Real world case study: https://www.zillow.com/homedetails/20961-Mandrake-Dr-Pflugerville-TX-78660/70341216_zpid/
Recently bought with 265K - it was sold for 175K in 2011 and now listed for rent at 2.1K. I am a bit behind on local rent in that area right now, @hanera, what do you think of the asking price for rent, realistic?
Asking so much higher than Zillow? I think should be lower than Zillow.
I’m no longer interested in Scottsdale, but I’m puzzled as to why there is so much variation in pricing in the same subdivision? Is it marketing, staging, etc? For example, a house with the same square footage in the same subdivision as the one in my original post sold for $657,900 according to Redfin.
https://www.redfin.com/AZ/Scottsdale/7979-E-Princess-Dr-85255/unit-7/home/28260247
The house in my original post is still for sale and the price has been lowered to $579,000.
https://www.redfin.com/AZ/Scottsdale/7979-E-Princess-Dr-85255/unit-14/home/27328611
Like I said it is overpriced. Covid19 has changed the valuations of Airbnb and vacation properties. Hard to know what anything is worth right now
When market fails to price a house, a cost + pricing model may be used. Cost of land plus cost of the structure above. Is there is an equivalent of salvage value for homes? It is like selling a car to the junk yard, if not donating to Karz for Kidz.
Cost of structure can be objective. Cost of land not. In fact with so much land in US cost of land should be zero. Even negative - govt should incentivize to develop land.
Structures have no salvage value. Cost of demolition gives them negative value. Although sewer and water hookups add value.
Besides the cost + pricing model, the Rental history of a property provides a basis for a very objective and current valuation of the real estate. But, somehow on this forum, rent as a guide to property value has very few takers.
Rent is a measure of value if appreciation is low. High appreciation rates means a lower cap rate
(traditionally the best measure of value) Is acceptable.
BA investors have driven cap rates down and prices up compared to other areas. Covid19 may change that trend.
Example in Tahoe a 6 cap is common. In the BA a 3 or 4 cap is acceptable to investors. A fifty percent or higher price for a comparable rental rate of return. Based on experience and expectations of higher appreciation.
Something that might change.
You explained so well what I have been trying to explain on this forum for such a long time. If you know the estimated rent in the area for the target property and you know the cap rate (or rent multiplier; inverse of cap rate), you can multiply the rental with the rent multiplier to estimate the value of the target property.
estimated value of a property = Annual Rent Estimate x gross rent multiplier.
So if there is a property in bay area that gives you 3% cap rate and the a monthly rent of 3000. Then one can do following calculations:
annual rent 36,000
rent multiplier = 100/3 = 33.33
estimated value of the property = 36,000 x 33.33 = 1,199,880
So then both houses are/were overpriced?
I am a firm believer is staging. Could be the difference. The one that sold looked professionally staged. Plus had better upgrades. The other one had weird chairs with different colors and clutter… bad staging
New paint, carpet, landscaping and staging all add more value than the they cost. Pricing is an art. Plus subtle things like location, views,lot placement, immediate neighbors… Lots of things can affect value.
But if it sells it was priced right. If it doesn’t it is overpriced.
As far as buying in Arizona, what is the going cap rate?
That is also an important driver of value. However a home owner looking to live there full time will a pay higher price than an investor who is just shopping for the highest cap rate.
I think a savvy buyer would be able to detect staging, since you aren’t buying the furniture. Just based on the non-staged physical interior, in my opinion, the house that sold is north worth over $75,000 more than the house that is still for sale. Perhaps staging is a great marketing tool for unsavvy buyers.
Staging works on professional investors too. I built two houses identical side by side… the staged on sold for more money to a professional investor who owned 25 other rental houses.
Agree but…
A savvy buyer won’t get any houses in a hot market or a hot neighborhood.
Correct, and hence they won’t overpay either.
Even though I’m no longer interested in Scottsdale, It is interesting and beneficial to do a retrospective.
The following house in the same neighborhood in the link below was purchased around the time of my first post. It is now for sale about 2.5 years later. What do you think about the appreciation between the purchase price in 2020 vs the asking price today? How does that compare to a comparable house in the Austin or the Atlanta suburbs for example?
https://www.redfin.com/AZ/Scottsdale/7979-E-Princess-Dr-85255/unit-4/home/27739504
I don’t know Scottsdale but inventory in the AZ exurbs is rising sharply. My area went from about a half dozen listings a few months ago to about 40 now. Young has inventory now; it had nothing a few months back. Social unrest in the urban centers over the short to medium term could change that though. Inflation, shortages, contested November elections, who knows.
Inventory in Tahoe has dropped 50% since the June highs. Buyers are back and sellers have gotten realistic. 150 sfhs compared to 225 in June
I find it kind of incongruous that a lack of inventory was one of the reasons for the sharp acceleration in prices in the last few years in non CA metro areas and the solution was to build more new housing, but now it seems that more resale housing in coming online and prices are dropping. Maybe then new housing in sprawling areas is not really needed to lower prices and that these areas are somehow susceptible to economic boom and bust cycles more so than dense urban areas.