Build versus Buy

[Tom Curlin]

I posted this question in another thread but did not receive any feedback, so here's a second go at it:

What is the consensus view of a typical range for construction costs circa 2009 in the upscale developments along 30A, particularly Watercolor and Rosemary Beach, assuming the complexity of the plan and the quality of the materials are similar to existing structures?

I'm trying to gauge the appropriate replacement cost metric to use in a build versus buy analysis.

And to be clear, I'm talking about the structure, not land or landscaping etc.

 

[melscuba]

I posted this question in another thread but did not receive any feedback, so here's a second go at it:

What is the consensus view of a typical range for construction costs circa 2009 in the upscale developments along 30A, particularly Watercolor and Rosemary Beach, assuming the complexity of the plan and the quality of the materials are similar to existing structures?

I'm trying to gauge the appropriate replacement cost metric to use in a build versus buy analysis.

And to be clear, I'm talking about the structure, not land or landscaping etc.

From the research we've done, it looks like we can build in WC for less than buying. We've spoken to two builders at length and a couple more via email. I think we can build, excluding land, for about $200-$225 a sq ft. This includes materials greater than or equal to materials one would expect in Watercolor homes.
Example: Even with land included, we buy a lot for $200,000 and build a 3,000 sg ft home. It would cost about $800,000 all in, which is $267.00 per sq. foot. That's about $100.00 a square foot less than the average selling price in WC right now. We could go up to a $300,000 lot or a 3500 square foot home and STILL spend $50.00 less per square foot than buying an existing home. It works for us! Good Luck!

 

[Franny]

That is a fair number for building cost these days, $200-225. Gage Contracting can look over you house plans and give you a number as well. 850-585-4616 or www.gagecontracting.com.

 

[kkddbb]

without going into specifics, building will always be the best bang for your buck. in fact, cost plus is a win win for both the owner and builder. it also allows the owner to make his/her own personal touches to the project.

that said, i never thought id see such desperatism in the residential industry and rightfully so. the current deals are one that may not be in the future so jump on those deals while you can.

 

[Tom Curlin]

Thank you. I've been using a similar metric for structures as we evaluate the existing inventory, particularly in Rosemary Beach. The latest comps on the north side seem to be coming in at $300 per sq. ft. all in, ie structure plus land and improvements. They are down from $500+ in 2007 but I still can't get there in terms of valuation, particularly given that the number of pending foreclosures in the development appears to be up 2x to 3x versus 2008. For the market to clear I think the comps have to go below replacement cost. So it seems to me that valuations on the north side of RB are headed to the $200 to $250 per sq. ft. range, all in.

 

[melscuba]

Thank you. I've been using a similar metric for structures as we evaluate the existing inventory, particularly in Rosemary Beach. The latest comps on the north side seem to be coming in at $300 per sq. ft. all in, ie structure plus land and improvements. They are down from $500+ in 2007 but I still can't get there in terms of valuation, particularly given that the number of pending foreclosures in the development appears to be up 2x to 3x versus 2008. For the market to clear I think the comps have to go below replacement cost. So it seems to me that valuations on the north side of RB are headed to the $200 to $250 per sq. ft. range, all in.

I would think the same has to be true for WC as well. With about $250.00 a square foot being the price point.

 

[gmarc]

i disagree were the mkt is going. many people were on here 12-15 months ago arguing the same thing about watercolor going to $200 a square foot then and it has not come anywere close.when i started looking hard last year in watercolor in phase 1 2 and 3 there might have been 2 homes for sale between 600-700k for 1880-2100 square foot homes. matter of fact i just looked at the listings and theres only 1 home for sale in phase 1 2 or 3 under 750k. THIS IS TELLING ME THE PRICING ON THE LOW END IS ACTUALLY MORE EXPENSIVE NOW THAN LAST NOV-DEC.watercolor and rosemary are very sought after places and it seems when the pricing is good they're gone.i think watercolor has 50 or more sales this year.the best time to buy was this past dec-april when the stock mkt crashed. sales and competition have really picked up for the good deals

 

[Bobby J]

i disagree were the mkt is going. many people were on here 12-15 months ago arguing the same thing about watercolor going to $200 a square foot then and it has not come anywere close.when i started looking hard last year in watercolor in phase 1 2 and 3 there might have been 2 homes for sale between 600-700k for 1880-2100 square foot homes. matter of fact i just looked at the listings and theres only 1 home for sale in phase 1 2 or 3 under 750k. THIS IS TELLING ME THE PRICING ON THE LOW END IS ACTUALLY MORE EXPENSIVE NOW THAN LAST NOV-DEC.watercolor and rosemary are very sought after places and it seems when the pricing is good they're gone.i think watercolor has 50 or more sales this year.the best time to buy was this past dec-april when the stock mkt crashed. sales and competition have really picked up for the good deals

I agree Ray. The good deals are gone very fast. It seems like the low bottom deal time may have passed. This winter will be very telling and the next wave of foreclosures but overall the matket is changing.

 

[melscuba]

I agree Ray. The good deals are gone very fast. It seems like the low bottom deal time may have passed. This winter will be very telling and the next wave of foreclosures but overall the matket is changing.

I see your point, but those homes aren't flying off the shelf. I guess from where I sit, after research, why would I buy an existing home for at LEAST $100.00 a square foot MORE than building? Just for convenience? As a seller I would have to keep that in mind. They can ask what they want, but if the homes that have sold recently are $600,000-$750,000 (just as an example) than how can a home next door appraise for that much more? I find it frustrating, and have since I've been looking. The prices are all over the place with no real justification. It just doesn't feel good to buy under those circumstances. Don't get me wrong, I see the value in the location of 30-A, but I'd like to see some consistency in pricing within just one community. Do people really come down and say, "Wow, I like it... I'll take it!"? with no understanding that the house down the street went for far less? Just because the "deals" aren't on the MLS right now doesn't mean that's not the price point of the neighborhood. After so many "deals" get purchased is that not now what the market will bear? Uhm, feeling a little frustrated here, sorry to come across too strong. I really am just asking. It is our hope to be down in a couple of months to pull the trigger. I guess as our timeline approaches so do the nerves!

 

[Tom Curlin]

Thanks again for the feedback. All very helpful.

Ray, I'm willing to partially concede to you math on the low end.

Per your comments, take a 2,000 sq. ft. structure as an example. At $200 per sq. ft. plus $100k for the raw land and $100k for improvements/landscaping you get $600k or $300 per sq. ft. all in. So in my view at a $275 to $300 sq. ft. all in range you are probably clearing the market.

But if If you take a 3,500 sq. ft. structure and do the same math you get a different answer. That's $700k for the structure plus $200k for land/improvements or $900k. Now you are looking at $257 per sq. ft. replacement cost. So in my view you have to get to $225 to $250 per sq. ft. to clear the market at that sq. ft. range.

Of course, the metrics go lower as the sq. ft. number goes up. Also, as the total value goes up you have fewer cash buyers and lower loan to value metrics to work with for those using a bank at a reasonable financing rate. And at least in Rosemary Beach it appears you have alot of shadow bank inventory coming to market versus trailing twelve months or 2008.

Also, on the subject of current asking price, I prefer to look at actual transactions as a guide. It is my understanding that there are several recent comps below $300 per sq. ft. in Watercolor. If true that may explain the transaction volume you are describing as it would indicate to me that comps in WC are reaching the market clearing level.