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



## emperor (Jul 24, 2011)

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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## heyjude (May 16, 2009)

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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## Mukhang pera (Feb 26, 2016)

emperor said:


> 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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## Mukhang pera (Feb 26, 2016)

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


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## heyjude (May 16, 2009)

Mukhang pera said:


> 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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## Just a Guy (Mar 27, 2012)

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.


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## Mukhang pera (Feb 26, 2016)

heyjude said:


> 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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## emperor (Jul 24, 2011)

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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## Just a Guy (Mar 27, 2012)

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.


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## Mukhang pera (Feb 26, 2016)

emperor said:


> 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. 




emperor said:


> 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.





emperor said:


> 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).



emperor said:


> 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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## emperor (Jul 24, 2011)

Here is one property for example.

https://www.realtor.ca/Residential/Single-Family/17582440/441-CONIFER-ST-Sherwood-Park-Alberta-T8A1N2-Sherwood-Heights

For me to buy a similar lot now it would cost around 150K. So would it be correct in me thinking that I'm actually just paying 169K for the house and the other 150K for the land? Or just ignore the land part and look at over all value of the property.


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## Just a Guy (Mar 27, 2012)

The only time you really separate land and buildings is when you deal with insurance and when you are building new. 

It's not like you buy a car and then think of it in terms of the radio, tires, mags, engine, etc.

Many used cars can be parted out for more than they are sold for, yet people don't think of it like that.

When you buy a house, it's no good without the land and if you buy the land, it's not very useful to most people unless they are building.

If you want to break it up into components to make you feel better you can but, in reality, you're probably overthinking the whole thing.


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## emperor (Jul 24, 2011)

Okay thanks


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## OptsyEagle (Nov 29, 2009)

Mukhang pera said:


> 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.


I like to see a person try to sell their land under a freehold single family home, WITHOUT selling the house on top of it and see how far they get. 

As said above, the two examples are the same. A townhouse does own their proportionate share of the land under their home and as is the case with a single family home, they would sell that land ownership when they sell the home on top of it. The condo fee is to cover the maintenance of the property and to pay part of the property taxes and insurance that they do not pay personally, for the common area. The single family homeowner pays all of their property taxes, insurance and maintenance separately.


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## Just a Guy (Mar 27, 2012)

minor correction, property tax on common area is not paid by the corporation. Usually the individual portions are grossed up (boma rate) to include their portion of the common area. 

Condo fees can pay the utilities in some cases, but usually is there primarily for maintenance and the insurance.


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## heyjude (May 16, 2009)

Just a Guy said:


> minor correction, property tax on common area is not paid by the corporation. Usually the individual portions are grossed up (boma rate) to include their portion of the common area.
> 
> Condo fees can pay the utilities in some cases, but usually is there primarily for maintenance and the insurance.


Agreed on the property taxes. With respect to utilities, I live in a condo building where we have central heating and a/c. The cost of operation is included in my condo fees. I imagine that if I lived in a land strata with separate houses, I would need to pay for the operation of my own house's heating and a/c.

With respect to insurance, insuring the building itself is the job of the condo corporation. This cost is covered by condo fees. It's also recommended that each condo owner take out condo insurance, covering the inside of the suite. This also protects the condo owner from claims arising from his or her condo. The classic example is an overflowing toilet which floods the condo downstairs.


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## Just a Guy (Mar 27, 2012)

Not to mention that your tenants, should you have them, also need tenant insurance to cover their liability and possessions.

Many people mistakenly think condo insurance covers them...it doesn't really or not in the way they expect.


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## Mukhang pera (Feb 26, 2016)

OptsyEagle said:


> I like to see a person try to sell their land under a freehold single family home, WITHOUT selling the house on top of it and see how far they get.


I can find some illustrations, if you'd like. Not such an unusual transaction as you seem to think. 

Back in the day, I was involved in the conveyance of a West Vancouver property where the house on the lot was specifically exempted from the sale. The purchaser wanted the lot on which to build his mansion, with views to downtown and out to UBC. The vendor wanted the heritage house on the lot, with a plan to move it to another lot about 5 blocks away. Both got what they wanted. 

In some SE Asian countries where I have lived, non-citizens are not permitted to own land. In some places, they can buy condos, but a freehold lot, no. There it is not unusual for a non-citizen to lease a building lot on a long-term lease and to pay for construction of a house on the lot. The owner of the lot remains free to sell the lot, subject to the registered leasehold interest of the owner of the house. I can think of no particular impediment to such a transaction being entered into in many parts of Canada. It's done all the time with mobile homes, many of which cease to be very "mobile" over time. However, in Canada, given the multitude of ways in which transactions can be structured, there is little incentive to enter what would be seen here as rather unconventional.


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