Steamboat Springs One measure of a home’s worth is how much it would cost to replace it: Factor in the value of the land on which it sits and add how much it would take to build the same structure.
In down markets, buyers don’t care about replacement costs because there are deals to be had on distressed properties selling far below what it would take to build a comparable new house on a similar lot.
Steamboat’s real estate market has gone through that cycle, but now, more buyers are looking hard at land and what it would take to build their dream homes.
Land values tumbled following the market crash in Steamboat in 2008. A lot in The Sanctuary that sold in 2006 for $695,000 went for $375,000 in 2012.
Even with steep discounts, residential lots couldn’t compete with existing homes that were move-in ready and a fraction of the cost of what it would take to build.
“No one in the market gave replacement cost any value,” said Chris Paoli, of Colorado Group Realty.
Now, the number of foreclosures in Routt County has slowed, there are fewer distressed properties on the market and the pace of sales of single-family homes is reducing the number of choices buyers have.
Buyer’s Resource broker/owner Doug Labor said the rate of single-family home sales in Steamboat city limits during the first three quarters of the year is matched only by the rate in 2007.
“It’s still cheaper for people to buy existing products than it is to buy land and build,” Labor said. The benefit to building would be if the land was a unique location or there was not a house available that had the desired features.
There are buyers, Paoli said, that can’t find what they’re looking for in the existing homes that are left in the marketplace.
“They’re willing to build,” he said. “Land prices got low enough there’s value in buying and building.”
The overall picture for residential lots is getting better, Paoli said, and now home prices are beginning to reflect the value of the land on which they sit.
There have been 88 lot sales in Routt County so far this year, according to Paoli, compared to 46 year to date in 2012 in the county. In Steamboat city limits, 31 lots have sold, with the most action being under $300,000. Only 13 lot sales were recorded in Steamboat city limits year to date in 2012.
In a recent email, Paoli cited a downtown example where a house built in 2012 sold for $835,000. With the value of the home itself pegged at $517,000, the lot would be worth about $317,000, according to Paoli. A nearby downtown lot recently sold for $300,000.
“The pricing of existing homes will just oscillate around replacement cost,” Paoli said.
Perceived scarcity of buildable lots can lead to pricing run-ups like what Steamboat saw leading up to 2007. Existing home pricing follows suit as the land underneath the homes is perceived to have more value.
Even having more buyers considering lots will be better for the overall market, according to Paoli.
“The more people that start pricing cost to build the more attractive existing homes will be,” he said.
When buyers see and consider a home’s replacement cost, it will give perspective on existing values, Paoli said.
“I think it’s going to help everything.”
To reach Michael Schrantz, call 970-871-4206, email mschrantz@SteamboatToday.com or follow him on Twitter @MLSchrantz
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