I posted this question in another thread but did not receive any feedback, so here's a second go at it:

What is the consensus view of a typical range for construction costs circa 2009 in the upscale developments along 30A, particularly Watercolor and Rosemary Beach, assuming the complexity of the plan and the quality of the materials are similar to existing structures?

I'm trying to gauge the appropriate replacement cost metric to use in a build versus buy analysis.

And to be clear, I'm talking about the structure, not land or landscaping etc.

From the research we've done, it looks like we can build in WC for less than buying. We've spoken to two builders at length and a couple more via email. I think we can build, excluding land, for about $200-$225 a sq ft. This includes materials greater than or equal to materials one would expect in Watercolor homes.
Example: Even with land included, we buy a lot for $200,000 and build a 3,000 sg ft home. It would cost about $800,000 all in, which is $267.00 per sq. foot. That's about $100.00 a square foot less than the average selling price in WC right now. We could go up to a $300,000 lot or a 3500 square foot home and STILL spend $50.00 less per square foot than buying an existing home. It works for us! Good Luck!

That is a fair number for building cost these days, $200-225. Gage Contracting can look over you house plans and give you a number as well. 850-585-4616 or www.gagecontracting.com.

without going into specifics, building will always be the best bang for your buck. in fact, cost plus is a win win for both the owner and builder. it also allows the owner to make his/her own personal touches to the project.

that said, i never thought id see such desperatism in the residential industry and rightfully so. the current deals are one that may not be in the future so jump on those deals while you can.

Thank you. I've been using a similar metric for structures as we evaluate the existing inventory, particularly in Rosemary Beach. The latest comps on the north side seem to be coming in at $300 per sq. ft. all in, ie structure plus land and improvements. They are down from $500+ in 2007 but I still can't get there in terms of valuation, particularly given that the number of pending foreclosures in the development appears to be up 2x to 3x versus 2008. For the market to clear I think the comps have to go below replacement cost. So it seems to me that valuations on the north side of RB are headed to the $200 to $250 per sq. ft. range, all in.

I would think the same has to be true for WC as well. With about $250.00 a square foot being the price point.

i disagree were the mkt is going. many people were on here 12-15 months ago arguing the same thing about watercolor going to $200 a square foot then and it has not come anywere close.when i started looking hard last year in watercolor in phase 1 2 and 3 there might have been 2 homes for sale between 600-700k for 1880-2100 square foot homes. matter of fact i just looked at the listings and theres only 1 home for sale in phase 1 2 or 3 under 750k. THIS IS TELLING ME THE PRICING ON THE LOW END IS ACTUALLY MORE EXPENSIVE NOW THAN LAST NOV-DEC.watercolor and rosemary are very sought after places and it seems when the pricing is good they're gone.i think watercolor has 50 or more sales this year.the best time to buy was this past dec-april when the stock mkt crashed. sales and competition have really picked up for the good deals

I agree Ray. The good deals are gone very fast. It seems like the low bottom deal time may have passed. This winter will be very telling and the next wave of foreclosures but overall the matket is changing.

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I see your point, but those homes aren't flying off the shelf. I guess from where I sit, after research, why would I buy an existing home for at LEAST $100.00 a square foot MORE than building? Just for convenience? As a seller I would have to keep that in mind. They can ask what they want, but if the homes that have sold recently are $600,000-$750,000 (just as an example) than how can a home next door appraise for that much more? I find it frustrating, and have since I've been looking. The prices are all over the place with no real justification. It just doesn't feel good to buy under those circumstances. Don't get me wrong, I see the value in the location of 30-A, but I'd like to see some consistency in pricing within just one community. Do people really come down and say, "Wow, I like it... I'll take it!"? with no understanding that the house down the street went for far less? Just because the "deals" aren't on the MLS right now doesn't mean that's not the price point of the neighborhood. After so many "deals" get purchased is that not now what the market will bear? Uhm, feeling a little frustrated here, sorry to come across too strong. I really am just asking. It is our hope to be down in a couple of months to pull the trigger. I guess as our timeline approaches so do the nerves!

