I’d like to buy a small, older home in a high end town with the idea being to add on an addition with a bathroom, garage, family room - whatever it may need to become a more modern home with more square footage. With the goal of gaining significant equity.
I believe it will be important to look for a home with much more expensive homes nearby for comps. But my question is how close will do?
Some thing I’m finding are homes for say 450k with maybe a 1.1 million dall’orso home a couple streets over. Will this work for a Como
If the home to the left and right are 450k as well?
Does the “half mile” rule apply?
My rule of thumb is a comp has to be a similar build style, size, and age. The most applicable comps are going to be in the same neighborhood. I always try to only pull comps in the neighborhood of the house I'm looking at. If you can find houses that are similar in square footage and finishes to the finished product you are shooting for, you should be good to go.
Practically speaking, however, sometimes there just aren't enough sold properties in the neighborhood you're looking at. I don't abide by a certain distance rule. This can go both ways. Sometimes you can have a house 1/4 mile away that is nowhere near the same. Or you can have a neighborhood a mile away that is very similar in house types and age. Now obviously the closer the better. I would start looking at the sold homes closest to the one you're looking at, and only work outward if you can't find houses that are similar.
@Jordan Fulmer is thinking exactly how I would on it! Appraisers sometimes has crazy different opinions, but start with those parameters. I would also add, if you have a range of something (like years or square footage), be sure to go both ways when you limit as well. For example, if your house is 1970, and you want to limit the year built to nothing more than 10 years older, you'll also want to limit it to 10 years younger (1960-1980). Square footage example: Yours 2,000 ft - then go down to 1,800 and up to 2,200 ft. If you don't need to restrict so much, you can leave those limiting parameters off, but if you use one limit, you really should use the other way limited as well to get the best results of what an appraiser might use.
The rule I use is the comps must be within 10% of the square footage of the home in question...and they must be grouped together within a half mile at most.
Thanks for the feedback.
Quick question, if adding a significant addition and renovating, can your end product be considered “like new?” can you compare it to properties a bit newer than the original age of the house?
Typically the homes you are using for comps have been renovated (or are at least in pretty good condition) as well, so the price/sqft on those should be close to what yours will be worth when renovated. You don't really want to try to go too much over the price/sqft of homes that have sold in your area, since these sold homes are what set the standard for the rest of the home values. Ideally, you should be using homes for comps that have similar finishes to what you are planning to do with your renovations.
Hope this helps!
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