There can be a perception in the market by both buyers and sellers that developers will pay more for a property than an owner occupier. This is not always the case, but how do you know what type of property will be snapped up by a developer?
A developer and an owner occupier value properties in two very different ways.
An owner occupier will be looking at comparative sales and assessing if they believe the particular property is worth more or less than those recent sales. It could be the location is slightly better or there is larger living areas. They buy on emotion.
A developer has to assess many other factors to come up with their price. They start with the end in mind and decide on what they believe they can sell their development for in 12-18 months time. They then consider demolishing and build costs, stamp duty and interest costs, selling costs and potential delays and issues and a minimum profit margin they are willing to accept. So this is the simplistic formula they use to make an offer on a potential development site.
End Sales Price - Stamp Duty - Estimated Interest Cost – Build/Demolition Cost – Agent Fees and Marketing – Minimum Profit = Land value.
So how do you know if you are competing against developers? Here is a current case study to show what a property may be valued at by buyers.
67 Vicki Street, Forest Hill has plans and permits and is advertised from $1.55m to 1.255m. Similar properties without plans are permits are selling at the lower end of that range. Let’s assume that is the value to an owner occupier.
Now a developer will look at the property as pure land value and assess what they can sell it for in the future. A similar townhouse (47 Romoly Drive, Forest Hill) with an almost identical floorplan sold in the area for $1.195m but it did have a higher ceiling and premium finishes so $1.15 could be a fair estimate of the end price for each townhouse. If the developer believes there will be short term growth then they may expect more, but if they are more conservative may allow for $50k less than this per townhouse.
So here are how the numbers may pan out.
End sales price $2,300,000
Stamp Duty ($60,000)
Estimated Interest Cost ($50,000)
Demolition ($20,000)
Build Cost ($810,000)
Agent Fees/Marketing ($35,000)
Profit ($200,000)
Land Value = $1,125,000
In this scenario, the developer is most likely going to stop bidding before the home owner. So despite the property having plans and permits it might not be purchased by a developer.
A developer and an owner occupier value properties in two very different ways.
An owner occupier will be looking at comparative sales and assessing if they believe the particular property is worth more or less than those recent sales. It could be the location is slightly better or there is larger living areas. They buy on emotion.
A developer has to assess many other factors to come up with their price. They start with the end in mind and decide on what they believe they can sell their development for in 12-18 months time. They then consider demolishing and build costs, stamp duty and interest costs, selling costs and potential delays and issues and a minimum profit margin they are willing to accept. So this is the simplistic formula they use to make an offer on a potential development site.
End Sales Price - Stamp Duty - Estimated Interest Cost – Build/Demolition Cost – Agent Fees and Marketing – Minimum Profit = Land value.
So how do you know if you are competing against developers? Here is a current case study to show what a property may be valued at by buyers.
67 Vicki Street, Forest Hill has plans and permits and is advertised from $1.55m to 1.255m. Similar properties without plans are permits are selling at the lower end of that range. Let’s assume that is the value to an owner occupier.
Now a developer will look at the property as pure land value and assess what they can sell it for in the future. A similar townhouse (47 Romoly Drive, Forest Hill) with an almost identical floorplan sold in the area for $1.195m but it did have a higher ceiling and premium finishes so $1.15 could be a fair estimate of the end price for each townhouse. If the developer believes there will be short term growth then they may expect more, but if they are more conservative may allow for $50k less than this per townhouse.
So here are how the numbers may pan out.
End sales price $2,300,000
Stamp Duty ($60,000)
Estimated Interest Cost ($50,000)
Demolition ($20,000)
Build Cost ($810,000)
Agent Fees/Marketing ($35,000)
Profit ($200,000)
Land Value = $1,125,000
In this scenario, the developer is most likely going to stop bidding before the home owner. So despite the property having plans and permits it might not be purchased by a developer.