Thanks again for the feedback. All very helpful.

Ray, I'm willing to partially concede to you math on the low end.

Per your comments, take a 2,000 sq. ft. structure as an example. At $200 per sq. ft. plus $100k for the raw land and $100k for improvements/landscaping you get $600k or $300 per sq. ft. all in. So in my view at a $275 to $300 sq. ft. all in range you are probably clearing the market.

But if If you take a 3,500 sq. ft. structure and do the same math you get a different answer. That's $700k for the structure plus $200k for land/improvements or $900k. Now you are looking at $257 per sq. ft. replacement cost. So in my view you have to get to $225 to $250 per sq. ft. to clear the market at that sq. ft. range.

Of course, the metrics go lower as the sq. ft. number goes up. Also, as the total value goes up you have fewer cash buyers and lower loan to value metrics to work with for those using a bank at a reasonable financing rate. And at least in Rosemary Beach it appears you have alot of shadow bank inventory coming to market versus trailing twelve months or 2008.

Also, on the subject of current asking price, I prefer to look at actual transactions as a guide. It is my understanding that there are several recent comps below $300 per sq. ft. in Watercolor. If true that may explain the transaction volume you are describing as it would indicate to me that comps in WC are reaching the market clearing level.

Bobby, could you tell us how the market is changing? Have you seen a lot of activity and contracts at a higher price point recently? I'm curious because I've been watching the market and haven't seen any amazing opportunities lately. I am also not willing to pay the higher prices so I've pretty much tabled my plans on buying in SoWal for now~

It seems to be improving in sales. I guess that could be good for some and bad for others. To randomly answer your question I briefly looked at Watercolor where 48 homes have sold, pended or gone contingent since 06/01/2009. This can be somewhat misleading as I did not take a deep look at the contingents to see how long they have truly been contingent. But.... we can get a feel for the market this way. Currently there are 100 homes on the market in Watercolor and my bet is many agents that work those markets are beginning to feel low on good priced inventory. I work all of 30A and recently begun more marketing to attract more listings. 3 months ago, I was beginning to put listings off as I was very overloaded. When I speak of a change in the market, I am speaking of changes we are seeing in our own business. Most of the agents in our office are also experiencing an increase in sales.
I feel the reason you are not seeing many great opportunities is they have been gobbled up over the summer. I have many buyers like you that I can not find a product for. Several may be reading this and know exactly what I am talking about. I am not saying your perfect price point property will not pop up but I feel confident you will not have long to act on it. I have advised many buyers to begin to look at some of these great vacant land opportunities because many of the great buys on homes are gone.
So... with 100 homes available in Watercolor and realistically 50-60 of those may be legitimate inventory and 34 actual real sales since 06/01/2009, one may have missed the great buy in Watercolor at this point.

As far as other areas go, I still see lots of good opportunity but I also see the homes that are A plus leave the market fast leaving many buyers saying they are going to wait for now. I would recommend finding an agent you like tell them your thoughts and get on an automated list so you see your perfect price point home as it hits the market. Of course this is all ever changing and very local in nature so you may be fine by waiting but the current trend shows you may not be. I say Build!!!!!!

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Thanks Bobby for explaining the thought process. We did tour a couple of “great buys” recently and one of them went almost immediately after receiving several offers. It wasn’t a property that we were comfortable with.

We've considered land to either build or not, and may be a decent place to park some $ for awhile. And less carrying costs.

I chuckled that you used Watercolor in your example. We really don’t get the attraction there but it sure is popular. Maybe we are missing something but we’d rather be closer to the beach~

We have been taught to think that if something sounds too good to be true it isn't. But sometimes it is, or at least good enough.

The trap of a buyer's market: buyers think they are in total control and have all the time on their side.

Once again I appreciate the helpful feedback.

I think the banks are setting the agenda for the most part in this market. Granted, the discontinuation of mark to market accounting has given them some breathing room to unwind their distressed residential loans in an orderly manner. However, most of them are seeing a rising tide of faltering commerial loans as well, as commercial lags residential. So I think they have to decide where they want to take the hit for each property, on the balance sheet or the cash flow statement.

