Taking on the project of developing a new house, building or real estate project is a handful. The entire process of finding the right area, buying it and actually start building something takes a long time. In addition to this, developers have to make sure they are providing a solid service for their customers. But that’s not all; at the end of the day, they must also come up with a finished product that turns a profit for them and everyone involved.
To this end, developers decide on the new launch price of their output based on a series of factors. Here we’ll show how to calculate it.
Calculating The New Launch Price
Arriving at the final selling price of a property basically entails adding every expense that was undertaken. This means adding the cost of the land, constructions costs, like labour, equipment, and so on, plus the administrative, marketing, sales, finance costs and profit margin.
Let’s take an example – assume you’re looking at new condo prices that just popped up on the real estate market in a particular area you’re interested in. To reach the selling price of this condo, the developer considered:
- The price of acquiring the land site on which the condo
was built – in this example, assume it was bought for $400 million. This would
roughly translate into $2666 per square foot (psf).
- Construction costs, including anything from materials,
to labour, design and architecture, comes at about $350.
- Administrative expenses, marketing and sales costs,
including advertising and real estate agencies fees, finance costs and, very
important, profit margin – the profit percentage that goes to the developer for
taking care of the project. All of this is obtained by taking 30% off of the
base cost (land plus construction, as seen above), which comes out at around
- The final step would be to add everything and come up
with a new launch price per square foot – in this case, $3920 per square foot.
Of course, this would be the case for an extremely luxurious development. Keep in mind that reaching a final selling price will always depend on both internal and external factors, that can vary quite a bit and don’t depend solely on the developer.
More modest buildings will cost a lot less to construct, economic recessions or periods of good fortune will influence the cost of the land, the salaries of the staff, and the overall costs of construction, profit margin, marketing and sales. A developer must also take into consideration competitor prices and make sure the estimated preview price or final launch price can match and successfully compete in the market.
How Important Is The New Launch Price?
Making a decision about buying a new condo shouldn’t, however, depend solely on the price. While it’s a good benchmark for your money allocation, the launch price won’t tell you much about the quality of the house. Like with many other things, cheap doesn’t have to mean poor quality, bad materials and terrible execution, just like expensive doesn’t indicate you’ll get the most amazing house you possibly could, with top notch construction.
Just make sure you take several factors into consideration, including the developer’s reputation and previous work, your budget, the area and anything else you might find relevant.