Vail Daily column: Calculating the value of real estate
February 4, 2017
The value attributed to residential real estate is a subjective matter. Typically, owners, sellers, real estate brokers or even the neighbors will promote a higher price, while buyers, bankers, appraisers and lenders may estimate something lower. Often the conversation turns to "price-per-square-foot", and lifestyle-altering decisions are made based on this one simple mathematical analysis. Buyers walk away from amazing properties; sellers watch their homes sit on the market; opportunities are lost. All based on a brief comparison of numerical statistics from neighborhood sales. This is unfortunate. Real estate is the largest single investment most people will make in their lifetime, yet many of us spend more time haggling over car purchases or finding discount plane tickets than we do figuring out why we love (or don't love) a property and what the price really should be.
There are many factors that impact the value of a home. Some are obvious. Some are not. Location, view, finish quality, amenities and neighborhood are fairly obvious. But there are also the subjective factors, such as the orientation, window size, deck space, yard size, technology, proximity to neighbors, ceiling height, even stair width, counter space and more. We often visit a property and can't put our finger on why it doesn't feel as valuable as another home. But is a 1,000 square foot living room with 8-foot ceilings and small windows worth the same as a 1,000 square foot living room with 12 foot ceilings and walls of glass, just because the view is the same? Certainly not.
The Vail Valley real estate market truly accentuates differences that impact home value. We have a geographically small area with extreme variations in property values. Zillow tries to calculate their "Zestimate" with a location/price-per-foot algorithm, but it doesn't work well when a condo sells for $329 per square foot less than a mile away from a home selling for $882 per square foot. Buyers come to town to find their mountain retreat, which can be defined in many ways. Some want a ranch in Lake Creek. Others are looking for a condo or home in the action of Vail Village. If either of these properties fulfill expectations in their own ways, they will capture a premium price, but if they are less than what's expected by buyers, no one will pay the same price.
Developers have learned the hard way that the condo at the end of the building with highway impact is not worth the same price-per-square-foot as the one in the center with better views and no road noise. Likewise, if the cabin in the woods does not offer the expected luxury of a resort property, the price-per-foot value will be more representative of a tree house, not a Vail ski home.
Buyers (and real estate brokers) need to be aware of properties coming on and off the market. While shopping for a home, a buyer must consider properties with all sorts of benefits and drawbacks, comparing, contrasting and determining which home works best.
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Meanwhile, sellers need to figure out what buyers want and calculate appropriate pricing. If they miss the mark, then the property will basically be ignored and sit on the market. As an example, consider the price per square foot for luxury homes in Vail. Currently, homes for sale in Vail Village and Lionshead Village range from $1,561 per square foot to $3,265 per square foot, yet the highest sales price per foot in 2016 was $2,637. The current average asking price per foot is $2,437, while the average closed price per foot in 2016 was $2,033. But rather than focusing on averages, what it really comes down to is individual homes and the combination of size (smaller homes tend to sell for higher prices per foot), quality (new or renovated homes sell much higher per foot), location (if premium warrants a much higher price per foot), and design (an efficient, well thought-out floor plan gets the higher price). These four factors, combined with the subjective, personal choices of the buyers determine the acceptable price per foot. One home on Forest Road sold in nine days for $2,237 per square foot because it was ski-in/ski-out with a good price point (under $9m), yet other turn-key homes haven't sold even though they are listed for 10-15 percent less per square foot, because of challenging floor plans, locations or finishes.
Don't Get Hung Up on Number
It is important for buyers and sellers to really understand what brings value to their real estate. Give yourself credit for views, landscaping and location … even water purifiers, large windows and garage cabinets drive up interest and the sales price per foot. These things matter. But one also needs to realize that if finishes are outdated, floor plans are choppy or the home is full of long hallways, price per square foot needs to be adjusted downward. At the end of the day, an honest analysis of what a property offers will determine if a price-per-square-foot number is accurate. Don't get hung up on the number. If a home needs work and is priced fairly, then it offers opportunity. If a home is fully renovated, priced at the low end of the average price-per-foot and offers a good location and a quality setting, then buy it! There are a few out there, so go look around.
Steve Michonski is a veteran broker with Berkshire Hathaway HomeServices in Vail. You can contact him at 970-331-4539 or visit his web site at RealtyVail.com.
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