Builders Like To Pay One Third For The Land

Builders around here like the “one third rule”: one third for the land, one third for construction costs, one third for their profit. So you pay a million for the land, you’d better get at least $3,000,000 for the finished product, that’s the thinking.

 

Sounds easy-peasy-lemon-squeezy, trouble is, here in Greenwich, particularly the Riverside section, building lots (which typically come with a house that needs to be removed) run you $2,000,000+. Can you then expect to get $6,000,000+ for the new house? For many streets, that’s a stretch, which is why right now many builders are finding it hard to justify buying a tear-down.

Here’s a couple of recent (apparent) success stories…

67 Sound Beach Ave BEFORE (selling price $1,115,000)

67 Sound Beach Ave BEFORE (selling price $1,115,000)

67 Sound Beach Ave AFTER (asking price $3,795,000, now under contract)

67 Sound Beach Ave AFTER (asking price $3,795,000, now under contract)

37 Londonderry Drive BEFORE (selling price $1,150,000)

37 Londonderry Drive BEFORE (selling price $1,150,000)

37 Londonderry Drive AFTER (asking price $4,999,995)

37 Londonderry Drive AFTER (asking price $4,999,995)

10 thoughts on “Builders Like To Pay One Third For The Land

    • Anony:
      Yes! Good example, closed today. Here’s the BEFORE and AFTER. This was a 3-lot subdivision and the builder paid only $1,700,000, so selling the first of the planned three houses for $3,300,000 portends well for this builder (although I’d guess site development costs in this somewhat “remote” area were higher than normal).

  1. The Londonderry house looks over priced to me for what it is…seems like the builder used cheap finishes. Plus they need to do a better job marketing the place. I think the builder spent a ton on blasting rock and is probably trying to recoup that cost. Low $4s seems like the right number.

    • Richie:
      I spent a long time one day, looking this place over. I don’t agree about the “cheap finishes”, but anyway, if your prediction of low $4’s turns out to be right, the builder still comes out very well (land cost: $1,150,000)

      • Sorry – I should have qualified my comment better – it felt like in certain areas of the house they could have used some nicer finishes than what he choose. Nevertheless I agree that the builder is going to kill it here – good for him – capitalism isn’t dead.

  2. Welcome back, Gideon! I’ve been checking each morning since mid-May to see if you were posting. Glad to see both Fountain blogs are now alive and well.

  3. A more interesting feature than pointing out that uneducated consumers are still willing to buy spec houses because banks will lend to them at low rates for 10% down would be to check in on spec houses 5 years later. Mysteriously, the builder’s profit seems less easy to recoup on resale…

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