What to do with overpriced properties?

[johnkim]

I`m looking at few estate building lot in GTA and noticed that some of these lots are grossly overpriced by $300-400k.
For example, this lot prices at $850,000 (DOM 79 days) currently where as lot next to it (exactly same dimension in the same subdivision) was only sold for $498,000 in June 2009.

This is a classic overpriced right because I don`t think the economy can drive up a vacant lot price by almost 100% in 1 year.

How should I proceed? Should I make my offer slightly higher than last year`s comp and provide evidence of the actual market value of this lot?

Opinion please.

 

[Luong98]

QUOTE (johnkim @ Jul 28 2010, 12:32 AM) I`m looking at few estate building lot in GTA and noticed that some of these lots are grossly overpriced by $300-400k.
For example, this lot prices at $850,000 (DOM 79 days) currently where as lot next to it (exactly same dimension in the same subdivision) was only sold for $498,000 in June 2009.

This is a classic overpriced right because I don`t think the economy can drive up a vacant lot price by almost 100% in 1 year.

How should I proceed? Should I make my offer slightly higher than last year`s comp and provide evidence of the actual market value of this lot?

Opinion please.

Has there been any comparable lots in or around the surrounding area that were sold within the last 90 days? Those recent comparables would be the best indication of what market value would be. The market is what it is. What`s more important is does the numbers still work for you. If not, simply walk away.

 

[johnkim]

QUOTE (Luong98 @ Jul 28 2010, 01:16 AM) Has there been any comparable lots in or around the surrounding area that were sold within the last 90 days? Those recent comparables would be the best indication of what market value would be. The market is what it is. What`s more important is does the numbers still work for you. If not, simply walk away.

Hi Luong,

Thanks for your reply. The most recent lot sold was August 2009. Based on the prices of homes that are being sold on this street (~$2million), I suspect the fair market value of this lot is around $600,000.

 

[markl]

Could be a number of reasons it is over priced. Have you or your realtor had a discussion with the seller or sellers agent? 79 DOM let`s be honest is not that much in the grand scheme of things when you are talking vacant land.

Are you emotionally tied to this lot? If not it is a numbers game you know your purchase price, you know your build price and you know your sell. What profit do you need to take the risk. Work backwards and figure out your number and start negotiating.

First step though is find out motivation.

 

[RedlineBrett]

The seller sets the price according to what they want/need out of the property and according to their internal valuation of it.

Perhaps they aren`t sellers at the supposed `market value`. You might be perfectly right in putting your thumb on that number but that price may not do it for the sellers... so it will sit. This is very common in higher priced properties but is usually found when direct comparables are hard to come by. Usually you are better off finding a more realistic seller than trying to beat these guys down on price... Some sellers need to hear the sound of the phone not ringing before they get their heads on straight.

Ask the listing realtor why you should pay $X when the lot next door sold for $Y. Perhaps there is something you don`t know? (view of other lot is blocked, exposure concerns, zoning etc)

 

[Thomas Beyer]

QUOTE (johnkim @ Jul 27 2010, 11:32 PM) ..How should I proceed? ..
You are wasting your own and seller`s time !

There are many people who don`t have to sell. Don`t buy from them. To get a decent price you need a certain seller motivation. Frankly, quite a few people are not that motivated, especially in higher priced home areas. They may have a decent job, lots of cash, don`t like the stock market, ad treat (rightly !!) well situated real estate as a gold equivalent !

79 days on market for a vacant lot is low .. 365+ is normal !

I suggest you look at different areas of town .. or at different asset classes.

The buy-and-hold and make money in real estate model does NOT work for high priced homes, vacant lots or certain cities.

It works well for a SUBSET of houses, namely those that are usually smaller, townhouses or in suburbs or in smaller centers. They allow you to cash-flow with 20-25% down and make money down the road when you exit in 5+ years due to value appreciation and mortgage paydown.

If you still like the lot: write an offer on what you seem reasonable, add a cover letter why you think it is reasonable, and the seller may or may not accept your offer. Just because you think it is worth 600K doesn`t mean seller has to agree. He might say: "it is worth 800K to me". That is his right. He is the owner. He can do whatever he wants. Looks elsewhere !