When there are no comparable sales

[MTR]

Hi All
I am currently looking at a development site with the view of building 3 villas. The particular area will be rezoned within the next 6 months, it has already been rubber stamped so its definitely a goer.

This is the issue I have though, the market is still rising in this area as there is no or little stock and many buyers trying to source these sites. I have found an excellent property, best location in the area, however how can I work out the numbers on the end value if there are no comparables??

Anything that comes remotely close is on perhaps 400 sqm lot and 3 x 1 house, my product will be 3x2 villa on perhaps 200 sqm land.

My contact a local re agent has forwarded similar product in adjoining areas, however these adjoining areas also happen to have a much higher median price.

I have guestimated an end value but more or less on the lower side. I am very much dependent on values when sourcing finance, if there are no comparables, how do I source finance??

I also believe the zoning has already been built into pricing of the current land value in this area, however I also don't believe that this particular area will slow down as mentioned more demand than supply, location of the area, proximity to city etc

Properties in this area where value has been added has come in the form of a new house built at the rear so larger land component and larger house. This also raised the question will prospective buyers go for my product?? From my minimal research I would say yes, but comes down to $ value.

Anyone been down this road? Very frustrating, is this too much risk??? The area is possibility the hottest I have seen to date, my competition are not developers but people upgrading, investors (buy/hold).

Cheers
MTR

 

[Scott No Mates]

Your best guide will be similar properties in a nearby suburb. This will give you pricing from which to base your values. If you know that the next suburb is x% above or below your suburb, adjust your expectations accordingly.

 

[thatbum]

I think I might know which suburb you are talking about, and I've been trying to do similar DD on the prices of the end product.

In the end, I looked used what I knew about sales of similar new villas in neighbouring areas, and then factored in the differences between median prices and supply of housing between thw two.

For example, I had a fair idea of how much the equivalent villas were going for in Spearwood, and strongly suspected that there would be more demand in this particular suburb compared to Spearwood.

 

[HD_ACE]

Out of curiosity, do the numbers work as a retain and build or duplex site seeing as the demographic is for this product on larger land parcels?

Occasionaly underdeveloping a site leads to more $$$ and a smoother process.

Cheers

 

[MTR]

Out of curiosity, do the numbers work as a retain and build or duplex site seeing as the demographic is for this product on larger land parcels?

Occasionaly underdeveloping a site leads to more $$$ and a smoother process.

Cheers

Yes, it does. The home is beautiful, however it is only 2 bedroom, if it were 3 I would get much more, but it still stacks up. I never looked at this. Thanks

There are not too many areas left where they do, generally better with 3.

 

[MTR]

I think I might know which suburb you are talking about, and I've been trying to do similar DD on the prices of the end product.

In the end, I looked used what I knew about sales of similar new villas in neighbouring areas, and then factored in the differences between median prices and supply of housing between thw two.

For example, I had a fair idea of how much the equivalent villas were going for in Spearwood, and strongly suspected that there would be more demand in this particular suburb compared to Spearwood.

I am not sure we are talking about the same areas??

With Spearwood the areas nearby, ready to be rezoned are almost the same median price therefore its much easier to work out an end value.

The area I am looking at surrounding areas have a discrepancy of as much as $200K that is why it is so difficult to come up with a figure. Though in saying this perhaps this is a good thing as buyers who can not afford the surrounding upper market areas will jump into affordable adjoining area which I expect will push prices up, perhaps it will be catch up time.

I will still need my values to come in for my loan when developing this is an issue, perhaps I will post this question under finance.

I know there are issues with comparables when purchasing properties with g/flats can be sometimes difficult to source finance as some banks will not add the extra value unless it is approved and if there are no comparables they will come under the real value.

CHeers
MTR

 

[westminster]

You need to guestimate your DD for now. Work on the next closest suburb with the same zoning then take off the difference if they have a higher or lower buyin price.

So suburb Y is the closes suburb with comparable stock and it is $700k buy in and end value is $650k each. Your suburb x is $600k buy in and therefore $100k less so you might get $620k each (third of $100k difference less)

Don't forget that you only need to finance based on current value now. When it comes to construction loan (once zoning goes through etc) the bank will look into comparables and having higher comparables in surrounding areas may be a godsend.

 

[A Jeremy]

I had a valuation come in well, well under what I knew I could sell it for and got a hold of the list of comparable properties that they used for the valuation(the bank manager strongly shared my surprise). Yes we all know real estate agents inflate sales estimates but I got three of the agents that sold some of the comparable properties to give me an estimate and they were all at least $100k above the valuation. I gave these to the bank manager and he asked the valuation company if they could take another look and they didn't want to know about it.

I was able to make the next project work, using the available equity, and was given some consolation from a real estate friend who told me of the properties, similar to mine, that were about to come onto the market. I might get a valuation in a year if there are some good comparable sales but have to weigh it up against the $800 valuation fee.

 

[MTR]

I had a valuation come in well, well under what I knew I could sell it for and got a hold of the list of comparable properties that they used for the valuation(the bank manager strongly shared my surprise). Yes we all know real estate agents inflate sales estimates but I got three of the agents that sold some of the comparable properties to give me an estimate and they were all at least $100k above the valuation. I gave these to the bank manager and he asked the valuation company if they could take another look and they didn't want to know about it.

I was able to make the next project work, using the available equity, and was given some consolation from a real estate friend who told me of the properties, similar to mine, that were about to come onto the market. I might get a valuation in a year if there are some good comparable sales but have to weigh it up against the $800 valuation fee.

Always at the mercy of values coming in. Fortunately I have plenty of equity but then this defeats the purpose ..... using equity for builds rather than purchasing additional properties.

 

[MTR]

You need to guestimate your DD for now. Work on the next closest suburb with the same zoning then take off the difference if they have a higher or lower buyin price.

So suburb Y is the closes suburb with comparable stock and it is $700k buy in and end value is $650k each. Your suburb x is $600k buy in and therefore $100k less so you might get $620k each (third of $100k difference less)

Don't forget that you only need to finance based on current value now. When it comes to construction loan (once zoning goes through etc) the bank will look into comparables and having higher comparables in surrounding areas may be a godsend.

Spent the day doing this with at least 3 areas that surround the suburb, I actually think this project will be very low risk considering the much higher sales in these areas.
Will be meeting the agent this week prior to the property going to market, seems the only way to do business these days, that's if the agents are willing to go with this. Not too many are, but this one is