I don't understand how house vs condo pricing works.
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Thread: I don't understand how house vs condo pricing works.

  1. #1
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    I don't understand how house vs condo pricing works.

    I'm a little confused about house prices. A housing lot in the city I'm looking to buy in is 120k to 180 k. So by my logic if I buy a place for 350k then 120K of that is the lot and 230k of it is the house value. Where I start to get messed up is condos and town houses, you own none of the land yet a condo here is usually only 40-50 k cheaper than the house and about half the square footage. It even gets weirder, there is some houses that are considered condos, you don't own the land and you pay a fee each month. These places are usually 330 K only 20K cheaper than a house but you don't get the lot worth 120K - 180K.

    I'm confused, once you build on a lot does the value of the lot drastically drop or what am I missing here. Thanks


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    When you own a condo, you own a proportional interest in all the common property. The proportion is usually calculated based on square footage. That includes the land, the clubhouse, the garden, the garage, the boilers, the roof, the pool if present, etc. So you do actually own some land. You just can't identify a specific patch of it.

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    Quote Originally Posted by emperor View Post
    I Where I start to get messed up is condos and town houses, you own none of the land yet a condo here is usually only 40-50 k cheaper than the house and about half the square footage. It even gets weirder, there is some houses that are considered condos, you don't own the land and you pay a fee each month. These places are usually 330 K only 20K cheaper than a house but you don't get the lot worth 120K - 180K.

    I'm confused, once you build on a lot does the value of the lot drastically drop or what am I missing here. Thanks

    Not quite true that you do not own the land. You own a proportionate share of the underlying land. But not a share you can sell independent of your strata lot.

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    heyjude got in while I was typing. My post therefore is redundant.

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    Senior Member heyjude's Avatar
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    Quote Originally Posted by Mukhang pera View Post
    heyjude got in while I was typing. My post therefore is redundant.
    I don't think its redundant. When two people with experience say the same thing, it has more credibility.

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    Not sure why one would expect it to be significantly cheaper. It still costs money to buy the land and it costs money to build the building. It's cheaper because it's less land and has some shared walls, thus cheaper construction on an individual basis. However, it's not saving a lot compared to building a house.
    I'm not JustAGuy (without spaces), or Donald, or <insert name here>.

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    Quote Originally Posted by heyjude View Post
    I don't think its redundant. When two people with experience say the same thing, it has more credibility.
    Very sporting of you to say so, heyjude!

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    K makes sense I guess. I just think different, it seems weird to me. It seems like land is expensive if you want to buy it but it doesn't have a lot of value with a house on it. Houses on small lots seem to go for almost the same as houses on large lots. Houses that you don't own the land seem to be worth just a little bit less. So for example if you have two exact houses one your paying rent for the land the other you own the land. I would expect the one you pay the rent on and don't own the land to be at least 100K cheaper but it doesn't seem to be that way. As I mentioned it just seems like the 120-180K lot doesn't matter much.

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    Well, for the most part, it depends on where the land is. If it's in Vancouver, the land is where most of the value is. If it's in some small town, the land is nearly worthless.

    Generally, old larger lots located closer to the centre of a city are worth more than smaller new lots located in the burbs.

    Part of what you are paying for in land are the roads and utilities that need to be put in and have nothing to do with the land values. That's why farmland is much cheaper than after it's been subdivided, because there are costs associated with dividing the land and making it ready for houses.

    In most cases where you don't own the land, you usually have something like a 99 year lease on the land with a renewal option, so most people don't really see it as being any different than really owning the land...or, in the case of a trailer park, you're getting things like utilities thrown in on the rent (not to mention you're probably not that smart about money to begin with).

    Then again, ask yourself why people with nearly zero equity think they have home ownership and are better off than renting when, in reality, many are only renting from the bank, moving every few years and never really getting ahead, especially when you factor in repairs and upgrades.
    Last edited by Just a Guy; 2017-01-06 at 07:53 PM.
    I'm not JustAGuy (without spaces), or Donald, or <insert name here>.

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    Quote Originally Posted by emperor View Post
    I'm a little confused about house prices. A housing lot in the city I'm looking to buy in is 120k to 180 k. So by my logic if I buy a place for 350k then 120K of that is the lot and 230k of it is the house value. ...

    I'm confused, once you build on a lot does the value of the lot drastically drop or what am I missing here. Thanks
    Not sure what to add, but I'll have a go.

    Let's imagine an urban lot of say 50 feet by 150 feet that the marketplace values at about $150,000. So you buy the lot and spend $300,000 putting a house on it. If you did that for a personal residence, you won't know for sure what the package is worth. If you are a developer, you would probably expect that after putting in $450,000 for land and building, you should be able to get perhaps $550,000, giving you a gross profit of $100,000. In that scenario, the value of the lot did not drastically drop once improved. If the developer is a victim of bad timing, or poor budgeting, lax cost controls, etc., said developer might end up selling the whole for only $350,000 and have to accept a $100,000 loss to get out. Even then, I would not expect that outcome to have anything to do with a drastic reduction in lot value, although some drop would usually explain a sale at a loss. It would suggest that the market has tanked and prices of land, buildings and all have declined.


    Quote Originally Posted by emperor View Post
    K makes sense I guess. I just think different, it seems weird to me. It seems like land is expensive if you want to buy it but it doesn't have a lot of value with a house on it. Houses on small lots seem to go for almost the same as houses on large lots.
    I have not encountered many places where houses on small lots go for almost the same as houses on large lots. Over the years I have bought and sold a number of houses in Vancouver, mainly on the west side. I know for sure that if you put a 2-storey 2,500-square foot house on a Mackenzie Heights lot that measures 33 x 130 it will command a much lower price than that same house on a lot that is 50 x 130 down the block. The price can fairly closely be tracked to a price per square foot of land. I can imagine some more rural locales where it won't make a lot of difference if one house sits on a lot of 1/4 acre and down the street we find a similar house on 1/5 acre. The market might not weigh to a nicety the difference in land area. I have bought building lots in cities outside of Canada where the standard measure of pricing is by the square meter and every square meter gets noticed.



    Quote Originally Posted by emperor View Post
    It even gets weirder, there is some houses that are considered condos, you don't own the land and you pay a fee each month. These places are usually 330 K only 20K cheaper than a house but you don't get the lot worth 120K - 180K.
    In that example of consummate weirdness - "houses that are considered condos" - leaving aside for the moment bare land strata plans, some houses are indeed considered condos if that's what they are. For example, here in B.C., we see side-by-side duplexes that were developed under the Strata Property Act. So there is a strata corporation and it may have only one member if one person owns both units, or it might have 2 members if the separate units have separate owners. Again, notionally, with each unit comes ownership of half of the land, which explains why they are not vastly "cheaper than a house". As for paying a fee each month, in the duplex example given, if you own both sides, you'll have 2 out of 2 spots on the strata council and you can vote to set the monthly maintenance fee as you wish (well, to a point, anyway).

    Quote Originally Posted by emperor View Post
    Where I start to get messed up is condos and town houses, you own none of the land yet a condo here is usually only 40-50 k cheaper than the house and about half the square footage.

    The non-ownership of the land issue has been addressed supra.By the time we get to a condominium development of hundreds of units, many storeys, etc., I am not sure I can do much to assuage your messed up feelings. I think we are getting into apples v. oranges territory.


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