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We have the opportunity to purchase a really nice home in an upscale neighborhood - but we're having a hard time meeting their asking price.
It's a new-ish neighborhood - with both existing (1-5yr old) and new homes being built consistently. All homes (whether new or existing) are custom built, non-tract-homes.
The average price for existing homes sold within the last 6-12 months is around $135-$145/sq ft. This includes upscale features: granite/marble/quartz, custom theaters, finished and walkout basements, full downstairs kitchens, landscaped, etc etc on most/all homes.
The average price for brand new custom construction sold within the last 6-12 months is around $170-175/sq ft. Similar features as existing but new and custom to the buyer/builder.
Most homes are between 6000 - 8000 sq/ft.
The home we're looking at is 1-2 years old, very clean, highly upgraded materials, in-ground sport pool, really nice landscaped yard (the owner owns a landscaping company). It's not perfect, however, it doesn't have a full downstairs kitchen or a walkout basement (which we really wanted but can sacrifice). It wasn't custom built for us, but we're willing to sacrifice some of the wants since it's an existing home.
Taking cue from the comps that sold at $135-145/sq ft, we offered a full $150/sq ft due to the nicer than average yard, and upgraded materials (although not totally out of this world) - and it still has a new home feeling.
However, they are firm on their asking price of ~$170/sq ft.
We asked them to show us comps that support their asking price, and the only comps they are showing us are homes that either haven't sold yet, are being built, or were brand new when sold. They aren't using any of the comps from homes that were not new when sold (the highest price per sq.ft an existing home sold in that neighborhood was around $148/sq ft. Hence the reason we offered $150/sqft).
We don't want to be unreasonable, we really like the home - but I feel they are asking new home prices for an existing home. We told the sellers we are more than willing to purchase at their asking price if they can substantiate their $170/sq ft price, but they keep showing us comps from brand new custom built homes (or homes that were brand new when they sold).
I understand that a house is worth what the buyer is willing to pay and seller is willing to sell - but to sate my own curiosity - is it really fair that they are only using comps from brand new custom built homes to value their 1-2year old (but still very nice) home?
I feel like we're at New car dealership that has both new and used cars on their lot - but we're buying a 1-2year old nice car, and they're asking the price similar to a brand new car.
Move on. There are plenty of houses for sale. Many sellers do not want to take a loss on
their home, or think their property is worth more than comparable sales. Keep looking and
be patient!
Make sure your realtor has submitted the pre-existing home sale as comps, then wait. Either they will be reasonable or you will have to be willing to pay more. As a realtor, I would probably ask the other realtor why my clients would pay new-home custom prices for an already built home. I would suggest they could just go build their own new home.
I agree about the $/sf approach. It is interesting and sometimes useful but it is really too simplistic. However, if they are hanging tough on their price and it is very similar to new build prices (on a comparable lot and including the same level of pool), tell them you will go to their price if they will replace all of the appliances with new versions of the same as long as you get the warranty, and if they will provide the same warranty period on the rest of the house as you would get with a new home. That might help them to realize that there is a fundamental difference between new and resale no matter how young the home might be.
If that doesn't work, I'd suggest keep looking but watch this one for a reduction just in case.
Are we talking the same builder putting up all of the homes in the development? Is he putting them up, or starting construction, and then you take over for "custom" finishes?
Just a couple of observations:
-new home construction...REAL custom....is more costly, per square foot, then existing construction of the same quality. Material costs are high (thank you China).
-An existing "custom" home can have even more upgrades. You don't get paid for "custom" landscaping, but it certainly costs a lot--easily adds $10-20,000 on the cost side, but buyers won't pay for it. You shouldn't either.
-be careful paying up for "custom" features like granite, crown molding, etc. if there is eveb a hint that these things weren't "designed" into the home. Upscale "custom" spec builders buy the cheapest crap they can find, and then sell it as a "custom upgrade".
Make sure you are buying what you think you are buying. Look at the bones, not the color of the paint on the walls. Be tough on price. What the seller paid is of no relevance. A development where there is a constant supply of new homes coming on board does not strengthen the position of the seller asking for a high, new construction price. Yes, the "used car" analogy applies.
I would go in with your best & final offer of what YOU are comfortable paying for the house, considering its pros & cons. You seem to be well educated about the market and the neighborhood. They will either accept your offer or counter it or reject it. IF it doesn't work out, keep looking and keep an eye on this house as well. Other buyers will likely feel the same as you, and the sellers will be forced to reduce.
