Imagine you’re a homeowner in Lucas, Tx on a really nice 8-10 acre tract of land. You’ve raised your family there, added square footage to the home, and done some upgrades. The home is about 30 years old and you’re finally ready to sell.
So in walks Tom and tells you he thinks there’s very little value in your home, but there’s some great news too. The land the home is sitting on has become so valuable, they’re going to still come out great. That happened just recently and believe me, it was a tough conversation. This can be a difficult concept to explain.
Keep in mind, I’m talking about a 30 year old home that’s never really been updated. Low ceilings, hollow doors, builder grade hardware and finishout. There are deferred maintenance issues everywhere. Square footage was added to the home, but not in a way that enhanced the home (at least in my opinion). The pool is shot, driveway needs to be torn up and replaced, the barn is falling down, etc. When I pointed these things out, I know the seller was surprised and probably a little upset with me. After all, this is their home, but I have to call it like I see it.
I told these sellers someone might pay as much as $800K to $900K for the land but I don’t think there’s any way they’d pay that much and then do a major remodel on the home. They’d probably take it down. They might live in it while their new home is being built somewhere else on the land and then tear it down of they might just tear the home down immediately and build their new home on the same spot.
It’s not easy trying to explain to a seller a home they’ve put money into over the years will probably be taken down. And who knows, I may be wrong. I guess we’ll have to wait and see.
Here’s my rule of thumb on pricing older and non-updated homes on larger acreage in towns with expensive land like Fairview, Lucas, and Parker. I either give full value to the land and heavily discount the value of the home (which only makes sense in this case) or I give full value to the home and heavily discount the additional land around it. If the land wasn’t so expensive underneath the home, or if the home was on a smaller two acre lot, the home obviously would have had value, but adjustments would have to have been made for the issues that we’d noted.
By the way, pricing a newer generation home that’s already been nicely updated on a large tract of land is much more difficult. Because I never have an exact comparable to work with, the only workaround is to find a reasonably similar comp for a home on a typical two acre lot, and then build in for the extra land. But I have to be careful there too. The additional land is attached to the home and two acres so it will carry less value than if it were separated out and sold separately at a much higher price. If the excess land isn’t discounted, it blows the price of the entire property out of the water.
Pricing custom homes on acreage lots is very difficult. Much more so than pricing a home on a typical city lot with many comparables to use around it. I’ve always said, establishing a price out here on acreage homes is an art, not a science.