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Randall Garrett Gazette

Vol. III

Price: Priceless Home Builder News

April 2008

and University Park ( “the bubble“), in Dallas, lot costs can be as high as 50 - 60% of the sales price, but the homes sell for $300 per square foot and more. Conversely volume builders tend to keep their lot costs at 17% or less, because they buy a large quantities of lots at a given time, and to set up at least one model home.

Once the lot price is established, then the builder can decide what size home is prudent and what amenity package works. For example, the homes I am building in Bourland Oaks, in Keller are about 4,000 square feet. The lot cost is $100,000. The homes should sell, I hope, for $140 to $150 per square foot. That puts my lot cost at 16 - 17%, or about $25 per square foot of living area. Since sticks, bricks, concrete, and sheetrock, are essentially a given, that allows me to decide what amenities like crown mould, hand-scraped wood floors, media rooms, yada, yada, yada, I can put in the home to help it sell and stay competitive. If I were to build a 7,000 square foot home in Bourland, the lot cost percentage would be considerably lower but the house would be about a million dollars. That’s about 25% higher than any other house in the area - not a good idea. A residential real estate appraiser would deduct a great deal of your value because all of the comparables in the neighborhood would not be close to the same. Why? I don’t know. The math real estate appraisers use is similar to Chinese arithmetic. Just trust me, they will not give you full square footage value.

(Is this article too long?)

One last point, using the Bourland Oaks example, if I were to build a 2,000 square foot house (which deed restrictions will not allow me to, but just pay attention) would only be $300,000, but the lot cost would be 33%, or about $50 per square foot of living area. Once again, Mr. Appraiser comes out, with his Chinese arithmetic calculator, and says, “You don’t get $150 per foot for your house because you have $50 per square foot in your lot and the house is only 2,000 square feet and is not worth $100 per foot, because your house in non-conforming to the rest of the houses, and all of the other 2,000 square foot homes in Keller are only worth $60 per square foot. So, your property is only worth $220,000.” You’re screwed, glued, and tatooed, again.

The bottom line is…land costs determine lot costs. Lot costs determine house prices, and house prices determine whether you get hand scraped wood floors and built- ins, or coleche drive ways with a “Frederich” window unit keeping you cool at night.

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Randall Garrett Homes, Inc. P.O. Box 1708 Colleyville, Texas 76034 Office: 817.475.4644

randallgarretthomes.com Randall W. Garrett Construction Company, Inc. 104 Grapevine Hwy., Suite 100 Hurst, Texas 76054 Fax: 817.472.7156

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