How prices compound - $359,000
A reader asked me to review this house.
At least for this house, we can thank the realtor for providing 27 photos of the property. It is MLS #459549.
The builder bought the land (0.15 acres) for $59.9K in 2005. It was a multi-transaction deal for 2 properties so I split the cost in two. From the photos I estimate the construction cost with builder profit to be about $70/sq ft. 2,116 sq ft would be $148,120. Total cost all in with profit to the builder would be $208.2K.
Here is how the prices compound:
- When the builder bought the land it was over-valued. $59.9K for 0.15 acres is close to $400K/acre! Especially when right nearby you have Highway 64 and a train line in the background. I would have only valued the land for $15K.
- The first buyer bought the house for $304K in 2006. That put an extra $100K into the builders pocket.
- The second buyer bought the house for $335K in 2008. At that price the seller was just trying to cover their costs of the home and the realtors cost.
- They now have it on the market for $359K. At that price the seller is just trying to cover their loan and the realtors cost.
It is assessed for $315K.
If you took out the realtor costs for both of the transactions and the extra $100K that the builder put in his pocket, and the over purchase of the land you would be back down to about $163K.
I think it is worth somewhere between $163K to $220K.
Before everyone gets in an uproar about how much lower that is than what the assessed values are, I want you to look at how each time a pricing error is made, it gets passed down to the next buyer, and the next buyer, and the next.
Eventually you get to a tipping point that the mistakes cost too much, and the price has to be significantly driven down again. Is it fair for current buyers to pay for the mistakes of previous buyers?
What do you think?