Something similar happened to us. We made an offer on a 4 yr old home in a neighborhood we really liked. The home had a walk-out basement with full kitchen (which was a huge plus for us), but it wasn't perfect. It showed signs of wear, and there were some funky materials used in master bath, etc. They were priced per sq ft as much as the most expensive NEW construction in the same development, even though it was a 4 yr old home. We made an offer that was fair based on the most recent resale homes in the same development. They were "offended" and didn't even counter. We came up some and gave them our best & final, and I think they countered by coming down $1000 or something ridiculous off list price. A month or so afterward, they still didn't have an offer and their agent contacted ours and asked if we were still interested and would we consider $xxx,xxx. By that time we had already moved on and had a contract on another house. Guess they wished they had worked with us after all!
So, you never know....reality might set in with these people, and they might lower the price or come back to you. Good luck!
Thanks for all the responses guys - it's good to know that we're not being unreasonable. For a little bit there, I was thinking we were the crazy and unfair ones - it's good to get some validation.
They countered and came down (not very much). We countered again and we raised our offer from $150/ft to $160/ft (roughly a $75k difference in price). Keep in mind, average sold for existing homes in that neighborhood is $135-140/ft. New construction are going from $160 - $175/ft. They were asking $172/sq ft.
They flat out rejected the offer, but welcomed us to come back and submit a higher offer should we decide to in the future. We were literally 95% of their asking price, and they rejected!
And yes, most (if not all) of the homes in that neighborhood were true custom homes, and fairly comparable (there weren't any bad apples or extremes). All the lots were comparable - most if not all were within the .7 - .8 acre range. It was a true community / development opened up to custom builders, but forced homes to abide by strict guidelines and high standards or be fined. It wasn't a spread out neighborhood with a wide range of home prices and quality/size. So the other homes really were an apples/apples comparison.
Obviously some homes used better materials than others, and this one definitely was on the "higher" end of the spectrum in my opinion. But it did have some quirky design elements, the kitchen floor had a wonky tile design (that I would have never chosen), the theater was an open concept theater with so-so components (not a true theater), the master was a bit small to make room for a massive bathroom, the downstairs kitchen wasn't a full kitchen, no walkout basement (HUGE deal for us) - there was only 1 true "guest" bathrooms and it wasn't located well (all the other bathrooms were only accessible via walking through a bedroom), it backed up to a minor throughput road (not necessarily a busy road, but not a neighborhood road either), etc etc. There were definitely some pluses and minuses. No house is perfect - even a new custom home - and this definitely was not an exception.
I thought we were being pretty reasonable by offering $20+/sq ft over the average existing home comparables - even though it was not worth that much. Some sellers....
As has been noted, homes are not sold at the deli and price per square foot is not really an accurate metric for determining a fair market value. At best, they are just one factor among many to take into account.
Having said that, if you were at 95% of their asking price, and they are priced higher than realistic comps, then yes, they are overreaching and there's a good chance their house will continue to sit until they are ready to come down to a more realistic price. Depending on your circumstances, you can trying waiting it out and see what happens, knowing that someone else may come along who is willing to go higher or you could end up missing the window where they are willing to take a lower price but end up giving that deal to another buyer. Or you can let go of this one and keep looking.
But to go back to your numbers, it sounds like the going price for new construction is within your range, since you were willing to go to 170 per sq foot if you felt it was justified. So why not just go ahead and buy your own new construction and have it be your choices and not someone's wonky tiles and no walkout basement and all the other things that you didn't like about this particular house?
They aren't going to sell it to you for the price you want so move on.
You keep saying there are comps in the area that are cheaper so go buy one of those.
Price for Sq ft means nothing. I just moved out of a neighborhood where absolutely identical houses on opposite sides of the street would be $30,000 different in price. That's because one side had mountain views and the other didnt. Price per Sq ft was vastly different but Sq footage had nothing to do with the price difference.
Maybe the one you want has a better lot. Square footage is not the only price difference.
The average price for brand new custom construction sold within the last 6-12 months is around $170-175/sq ft. Similar features as existing but new and custom to the buyer/builder.
You, yourself, said new homes sold in the past year at $170-175 sqft. This house is about a year old. Why would it not fit into the same quality construction price as the others? This isn't a new car where it loses value as soon as you drive it off the lot. This is real estate that appreciates in value as other homes of similar quality get sold for higher prices.
You don't buy a house dollar per sqft. That's the most uneducated way to purchase a house. That works in condo complexes where everything is the same shape and finish out and you're just adjusting for the view out the windows, higher up usually gets higher dollar for a better view. You buy a house based on how similar homes are selling comparing similar finish out, features, and location.
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