Actual Real Value of New Home Build?

[dagsgarrett]

I know this is a very vague question, but I am curious as to what the real value of a home that cost say $400,000 TO $500,000 to build would be valued at. for example a % more market value or bank value than actual cost of construction?. Not including price of land in build cost say land was another $150,000 on top of this.

I ask this because if a person was to build a house for say $500,000, if property prices were to fall would this affect the price of a newly built home as well because builders have also factored in a certain profit percentage for them selves purely based on current house prices?

Would this also affect a banks valuation of the property?

I ask this question because when someone usually states they are building a house for say $300,000 people generally say For Example “Well then that would be worth $400,000 then easy”, but in your opinion is this statement actually true?.

I realise other factors may come in to play such as location ect, but as a general rule what is the case if any?

 

[Jebb]

Well, building usually (should) add a load of equity.

That said, the eventual value is simply what it is worth and what people will pay in the current market.

 

[Perp]

I ask this question because when someone usually states they are building a house for say $300,000 people generally say For Example “Well then that would be worth $400,000 then easy”, but in your opinion is this statement actually true?

No. There is no general rule. Sometimes newly built stock is less expensive than existing homes - in which case you do create equity by building - and sometimes the reverse is true. It all depends on the relative heat in the demand for property and tradies:

* if the property market is hot (ie high demand), but there are lots of tradies around (eg high migration), then building costs can be competitive enough to create equity by building new homes.

* if the property market is softer, and tradies are in high demand, then it can cost more to build a new home than it would cost to buy an existing home.

* and often, the two are in equilibrium and the costs of existing and new stock are roughly equivalent, and you have to balance the benefit of being able to design the home with the cost of having to manage a build

Well, building usually (should) add a load of equity.

That said, the eventual value is simply what it is worth and what people will pay in the current market.

I agree with your latter statement, which somewhat contradicts the former.

 

[Jebb]

No. There is no general rule. Sometimes newly built stock is less expensive than existing homes - in which case you do create equity by building - and sometimes the reverse is true. It all depends on the relative heat in the demand for property and tradies:

* if the property market is hot (ie high demand), but there are lots of tradies around (eg high migration), then building costs can be competitive enough to create equity by building new homes.

* if the property market is softer, and tradies are in high demand, then it can cost more to build a new home than it would cost to buy an existing home.

* and often, the two are in equilibrium and the costs of existing and new stock are roughly equivalent, and you have to balance the benefit of being able to design the home with the cost of having to manage a build

I agree with your latter statement, which somewhat contradicts the former.

Indeed it does. Property developers wouldn't be interested in a project unless it returned at least 20% profit in equity or value. But what happens when the market crashes halfway through a build, ie end of 2008 - the value is less than the cost to build, ouch. Which all comes down to the market at the time.

 

[tobe]

And Lenders arent in the business of deciding whether to back a hot property market which means 9 out of 10 times their policy will take either the build price, or the value on completion, whichever is lower.