I personally believe most banks will be more motivated to take the cash on the residential side of the business going forward since they have taken much of the hit on the balance sheet for this business already, prior to the discontinuance of mark to market. And I think they will use that cash to maintain their regulatory capital while writing down lots of commercial loans.

In my view this is why the number of foreclosure notices is way up this year versus last in RB, and my hunch is that is true throughout 30A. The banks are coming to collect their cash. Personally I think it is in everyone's best interest that they price below replacement cost to move their inventory. Transaction volumes recover faster, inventory clears faster, and the bottom in comps is of shorter duration.

Plus the banks have cash to cushion the commerical loan book degradation and pay off TARP faster. But, of course, none of them are calling me for advice...

I used Watercolor because I thought this thread was about Watercolor. What area do you like and what is your price range? I can do a similar analysis.

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Your use of Watercolor was very appropriate. It makes me wonder if I'm missing something since it is so desirable but I really don't get the draw. Maybe we should spend some time renting there to appreciate it. We hear it is wonderful and our friends love it.

How about homes and land in Watersound?

We really like the west end of 30-A and have spent most of our time looking there. A diamond in the rough is what we are thinking.

Nobody should worry about having missed out on all those "good deals" because they've all been "gobbled up". There will be plenty more coming down the Sowal Vacation Market Foreclosure Pipe.

Its a good thing because I am feeling a little low on good selling inventory.

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Excellent chart. Do you have a way to track the lis pen stock, or total inventory, which would be all of the properties for which a lis pen has been issued and there is no subsequent sales event or deed transfer? In my view the distressed inventory will peak ahead of a bottom in valuations.

Convince some of your clients who are stuck in 2005 to lower their prices? There's plenty of inventory out there to work with.

I'm stuck scraping Walton County public records for this. Digging into those records to correlate lis pens to sales would be hard. The data is there, we just don't have the right access to it.

Theres no question theres a huge back log of foreclosures coming as talking with many friends i've counted at least 10 people that stopped making there monthly payments 1-2 years ago and they're still living in there homes. as somebody said since the banks are not being forced to market to market loans they'd almost rather a deliquent borrorower stay put instead of foreclosing for several reason. first reason is not hit to the blance sheet till they sell the property at a lose. the second is with someone living there its being taken care of versus sitting there unoccupied. but i still think 30-a is a little different than the rest of the nation. i'm just not seeing prices down that much on the 300k-800k homes in the past 10 months or so. maybe the top end has fallen more.whats been taking place the past 3 years is homes are moving from weak speculative hands to stronger hands who are less likely to default this with little building going on for 3 years now inventory will drop fast in the next 2 years and prices could start rising.

Great point...will be interesting to see if banks "outsource" property management in their commercial portfolio in this same way.

All of 30A is a pearl, but the west end is as you say, a diamond waiting to be polished. Have you looked at Draper Lake Coastal Village and some of the other communities in Blue Mtn? There are some true deals on that end. We have built over 50 homes along 30A, would like to talk with you about building for you and your family.

As a builder I agree with BobbyJ, BUILD!!!

We are looking at the possibility to do a few 2000 sq ft spec homes on the west end in the $150ish a sq ft range because alot of folks coming from out of state want to buy a new house already built. I think the demand for that is going to be here by next spring.
What does BobbyJ think? Anyone who owns a lot might want to build on it with the idea of selling it.

Start rising after the two year mark?
Dang, two years for free... we should have just bought even when we couldn't have afforded it!

The majority have and have sold.

You are correct if you want to pursue a short sale and wait 6-8 months to find out if you get to buy it.

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Dead on. I have 4 offers sitting in front of me right now of cheaper lots and over 10 under contract with visions of building... Why? They can't find homes that fit their needs or the land and cost of construction are to enticing to not build.

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Care to post some inventory vs. sales numbers to back that claim up?

