Most important factors of sale price

13 Replies

I found that in the Greater LA Area, in a given neighborhood or community, house price is usually determined by two factors: (1) the square footage of the house and (2) the condition of the house. Lot size has some impact, but not as important as the first two factors. That's opposite to my experience from other markets. Shouldn't land be the most important and most expensive factor? 

This is LA, you can't compare it to anywhere else.

@Manolo D. Yes, just because this is LA, land value should be the most important factor, instead of being the third or the fourth. People should mainly pay for the land instead of the attachment on top it. 

Depends on the homogeneity of the houses in the area and the underlying zone(s) as well. If the zoning is pretty uniform and there isn't much room for expandability I can see where the land wouldn't move the gauge *as much* as sq ft and condition. The interesting thing about real estate is that it is so localized that no matter what there are a plethora of variables that come into play when determining market value. Each person runs through an internal hedonic analysis that forms their opinion of what they would pay for a property, and for a lot of people in a hot market with lots of demand things like yard size might not be as important as other factors.

I'm going to take a stab and say that if you had two properties in LA and everything was the same except one had a double lot with expandability, then it would go for a premium over the other. Or do you not think that's the case?

In addition, in the past two years, I see few demolishes happening in cities along Highway 210,10 and 60, such as Acadia, Glendora, Covina, Wallnut, Rowland heights, Hacienda heights, Ontario, Chino, Chino hill, Corona. Additions are rare as well. Usually, houses are painted, installed with new floors and new windows and then put on the market. No structure change to the house. 

In other hot markets, houses less than 15 years old are usually teared down and replaced with a much larger one. 

Originally posted by @Neal Collins :

Depends on the homogeneity of the houses in the area and the underlying zone(s) as well. If the zoning is pretty uniform and there isn't much room for expandability I can see where the land wouldn't move the gauge *as much* as sq ft and condition. The interesting thing about real estate is that it is so localized that no matter what there are a plethora of variables that come into play when determining market value. Each person runs through an internal hedonic analysis that forms their opinion of what they would pay for a property, and for a lot of people in a hot market with lots of demand things like yard size might not be as important as other factors.

I'm going to take a stab and say that if you had two properties in LA and everything was the same except one had a double lot with expandability, then it would go for a premium over the other. Or do you not think that's the case?

I agree. But what I find is that  a double size lot won't sell for double price (far less than double) even on the same street in the same community. But a double size house can almost sell for double price. 

I feel that LA is just way too big. Land is not as scarce as I thought it was. If people want larger and newer homes, they can find plenty of them on the east side, such as Rancho Cucamonga, and people are used to travelling for hours to work. Just my two cents, but I might be wrong. Willing to learn more about the LA market.

@Aaron Xie that would be based on your assumption that Rancho Cucamonga is considered Los Angeles.  In fact, being 40 miles east of Los Angeles proper and in a different county (San Bernardino), Rancho Cucamonga shares almost nothing with LA except being in southern California.  Citizens of both cities value extremely different things.  I personally avoid LA because of the traffic and congestion.  I like Rancho because of the slower pace and family atmosphere common with middle and upper middle class suburbs.

@Aaron Xie Yes you are totally wrong. Rancho is not LA, don't compare them. Navigating through 1 hr traffic is different than driving 1hr on a freeway, it's never the same. It doesn't mean that we can travel 1hr through traffic means that we are willing to go make it 2hrs (4hrs total travel/day) for a couple of hundred bucks a month, that will simply cancel out in gas and time spent on the road. Land is not number one, waiting time, permits costs, etc is part of the building; land is second it has utility taps, government assessments, etc. You are also wrong that rehabs in LA doesn't entail an addition, I see a lot of 900 sf being added at 500sf is a norm. A normal major rehab (1-2 existing walls up) is 3-4 months to get approved and could be 20-70k for the review. Tear down is 4-6 months for review, costs 30-60. Power company charges 1000/ft for underground power, gas not sure, etc. These costs aren't the same when you go somewhere like riverside or kern county. You have a lot to learn.

@Manolo D. Thanks for the information. Indeed I have a lot to learn about the LA market and the local rehab cost ...

Every market will be different and every buyer is different. I have no desire to own more land. That is more maintenance and more expense. A larger lot adds NO value to me. 

Hey @Aaron Xie

Keep in mind that, especially with single family houses, the buyers are typically not investors and not looking at it from the same perspective as you would. In a lot of cases the property is being bought because of the image it helps portray, not because it offers the highest probability of maximizing ROI.

So, the home built completely out to the potential of the lot, but that has nice granite countertops and a pretty chandelier will sell for more than a home without those things on a much larger lot. 

@Aaron Xie

I think most people in California that were previously renting, or living with their parents are more interested in having a beautiful home, compared to having land that can be expanded on. 

Investors may like the idea of expansion, but the end buyers like completed homes that don't require much work. At least this is what I have gotten from reading forums and updates from Car.org 

Thanks for all the replies. It is very interesting to know the thinking from the end buyer side, and adjust my buying strategy accordingly. It is also good to know that there are more end buyers buying in the east side of the LA county and in the SB county. That is a good sign of a healthy market. 

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