How to estimate renovated (new) house value

Question

How would one estimate what the new value of a renovated / new house after it has been flipped, or torn down and rebuilt?

Let's say you buy a 1500 sq ft home on a big half acre lot in a desirable area, tear it down, and expand it to 4000 sq ft.

Would you go by sold houses price per square foot in the same area?

That seems like apples & oranges since sold comp sales may be significantly older and less desirable.

Bob Prisco · Answer

@John Vela-Garcia I assumed this was an investor asking this question. If an investor has to ask how to run comps, again they should not be doing it. They need to team up with those doing deals, learn, and apply what you learn,

Good Luck

Will Barnard · Answer

While that may possibly be true, asking questions here is how people learn and providing an in depth answer is how you will be valued as a member here.

John Viel · Answer

That's a really helpful comment! Without knowing some background on the person, how do you know they shouldn't be doing it? What if this person is a full scale contractor with the capabilities and knowledge to do all the work working to expand a little, but without the knowledge of how to value it? Should this person not do it? Have you never asked a question you didn't know the answer to?

Bob Prisco · Answer

If you have to ask you should NOT being doing it

Good Luck

Will Barnard · Answer

You can’t use a 1500 SF home and take the price per SF for a 4000 SF home. Similar to buying a six pack vs a 12 pack, the 12 pack per can price is cheaper than the 6 pack per can price (quantity discount) and real estate is no different.

It is important to build something that will fit the area and of most other homes are under 2000 SF in that area and on that street, you would be ill advised to build a 4000 SF home on that street. In fact, you do not want to own the largest home on the block typically as it is more difficult to sell than all the others.

Now, if the area does have other 4000 SF homes including this particular street, then yes, you would take the sold comp values of the other similar sized properties within 10% or so of the 4000 SF and use those to comp your new build factoring in some higher values for a new build over an older comp. Evaluating values of teal estate is just as much an art as it is a science.

Brian Pulaski · Answer

If the neighborhood is a bunch of 1500 SF houses, who will want to live in the 4000 SF house? Just taking $/SF doesn’t work especially in this scenario. You will need to find other 4000 SF houses in the area and see what they are selling for. Once you know that, you will have to adjust for it being the biggest house in a neighborhood of smaller ones (I assume this is the case).

Greg Dickerson · Answer

It’s all about comps of existing surrounding homes as well as new construction nearby. You need to match values in the neighborhood your building in.

Account Closed · Answer

@Tom Matheu Honestly, one of the riskiest things you can do in real estate investing; is creating your own market. Realtors, investors, banks etc. all rely on comps to determine an appraisal of the house. No matter how amazing you make this property chances are you wont get back what you think you will. My best advice to you would be to build the house based on the comps that you want depending on your area, zip code etc. Don’t try to create your own market because banks will not lend over comps no matter what. Dont limit your buyers.