My team is feel very blessed right now with a tremendous amount of inventory under contract.
I probably misspoke when I said the majority have and have sold. I would have to go back to my personal inventory and see if my sales and pendings are 2005 clients or not. I guess I just get a little excited about Real Estate. I love this business and stoked to see it changing. I am not sure I would feel comfortable giving you a break down of my personal transactions online but if you would give me your email I would gladly send a break down to you.

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Just dig into the mls and give us the following generic figures, for areas 14,15,16,17,18:

sept, oct: inventory, single family homes
sept, oct: single family sales

We can latch that onto the end of Josh's graphs.

Josh's Blog

As of August, inventory was still at all time highs. I did an off the cuff search of emerald coast online and found inventory between Destin and Inlet still very high, around 1900 properties. Sales are probably, what, 75 per month? That conflicts with your statement that all properties in the south walton area have cleared.

We don't have access to the mls, so folks like you are who we rely on to give us the straight scoop on current market figures. That's really all people want, and need, when considering purchasing or selling.

Where did I say all properties in South Walton have cleared?

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I have often said on these boards that Real Estate is very local in nature and a market can be different 2 miles away or less. To look at all the areas you requested would be misleading and a very confusing way to look at a market. I tend to be more specific when I look. I learn more and I can begin to see trends this way. Why would one look at areas 14,15,16,17,18 at one time? That would not tell you anything about this type of market. If you are looking to buy you have to know or understand what the areas are individually and what real inventory is. I took a brief look at areas 17 and 18 which is the 30a area. Maybe on my earlier post I should have clarified what market area and price ranges I was talking about. As I randomly sometimes post something positive about the market maybe I should be more specific about what areas I am talking about. Some on the boards get really upset if something is posted positive about Real Estate. I apologize, it is my nature. I will say that north of 98 is struggling and will surely have a ways to go. I have noticed in areas that are still hurting price adjustments have not been made as radical as they have on the beaches. You would have better luck finding a great deal off of 30A then you would in Pt. Washington. Anyways, taking a brief more specific look at 17, 18 under $400,000 we find 90 listings. Of these 90, 38 are legit and something I would possibly show to someone. But…. This can even be broken down further by simple location. I am probably being liberal when I say 38. When I look at how many have sold under $400,000 since 09/01/2009 I find 28 sales. Hmmmmmmm …… I see a trend here. You may randomly see 90 listings but many of them are not even in the proper areas, short sales, mobile homes, etc. I can narrow the search down in seconds and once a client tell me what they like it gets narrowed down a lot more. Suddenly, 90 listings are down to 15. We watch these 15 for a few weeks and they are “gobbled up”. Are more coming? You bet. But you can also bet when you begin to break down each area the load of inventory is not as great as you think it is. In my ten years of doing this I have never had a buyer ask me to look at areas 14,15,16,17,18 at one time. That would be pointless.

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BobbyJ, you know your stuff. Please check your PM

It seems to me that this math is further to my earlier assertions. As long as builders can build spec homes well below the comps for existing homes the banks will be forced to keep lowering their asks to find a bid, assuming there is sufficient raw land inventory.

Limiting your search to 400K or less filters out all the over priced property. I guess we got off track somehow. I count almost 1000 properties for sale, under 900K, in the SoWal area.

Right here -

Too random of a look. A good way to start and show lots of inventory still on the market but unless you dig in really has no meaning to a specific buyer.

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I never said this. You are twisting words. I was speaking specifically of my own personal buyer portfolio from 2005. "The majority have and those that have have sold." How do you turn that statement into me saying all properties have cleared? This would mean I sold all the property in 2005 in this area. I really think we are have a communication break down.

If you would like to come by my office and go over my 2005 buyers you are more then welcome. I would also like to be clear that these 2005 buyers that have sold did not walk away with checks or a big smile on their faces.

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I'm not twisting anybody's words I just think there was a misunderstanding. Generally I think we agree, there is a lot of inventory, but little of it is saleable due to price. It will take time for the whole thing to unwind, during which a steady stream of reo's will continue to flow into the market.