What is the correlation between a builder's price and the actual market value of the home? (Prosper: sales, how much)

[EonBlueSyZ]

I've noticed that in very hot markets with new builds (e.g. Prosper or Celina), the sales price of a new build is often times significantly higher than what a website like Zillow or Redfin will value it at.

Examples: a new build in Celina starting at $330 before upgrades which has an estimated value of $305, or a new build in Prosper which is $450 before upgrades which has an estimated value of $420.

Is this expected? E.g. a builder is obviously going to try to sell for more than what it may actually be worth?

Is this a sign of unhealth? E.g. if somebody buys for $330 and then puts $30 in upgrades and has a $360 home but it's only worth $335 (the $305 + $30) then every single new build is going to be worth less than what the buyer paid.

And what does it mean for the market? If somebody builds a new $330 home and puts $30 in upgrades, is it worth $360 or $335?

[Katana49]

An estimate is just that, an estimate. They aren't intended to tell you EXACTLY what a home is worth. Even an actual appraisal doesn't do that, a home is worth whatever someone will pay.

[EonBlueSyZ]

Originally Posted by Katana49

An estimate is just that, an estimate. They aren't intended to tell you EXACTLY what a home is worth. Even an actual appraisal doesn't do that, a home is worth whatever someone will pay.

If an estimate is not accurate, what is the point of it?

If you have a car that is worth $20k and you can get $20k for it, but I estimate it at $10k, what is the point of that estimate?

Further, property taxes are derived from estimates, correct? So the city is telling me what the house is worth, but it's not actually worth that if it's just an estimate that ultimately is not meaningful.

Very confusing / shady.

[Katana49]

Estimates are guides. They take information like square footage and features into account, sometimes recent sales prices, and listing prices of nearby comparable homes into effect. A good estimate should get you in the ballpark... but they have no way of knowing all the details of a home, whether high end finishes were used throughout, or cheap builder grade stuff. They usually don't take into account location very well either. Example, our home is on a golf course, and golf course lots routinely go for a 20-30k premium vs a comparable home across the street.


Just because you see an estimate doesn't mean it's a good one.

[EonBlueSyZ]

Thanks for the responses.

I suppose my grievance is simply this: if something cannot be trusted or utilized well, I don't see a reason for it.

So, my application is to not take estimates into account because they can't be trusted and I can't utilize them either as a buyer of a new build or a seller of my current home.

[Rakin]

Never use Zillow, Redfin or Trulia to "Estimate" the value of a home.

It's totally bogus info and has nothing to do with the real market values of your home. Especially in a hot market where the prices and the costs to the builders are going up weekly.

Builder materials and labor costs right now are going through the roof.

Then there is demand that is pushing prices even higher.

[mikestrong]

Originally Posted by Rakin

Never use Zillow, Redfin or Trulia to "Estimate" the value of a home.

It's totally bogus info and has nothing to do with the real market values of your home. Especially in a hot market where the prices and the costs to the builders are going up weekly.

Builder materials and labor costs right now are going through the roof.

Then there is demand that is pushing prices even higher.

[36183]

I compared the asking price of an existing home just went contingent and the starting price of a new home of the same model on the same site. The asking price of the existing home is 20K higher than the starting price of the new home. How much higher can the new home go after they become ready to move-ins?


https://www.realtor.com/realestatean...7_M90673-69692

This home has ”HIGHEST AND BEST DUE FRI 3-5 AT 5PM” term and my guess is that the final price is higher.

https://www.firsttexashomes.com/comm...ston-f-wmedia/

[NP78]

Originally Posted by 36183

I compared the asking price of an existing home just went contingent and the starting price of a new home of the same model on the same site. The asking price of the existing home is 20K higher than the starting price of the new home. How much higher can the new home go after they become ready to move-ins?


https://www.realtor.com/realestatean...7_M90673-69692

This home has ”HIGHEST AND BEST DUE FRI 3-5 AT 5PM” term and my guess is that the final price is higher.

https://www.firsttexashomes.com/comm...ston-f-wmedia/

I realize this is not helpful to the OP, so my apologies for hijacking the thread, but can I just comment on that lot size? 6882? The giant house/tiny lot trend is something I just don't get. I understand it from a developer standpoint, but not why the demand is even there. I just don't think these neighborhoods with really tiny lots in exurban locales will age that well. I might be wrong.

[Katana49]

Originally Posted by NP78

I realize this is not helpful to the OP, so my apologies for hijacking the thread, but can I just comment on that lot size? 6882? The giant house/tiny lot trend is something I just don't get. I understand it from a developer standpoint, but not why the demand is even there. I just don't think these neighborhoods with really tiny lots in exurban locales will age that well. I might be wrong.

Depends... Zero lot line homes are popular with the age 50 and up crowd, as they get a small patio area, but no yard to maintain. A lot of people don't want the maintenance or hassle of a yard but can afford a large home.