Valuing Property - New Build Premium And Garage Conversions

[AndyB in Consett]

I'm looking to buy a house and have been using sale price websites and Nationwide to work out what the notional market value is with a view to putting an offer in between 10 and 20% below this. One of the houses I've looked at, a four bedroom detached, has been owned since new by the same owners and has had the integral garage (tastefully) converted into a utility room and a study. Going by the price they paid originally, its on the market at a reasonable price but it occurs to me that I haven't factored in two things:

1) When they bought it, it was a new build and new build property is more expensive than second hand.

2) The garage has been converted so the property no longer has one.

I have no idea what adjustments to make to allow for these. I guess I could subtract 10% to allow for the second handedness (although this might be way off) but I've no idea whether the garage conversion adds or subtracts value. My feeling is that, although few people use their garages for parking their cars everyone wants one for storing junk but I've really no idea. How should I adjust my valuation to allow for the house being second hand and the lack of a garage?

[Chicken]

All irrelevant. The only question that matters is how much you like the house and what it is worth to you. If the seller is willing to accept less than what you are willing to offer then you'll get a deal done.

[AndyB in Consett]

I agree to an extent, but how do I determine what the house is worth to me if it isn't by calculations such as those that I suggest? You seem to be inviting me to make an emotional decision, which is something I'm incapable of doing with high cost items

[Chicken]

All pricing is an emotional decision but I think you do yourself a disservice if you say you can't do it on high price items.

What you seem to be saying (if I read between the lines correctly) is that you like the house and would not mind living in it - but you don't want to appear a mug for appearing to overpay (or that you like a bit of a bargain).

Another way of looking at it is to say that you do want to buy the house, you've set yourself a maximum that you will pay (either that you can afford, or at a price where you would rather have another house that is on the market), and then any discount you can get from that will be a bonus.

You haven't said how long the property has been on the market, or the motivation of the seller. Even if we do have this information, it's hard to guage how willing the seller is to negotiate.

[porca misèria]

Well, if it's built within the last 100 years or so I'd knock 90% off the asking price for starters.

But turning a garage into something useful? If they've done a decent job and there isn't a risk of falling foul of some regulations, that should add value, just as with a loft or cellar conversion. Someone else might have a use for extra space even if you don't.

[AndyB in Consett]

Chicken - I disagree that all pricing is an emotional decision, although there is clearly an emotional element involved in buying a house. I meant that I can't do emotional pricing on high value items not that I can't price them at all. The main factors to my mind are what is the true market value of the house and does it have all the features that I'm looking for. It's the first of these that I'm struggling with (and will not know with any certainty unless I wait until it sells then look it up at houseprices.co.uk). After I know these I'll know the kind of level that I can start putting offers in

The specifics of the house are these;

All bar one of the same style houses in the same street (there are ten altogether) are still owned by the people that bought them new

The average "value" of these ten today is £185,000 (according to the Nationwide HPI)

The one that has been resold went for £163,000 in August last year

The house has been on the market a month at £174,995

The seller is motivated to negotiate because he is emigrating at the beginning of May (although I suspect he's getting some sort of financial help from his employer for whom he is moving)

Edited to say: I was thinking of offering £160,000 but will wait to see what else comes onto the market as I'm in no rush.

I think my problem is a lack of experience in buying property means I don't know how to adjust the price for additions/subtractions/conversions. For example a house where a conservatory has been added by the current owner. This could be viewed as an enhancement that adds value because of the increased size of the house or something that detracts from it because the garden is now smaller. I know that a conservatory would normally add value but, because of my lack of experience I would not know how to counter arguments like "yes, our house is £15k more than the Nationwide HPI but we've added a conservatory". I guess what it boils down to is a desire to be negotiating from a position of strength without the estate agent being able to bluff another 5 or 10k out of me

You're right about me wanting a bargain though - who wouldn't in this market.

Porca - thanks for the opinion and you may well be right although we do find having somewhere "indoors" to park the car when the weather is frosty is useful. I got the impression from an overheard conversation at the estate agents that converting the garage was a bad thing from a sales perspective but it has been done tastefully and we do have a use for the extra room

Edited March 19, 2010 by AndyB in Consett

[Chicken]

Would you be pi$$ed off if you offered 160k and they sold to someone else for 165k? If so (either because you can afford more or you think it's worth more), then your threshold is higher than this.

