How do you argue against a building comp in the following situation where the apartment is in good condition but needs updating in most rooms and the only building comp was in excellent condition and recently renovated? A two bedroom two bathroom apartment is listed for sale at $1,000,000. A unit in the same line 3 floors lower sold recently for $980,000. You have priced the unit for sale at a... [more]
How do you argue against a building comp in the following situation where the apartment is in good condition but needs updating in most rooms and the only building comp was in excellent condition and recently renovated?
A two bedroom two bathroom apartment is listed for sale at $1,000,000. A unit in the same line 3 floors lower sold recently for $980,000. You have priced the unit for sale at a market price of $940,000 because despite the higher floor, the apartment has not been renovated in 10 years. From the description and photos of the $980,000 unit, it appears that the apartment had been recently renovated using high quality materials. The only other apartments that recently sold in the building were smaller units.
Is the only way to comp the apartment to start with the $980,000 sale price and then reduce a certain percentage for the updating renovations and then add back a certain percentage for the difference in floors (assuming relatively similiar light and views)?
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Response by happyrenter
over 15 years ago
Posts: 2790
Member since: Oct 2008
can you clarify the situation? who are you arguing with? are you a seller, a buyer, a broker, or an observer?
the important thing to remember about a real estate transaction--or a sale of any kind--is that there really isn't anything to argue about. if a seller thinks your asking price is too expensive, you are unlikely to convince him to buy the unit. likewise, if a buyer thinks your offer is too low, he is not going to suddenly accept it because you have a good argument for it.
same-line comps are powerful and can't be dismissed even in cases where condition is quite different. but condition is still going to have a big impact on the sale price. figuring out the right price is more of an art than a science, and we'd need more information to get this one right. there's certainly some value to being three floors higher, but how much value depends on views/light/noise in this particular situation.
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Response by front_porch
over 15 years ago
Posts: 5321
Member since: Mar 2008
lob, comps run two ways: one is historical comps -- which is the line of argument you're looking at -- and the other is on-market comps.
If historical comps dictate, say, $800,000, but there's nothing nicer on market than the target apartment at $940,000, it would be foolish of a seller to move too far off $940K towards $800K.
I think that's the problem you're facing.
Try an on-market attack, where you find something else decent for $940K and show that to the seller.
ali r.
DG Neary Realty
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Response by lad
over 15 years ago
Posts: 707
Member since: Apr 2009
The past year / year and a half has been volatile for comps, too. Months do matter.
We have seem same-line, similar or less renovated apartments in buildings close for substantially more than '09 comps. There are some outliers in that period who sold for what they had to sell for, which is below what the current market will support.
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Response by lobster
over 15 years ago
Posts: 1147
Member since: May 2009
I have encountered this situation a few times already where the most recent historical comp in the same line in the same building sold for a high sale price since the apartment was in excellent condition and the former owner spent a good deal of money on renovations. I really can not argue that most of the apartments that I see are in less than good condition. To distinguish what is the market price of an apartment in good condition vs. one in excellent condition in the same line and building has been a difficult argument for me as a buyer to make to the seller. Therefore, if the most recent comp is one in which the seller spent a good deal of money on renovations, IMO the apartment currently on the market benefits from the high sale price of the comp. In addition, if neither I nor the seller has actually seen the apartment which previously sold, it can be difficult to ascertain the actual value added to that apartment by the recent renovation. Essentially I, as a buyer, have to pay a price for the apartment in good condition which is not much less than what the apartment in better condition got as a price, even though I will not have bought an apartment which had the amount of money put in already in renovations. In effect, because of the historical comp, if I want the apartment I have to overpay the actual market value of the apartment on the market.
can you clarify the situation? who are you arguing with? are you a seller, a buyer, a broker, or an observer?
the important thing to remember about a real estate transaction--or a sale of any kind--is that there really isn't anything to argue about. if a seller thinks your asking price is too expensive, you are unlikely to convince him to buy the unit. likewise, if a buyer thinks your offer is too low, he is not going to suddenly accept it because you have a good argument for it.
same-line comps are powerful and can't be dismissed even in cases where condition is quite different. but condition is still going to have a big impact on the sale price. figuring out the right price is more of an art than a science, and we'd need more information to get this one right. there's certainly some value to being three floors higher, but how much value depends on views/light/noise in this particular situation.
lob, comps run two ways: one is historical comps -- which is the line of argument you're looking at -- and the other is on-market comps.
If historical comps dictate, say, $800,000, but there's nothing nicer on market than the target apartment at $940,000, it would be foolish of a seller to move too far off $940K towards $800K.
I think that's the problem you're facing.
Try an on-market attack, where you find something else decent for $940K and show that to the seller.
ali r.
DG Neary Realty
The past year / year and a half has been volatile for comps, too. Months do matter.
We have seem same-line, similar or less renovated apartments in buildings close for substantially more than '09 comps. There are some outliers in that period who sold for what they had to sell for, which is below what the current market will support.
I have encountered this situation a few times already where the most recent historical comp in the same line in the same building sold for a high sale price since the apartment was in excellent condition and the former owner spent a good deal of money on renovations. I really can not argue that most of the apartments that I see are in less than good condition. To distinguish what is the market price of an apartment in good condition vs. one in excellent condition in the same line and building has been a difficult argument for me as a buyer to make to the seller. Therefore, if the most recent comp is one in which the seller spent a good deal of money on renovations, IMO the apartment currently on the market benefits from the high sale price of the comp. In addition, if neither I nor the seller has actually seen the apartment which previously sold, it can be difficult to ascertain the actual value added to that apartment by the recent renovation. Essentially I, as a buyer, have to pay a price for the apartment in good condition which is not much less than what the apartment in better condition got as a price, even though I will not have bought an apartment which had the amount of money put in already in renovations. In effect, because of the historical comp, if I want the apartment I have to overpay the actual market value of the apartment on the market.