Some Make Money, Others Not So Much

19 Doverton Drive, Greenwich has closed at $7,970,000.

I recently sold a new-construction, 6,800 square foot, waterfront house for $6,900,000. The builder swore he was losing money at any price below $7.2M. He paid $3.5M for the land two years ago, so there were carrying costs, plus plenty of added site-development costs associated with the Town’s excessive (insane) regulations for direct-waterfront building.

But how much per square foot does typical luxury construction cost a Greenwich builder? $300 per foot? $400 per foot? At $400/ft., the 6,800 sq.ft. house I sold would have cost the builder $2,720,000. Add land cost of $3,500,000, and you’re up to $6,220,000. That suggests a $680,000 “profit” for two year’s effort. Better than an outright loss, but not by much.

Now we have two new examples to study: backcountry Greenwich’s Doverton Drive, off Round Hill Road, has seen the recent sale of two spec houses, one a likely success, the other, less so

Very nearby, someone has just shelled out $25M for a classic old mansion on almost 20 acres, so let us agree, this is a fine neighborhood. But fine neighborhood or not, even experienced builders can go astray, either by paying too much for the land, or, more typically, by over-pricing at the beginning. Nothing, absolutely NOTHING dooms a project more completely than initial gross over-pricing. Copy and paste that last sentence on parchment paper, get it framed, and hang it in your dressing closet where you will see it every day.

Example 1:  19 Doverton Drive (pictured above)

  • Sold for $7,970,000. (initial asking price $8,800,000)
  • Square footage: 12,117
  • Land cost: $2,525,000
  • Start-to-finish: 2 years
  • $300 per foot X 12,117 = $3,635,100 + (land cost) $2,525,000 = $6,160,100.
  • Possible profit: $1,809,900?

 

1 Doverton Drive, Greenwich just closed at $6,600,000. (For various reasons, I much preferred this one over the other)

Example 2:  1 Doverton Drive (above)

  • Sold for $6,600,000 (initial asking price $10,950,000)
  • Square footage: 10,767
  • Land cost: $2,650,000
  • Start-to-finish: 2 years
  • $300 per foot X $10,767 = $3,230,100 + (land cost) $2,650,000 = $5,880,100.
  • Possible profit: $719,900?
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4 thoughts on “Some Make Money, Others Not So Much

  1. I guess I see other costs that are not considered here (although some are alluded to) that impact the profitabilty: 1) site work and landscaping (which is usually outside of the $300/SF, particularly if near any kind of water), 2) soft costs (architectural, engineering, permitting) and 3) trade costs

    In the case of the Doverton examples 1) had to be $100K, 2) had to be $100K and 3) would be every bit of $400-500,000

    • Ay-Non:
      Absolutely right. Obviously I can only make estimates of profitability here, but it certainly doesn’t look good for the builder at 1 Doverton. Spec building is a tough, risky business.

  2. You are forgetting the real estate fee of typically 4% and transfer taxes of 1.5%. Also U are not showing any carrying costs at all. $300 is hard to do on a greenwich house with all the grade plane walls and with a Pool. So in the end profits is much lower.

    • Steve:
      Yup, agree, except for that part about “typically 4%” commissions. Possibly the listing broker took a small hit, but I guarantee the selling broker got 2.5%. But to your point, yeah, there’s little or no profit on one of these, and surely an outright LOSS on the other!

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