So this establishes your walkaway price (at what point you don't want to buy the house). As long as it is higher than the lowest price that the seller is willing to accept then you have the potential to do a deal.

So what's the lowest price the seller is willing to accept? That's when you've got to look at the circumstances. Is there demand for (larger) rental properties in the area? If not, and he wants to sell before he goes, then he's likely to be more flexible. Have there been a lot of viewings? If so, he's likely to be less flexible.

It's interesting that you're comparing the "bargain" to current valuations rather than what you might think the future will hold. I paid full asking price for my first house and the neighbours thought I had overpaid because it was 3x the trough price on the street. Well the trough price was 20k and I ended up selling the house for over 300k. Why? Because the area was being developed and I saw good prospects. So, what price do you think is a "bargain" for this house?

[AndyB in Consett]

So, what price do you think is a "bargain" for this house?

That's kind of what I'm trying to work out, hence my original question

At the moment I wouldn't be pi$$ed off if someone else bought it regardless of the price because I've no idea how to rationally price it, but that was an excellent attempt to get me emoting (is that a word?) rather than thinking.

It's a good point you make about future value rather than current value but the area isn't going to improve (any more) over the five to ten years (maybe more) that I intend to live there so the future value will be the current value after the application of any inflation/deflation.

[Flopsy]

I don't know how to find the information for an area in general but friends abroad refer to a $ per foot measure or a Euro per m.

When my husband looks at properties he always does a £ per foot calculation and then considers from there.

That's no help with the garage though unless there you can find a similar property with a garage and a similar £ per foot measurement to compare.

Hope that helps. Just an idea.

Edited March 20, 2010 by Flopsy

[bulldog]

i would say a garage conversion adds no value, I personally would prefer a garage. Its the only room in the whole house that is mine and not shared or touched by anyone.....

Edited March 20, 2010 by bulldog

[Chicken]

At the moment I wouldn't be pi$$ed off if someone else bought it regardless of the price because I've no idea how to rationally price it, but that was an excellent attempt to get me emoting (is that a word?) rather than thinking.

I'm not trying to troll you into any kind of a response - it's no good anyone telling you the number because it's specific to you.

Would you be annoyed if someone bought it for 100k? (I would if I was interested in that house and I thought it was worth 150k)

How about 120k? 150k? 170k?

You have to establish your own threshold for walking away. That might be based upon what you can afford, or what else you can get for the same money in the area. It might even be down to a number where you don't want other people to think that you've overpaid. The point is, what is it worth to you?

[pablopatito]

I'm no expert, but I have been looking around newish houses for the last two years. In my experience, a good garage conversion adds value (but a lot less than the cost of doing the conversion), but a conservatory adds relatively little, if anything.

[AndyB in Consett]

Chicken - I owe you an apology. I'm sorry if you thought I was accusing you of being a troll, I really wasn't. It's just that one of my beliefs is that you only truly learn when you engage with people that have a different point of view (and accept that yours isn't necessarily correct). At the risk of offending you even more, I was particularly enjoying the Mars/Venus aspect of the debate and seeking to prolong it in the hope that I might actually learn something. Causing offence was never my intention.

As it happens I have found something pertinent to my original question. This article from Nationwide suggests that new build has a 7% premium over second hand and that a garage adds 6%. Having said that, there are a couple of health warnings;

1) The report comes from 1999

2) It talks about adding a garage to add value rather than the effect of subtracting a garage.

[Chicken]

Not offended at all AndyB (I'm male btw).

I think you have to be careful about the garage value - I think the 6% uplift comes from adding a garage where there was none before. Garages are relatively cheap constructions (no need for good insulation or windows) - £5-8k would easily build one from scratch, including foundations if needed. Add in the aggro of planning permission and dealing with the builders and it's easy to see where that value could be added.

In the example you are talking about, you are "losing" the garage but gaining the additional room. Even if they bricked up the front access, it would be very cheap to knock it out and reinstall a garage door to convert it back to original use (as long as the insulation has not taken up too much room). So it should be neutral at best (from the buyer's perspective) or may add a little value if they prefer the room over the garage.