Interested in a house that is custom, new construction. Been on the market for 18 months. Asking price is $600,000. What is a fair price to offer?

Asked by Lyl, 16059 Mon Oct 26, 2009

the builder?

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Larry Vicario, , Butler County, PA
Thu Nov 12, 2009

From the information you have given to me I would feel at ease with a 540 to 550 offer The builder should not be offended at this price he will counter with an offer and you can come to a reasonable and equity price you both can live with.
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Lyl, Home Buyer, 16059
Wed Nov 11, 2009
Larry, The house is a very nice custom home from one of the best builders in the area. It is a nice smaller neighborhood that has taken a long time to fill up. The last 3 resales (not new construction) have sold for between $500,000 and $520,000. The house that sold for $520,000 was built by the same builder as the new construction, had an awesome finished basement and a better lot. However, it was 8 years old. I don't know how to compare new to existing. I don't want to insult the builder, but I do not want to overpay in a down market. How is the Butler County market doing? This is in the Mars School District. There are still lots in the neighborhood available. Thanks for your input.
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Larry Vicario, , Butler County, PA
Thu Nov 5, 2009
There are several items to look at when one places an offer on a home a blind question is hard to answer. You have to take in to consideration location, land, quality of construction. Example a 600,000-dollar home trimmed in plastic and painted white with cheep doors cannot be compared to a 600,000-dollar home trimmed in wood, stained and solid wooden doors.

Lets have some parameters to look at then I can better answer the question
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Dave Westall, Agent, Tahoe City, CA
Mon Oct 26, 2009
Depending on location a 6 month sale may have come down in value by 10% or more, so be very carefull about older closed sales. Typically lenders will not even look at comps if they are over 3 months old in a declining market. If the market were stable or increasing it would be ok to use slightly older comps. I would take a long hard look at active listings and the pricing of newer custom homes. Then I would try and figure out what the typical list to sold discount is in your price point and overall market. That will help you determine an average or median list to sold discount that you could apply to similar lisitngs in order to get a fairly accurate value.

If you only have older comps to work with you can come up with a figure for depreciation using the age/life method. Typically a home has a lifespan of 60 years and depending on how new a home is or how it is upgraded can effect the effective age of a home. E.G. A 10 year old house with very little maintenence and shows as a worn house could actually effectively be 15 years old. While another 10 year old house that has been very well maintained showing very little wear could effectively be 3 years old. So based on this example the worn house has depreciated 25% while the well cared for house has depreciated 5%. So, if in your area a builder can build a custom house for $250 per sqft and for example the house is 2,000 sqft the construction cost would be $500,000. Now take into consideration the 2 depreciation scenarios I have given: 25% x $500,000= $125,000 in depreciation and 5%x$500,000= $25,000 in depreciation. So the well cared for home would effectively be worth $100K more than the house that was in rough shape.

I hope this helps you out.

Best regards, Dave
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Dave Westall, Agent, Tahoe City, CA
Mon Oct 26, 2009
The answer to your question depends on the results of a Current Market Analysis (CMA). This is a tool that Realtors use to compare similar homes and determine a price range for a given property. A CMA takes into consideration market activity, marketing times, active listings, pending sales, and closed sales and is crucial to making an offer that makes sense. E.G. A $600K property may only be worth $540K based on a CMA, so an offer of $490K may be warranted in a declining market. You will also want to consider if the house has numerous buyers circling and preparing offers, in that case you might want to think about what the house is worth to you considering the CMA. In the later example if its a house you want, the value is there at $600K, and there are numerous people interested in the house than your offer should be closer to asking price to ensure they accept your offer.

I always try and talk to the listing agent before writing an offer so that I can get a sense of urgency, seller motivation, and try and dig up as much info as possible before placing an offer. This is why working with a good agent is crucial as he/she will protect your interests, review the market, and negotiate the best price possible. If you have any additional questions or would like to discuss my answer further feel free to contact me.

Best regards, Dave

David Westall, Realtor
DRE# 01796995
Tahoe Riverfront Realty, Inc.
530-583-3483 x7
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