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Thread summary:

How much profit to expect on real estate sale of home, consideration of building costs, landscaping, tile and carpet, high end appliances, sales commission, dual agency situations

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Old 09-04-2007, 12:50 PM
 
Location: LEAVING CD
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I'm going to post this in 2 different forums to get a couple of different opinions. I keep seeing posts about housing costs and how home prices are being run up by people moving here or there or by developers/speculators and people are being over charged.
My question is how much profit should one expect on a house and I will give an example.
A hypothetical situation, let's say you by a lot that is 80k. You put in well,septic and hook to gas,electric,phone and cable. You build a 2500 sqft house that is an upper run of the mill design outside with lap siding and is nicely appointed with high end appliances,tile and carpet, hand stained wood trim and you landscape the whole lot with a lawn and sprinkler system.
Since you have built (2 years ago) lots have sold for 40k more than you paid and building costs have risen (like concrete that went from 62 to 88 a yard) not to mention appliances,paving etc have gone up. You put your own sweat and labor into building along with hiring subs and doing all the lanscaping yourself. Your cost at the end is 330k. What after realtor fees do you think is a fair profit? Now remember, you don't want to be part of the gouging the buyer crowd you just want a fair return for both buyer and seller. Now I know that there are varieables like where it is and curb appeal etc but try and think of this in general terms, all things considered equal.....
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Old 09-04-2007, 01:10 PM
 
Location: Montana
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Unfortunately, jimj, it's really not a matter of how much you've got into the home. That ends up being irrelevant to the buyer (except to know how much you might be willing to deal), but it all boils down to how much your home is worth compared to similar properties. In other words, if Joe Homebuyer can look at 10 other homes similar to yours, he's going to probably choose the one that's in the nicest condition at the lowest price. When he purchases that home, that becomes the market value of your home.

In some parts of the country, folks have put a lot of time, effort, and money into making their home very nice. Unfortunately, with the falling market, some owners cannot hope to recoup even a small portion of their improvements because of what the market will bear. On the other hand, some folks are fortunate enough to live in one of the few hotspots. Because of the current price appreciation in those locations, they may double the money they've put into renovations.

It turns out nothing's fair in love, war, and real estate!

Last edited by Gretchen B; 09-04-2007 at 01:20 PM..
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Old 09-04-2007, 01:18 PM
 
Location: LEAVING CD
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Ok, let's say for the sake of argument that you could comp out (on the high side) at 460k without too much problem. Now, you have a low of no profit at 330k after commission or a high of 460k minus 5.5% commission.
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Old 09-04-2007, 01:32 PM
 
Location: Montana
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Well, what are the other homes selling for, not what they're listed at? If they're selling for $460k, and your home is at least as nice as the others that have sold, why would you want to sell for $330k? On the other hand, maybe everything is listed at $400k-$460k and nothing is selling because the market will really only bear $330k.

Keep in mind that just because you could pocket a profit of $130k now, that doesn't mean that you'll make a profit on your next home. You might get burned by $50k on your next investment, either because you move to an area where price appreciation isn't happening, or else maybe the housinig market in general takes a nosedive and you end up actually losing money.

I agree, that there is a fair price for every home. I don't think good real estate is about either the buyer or the seller getting taken. The "fair" price may leave the seller with a nice profit, but the buyer would have to pay the fair market value for every other comparable home. On the other hand, I don't think it's right for a buyer to find a desperate seller and get him in a stranglehold and get a property for a song. I think that's unscrupulous, too. (A good deal is one thing, but putting the screws to somebody is another story.) Unfortunately I've seen it happen on both sides of things, usually in FSBO situations with an uneducated (about the local housing price) buyer or seller. Once in a while I see it in a dual agency situation. Again, lack of representation can really hurt either the buyer or the seller. That's why it's so important to hire an agent that really takes their fiduciary duty to their client seriously.
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Old 09-04-2007, 02:38 PM
 
Location: LEAVING CD
22,952 posts, read 22,524,455 times
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Ok, let's refine this further then, within the last 6-8 months the comps have sold for anywhere between 400k on the low side to 460k on the high. Let's take my market for example, the market from 0-350k is moving and from 550k to well over a million are moving. The middle is slow. Now I guess where this is going is not as much what could it be sold for but where do people draw the line as to what's fair profit if it's possible to draw the line?
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Old 09-04-2007, 02:41 PM
 
Location: Wouldn't you like to know?
9,114 posts, read 15,667,962 times
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IMO I wouldn't expect any profit on a home considering all the overlooked expenses you pay (property taxes, homeowners ins, flood ins, maintenence, utility bills, improvements, special assesments, homeowner dues, replacement of prop damage (sometimes), and other misc expenses.

The return on investment is usually lousy. To me it is something I live in, not an investment.
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Old 09-04-2007, 02:43 PM
 
485 posts, read 1,345,499 times
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I think this is a very interesting topic because many posters on here seem to be encouraging buyers to put the screws to the sellers but think that seller is greedy for trying to get back what they have invested in the property. Where did all this hostility come from?
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Old 09-04-2007, 02:46 PM
 
Location: LEAVING CD
22,952 posts, read 22,524,455 times
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Quote:
Originally Posted by CouponJack View Post
IMO I wouldn't expect any profit on a home considering all the overlooked expenses you pay (property taxes, homeowners ins, flood ins, maintenence, utility bills, improvements, special assesments, homeowner dues, replacement of prop damage (sometimes), and other misc expenses.

The return on investment is usually lousy. To me it is something I live in, not an investment.
Excuse me????
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Old 09-04-2007, 03:31 PM
 
Location: A little suburb of Houston
3,702 posts, read 16,328,930 times
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I'm with couponjack, the problem with today's market is everyone was looking at homes as investments to make a profit on and that is why they were buying with 0 down and all that, it also resulted in the prices being driven up. Sure, you may get lucky and make a profit, but your home should be some place you live. You should modify it to fit your lifestyle choice and comfort and not look for a profit but enjoy one when you do get one.
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Old 09-04-2007, 04:12 PM
 
Location: Lompoc,CA
1,261 posts, read 4,681,698 times
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Quote:
Originally Posted by Poltracker View Post
I'm with couponjack, the problem with today's market is everyone was looking at homes as investments to make a profit on and that is why they were buying with 0 down and all that, it also resulted in the prices being driven up. Sure, you may get lucky and make a profit, but your home should be some place you live. You should modify it to fit your lifestyle choice and comfort and not look for a profit but enjoy one when you do get one.

I too am with Poltracker and CouponJack, whats up with this "a house is an
investment first" then a place to live second. I just want a home to LIVE
in, enjoy it, till we get old and creaky, then sell and move into a home or
with kids. Thats it. If I make a profit,( which I did recently), it was only because I didnt overprice, still made a little profit, and now want to upgrade
to a newer home, which some of the profit will go into anyway.
we are amazed we sold here in Calif. and made something. I feel
fortunate, not entitled.
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