustment is $40/sw.ft. up and $8/sq.ft. down (i.e., 40% of the average selling price). This is because simply adding 10% to the size of a house without changing anything else is a minor change that costs very little (when originally constructed) and adds little value. That is, a house that's 10% larger probably isn't worth 10% more than the comp. This gets worse and the ratio increases. A house that's twice as large as it neighbors is worth nowhere near double the others.

So, now you have a difference of 294 sq.ft. each. Upstairs that's an adjustment of $11,760. Downstairs is $2,352 for a total of $14,112. So, the sales price of the comp would be increases by $14,112 to get the adjusted sales price for your subject property.

Assuming you're dealing with a ranch with basement then any of your comps that are ranch w/o basement or two stories or any other style aren't good comps.

Really, its best if you have some example appraisals from your area. That way you can see what sort of adjustments are done in your area.

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  • Asher Anthes
    OP
    Charlotte, NC · Member since 2011 · 107 posts · 13 votes
    13y

    The neighborhood is great, very low crime, quiet established neighborhood.

    0Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y

    What is the square footage range of the comps?

    0Reply
  • Asher Anthes
    OP
    Charlotte, NC · Member since 2011 · 107 posts · 13 votes
    13y

    these are the 4 i used: 2000, 3112, 1939, 2355

    0Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y

    So the one you are looking at is non conforming to the others because of size. I'd figure ARV at something like $80 PSF for 2200 SF and $40PSF for the next 1500SF. Unless you can find some bigger comps that tell you more.

    0Reply
  • Asher Anthes
    OP
    Charlotte, NC · Member since 2011 · 107 posts · 13 votes
    13y

    Well, the only other one I have is actually the one I threw out because it was the highest price per square foot. But it sold for $228,000 at 2332 square feet ($97 psf), which still isn't close in square footage, but it is actually the only one on the same street (so could be the best comp I have).

    So, using your formula of 80psf on the first 2200 and 40psf on the other 1500 I get an after repair value of $236,000. Is that a generally accepted rule? Use half the price per square foot for anything above the normal comps square footage?

    0Reply
  • Jon Klaus
    Developer · Garland, TX · Member since 2008 · 8k+ posts · 4k+ votes
    13y

    It's my gut based on my experience. I flipped a 7000sf house last year and really got dinged on the last 3000sf. I'm going with conservative numbers on non conforming homes. With your plan to make it your primary for a couple of years, and ideally have a tax free gain, I might pay more.

    1Reply
  • Account Closed
    Full-Time Investor · Charlotte, NC · Member since 2009 · 2k+ posts · 1k+ votes
    13y

    Asher, I'm in charlotte..if you wanna chat about it, send me a message...I agree with Jon...I like the price/ft until you get to a point where the neighborhood just won't support too high of a number (even if you happen to have a huge house). Sounds like you may be there. I may know the area, if you wanna chat..good luck :)

    1Reply
  • Jon Holdman
    Rental Property Investor · Mercer Island, WA · Member since 2008 · 22k+ posts · 14k+ votes
    13y

    This stuff varies from area to area. But in my area, here's how I see appraisers handle this.

    First, you MUST distinguish between ground floor, second floor and basement footage. Value is largely determined by ground floor footage. Second floor footage might be worth half the value of ground floor and basement is worth maybe 10-20% of ground floor.

    When looking for comps, you have to have similar styles of houses. Sounds like yours is a ranch with basement. So, ideally you would only use other ranch with basement houses for comparisons.

    Now, look at the comparison floor by floor. An appraiser will figure out some value for each floor. Say they decide ground floor footage is worth $100/sq.ft. and basement is worth $20/sq.ft. And yours is 1850 ground and 1850 basement. Lets guess one of your comps (the 3112 one) is also equal up and down for 1556 sq.ft. each. Now the appraiser will make an adjustment for the difference. It IS NOT the $/sq.ft. overall number. The appraiser might say the adjustment is $40/sw.ft. up and $8/sq.ft. down (i.e., 40% of the average selling price). This is because simply adding 10% to the size of a house without changing anything else is a minor change that costs very little (when originally constructed) and adds little value. That is, a house that's 10% larger probably isn't worth 10% more than the comp. This gets worse and the ratio increases. A house that's twice as large as it neighbors is worth nowhere near double the others.

    So, now you have a difference of 294 sq.ft. each. Upstairs that's an adjustment of $11,760. Downstairs is $2,352 for a total of $14,112. So, the sales price of the comp would be increases by $14,112 to get the adjusted sales price for your subject property.

    Assuming you're dealing with a ranch with basement then any of your comps that are ranch w/o basement or two stories or any other style aren't good comps.

    Really, its best if you have some example appraisals from your area. That way you can see what sort of adjustments are done in your area.

    2Reply
  • Account Closed
    Real Estate Investor · Member since 2012 · 189 posts · 32 votes
    13y

    Jon Klaus & Jon Holdman make great sense in evaluating your property. I typically don't come across non-conforming properties, so I never had to figure out value for such. given the above suggestions, how does that comp out for your situation?

    either way, at 47/sf in an 80/sf market, you prolly can't go wrong w/either way to eval. how does the lot size compare to the other comps?

    1Reply
  • Asher Anthes
    OP
    Charlotte, NC · Member since 2011 · 107 posts · 13 votes
    13y

    Thanks for your help guys. I ended up getting out bid on this property, pretty disappointed, but... I will keep looking.

    0Reply
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