Readers Question: Hello Monty, I am interested in an eight acre farmette. The owner asked us to make an offer on it. They know that it will be worth more someday when they split it into three or four parcels, but right now, they will only sell the entire parcel.
The house is in rough condition overall, and it needs extensive remodeling. The barn is probably salvageable but very rough while other out buildings need to be torn down. Are you able to offer advice or an opinion on a value? Thanks. Julie D.
Monty’s Answer: Hello Julie, and thanks for your questions. Here is an article titled “Valuing a home” when buying or selling it that will be helpful.
The steps and actions to take:
1. Ask them to quote a price. This is an important part to begin a negotiation. Explain there will be financing, and there is no point if the home is out of your price range. Part of this process may depend on your relationship with them. How do you know them? How did the sale happen to come up? Beside an appraisal, further steps need be taken before naming a price. Do not negotiate against yourself.
If the seller will not name a price, but you are willing to spend some time and money to determine a “range of value” this would be a great exercise for you to experience. The luxury of time may be on your side if the home is not on the market. Begin inspecting existing homes “for sale”, and find comparable “sold homes” in the area. Here is an article titled “How to challenge home appraisers” that identify the detailed features on which to focus. Then, if you want to name a price, you are prepared with the information necessary to make a realistic offer.
2. Determine the value “when completed”. Look for comparable homes (old homes with 5-10 acres that have been remodeled) sold in the past few years. As an example, if it is determined the property is worth $225,000 when completed; now you need to determine the cost to renovate. If the cost is $100,000, it suggests one could pay up to $125,000 for the property. Here is a check list of all the items to consider in undertaking this project.
3. Sweat equity is a beautiful thing. How much of the physical labor is in your wheelhouse? Ask several remodeling contractors to look at the home and give them a written description of the work to be completed. Ask them to break out the labor time per item on the list. Now, the number of hours per item is known. Be careful not to take on tasks that are cosmetically important unless you have proven skills. For example; staining and coating kitchen cabinets should be professionally finished. Consider including a septic system and checking for radon. These opinions from contractors who have done it many times are valuable. Here are tips on “How to chose a homebuilder.” Start watching “This Old House” instead of “Dancing with the Stars”.
4. Step back and examine all your options. In a perfect world, should the property be located in a different township? What is it about this place that is so appealing? Does it have good bones? Would demolishing the home and starting from scratch make more sense? If that is the case, should looking at vacant land be on top of the list? What is it you want to accomplish? Are there other properties like this on the market? Seeking alternatives is one of the best ways to come to understand the value. Do not overlook the United States Department of Agriculture (USDA) for their rural development loan programs.
Now there is a calculated indication of the cost and time involved with completing this project. This information, along with the experience of inspecting other properties for sale and dissecting the data sheets of sold properties has prepared you to make a decision. Either move on, or enter a negotiation with the seller, who knows a lot more than you about the property.
Lastly, do not take the sellers statements at face value. Trust, but verify. For example; many rural townships limit growth in favor of a rural atmosphere through zoning laws with minimum parcel sizes. Is 10 acres actually the minimum size?