We tend to buy real estate based on emotion and sell it based upon fact. This shouldn’t come as a surprise to anyone who has ever bought or sold real estate. We buy it because we love it, because we want it, because it makes sense in some ways, sure, but mostly because we just have to have it. We sell it because we still love it, we still want it, but we know there are better ideas or better options, and so we adopt a more pragmatic approach and we move on past the thing that we so dearly loved. The hang up in real estate is when we’re buying something that we don’t truly love, that we don’t really want. Then every hiccup is perceived to be a bad omen, every slight difficulty a catastrophic event. When we sell, if we don’t truly understand that selling is what’s best, we cling to this real estate like grim death, knowing we have to sell but badly wishing against it. Then we poison the process with emotion, the side of the process that’s supposed to be more fact based. This is real estate.
On Friday, I sold 976 South Lakeshore Drive in Fontana. I represented one of my favorite clients in that transaction, and the deal came together in the way that we wish all deals might. We listed the house, we showed the house, we received an offer on the house, then another, and then we sold the house for $3,300,000. Just $95k off of our original April ask. That’s a scenario that most sellers dream of, and indeed it is a process of which I’d love to be a consistent participant. For now, we’ll leave aside the part of the deal wherein I represented a fantastic seller as that family pursues the ultimate lakefront arrangement, and we’ll instead focus on the truths of this deal and try our best to learn from them.
I sold this home to this seller in 2013 for $2.95MM. The seller did some improving of the home, but nothing too overwhelming. The property just sold for $3.3MM, representing a 12% increase over the 2013 price. This is Takeaway #1 from this sale: The lakefront market is up around 12% from 2013. Is this a uniform number, benefiting or cursing all lakefront homes? Of course not. Some have risen more, others less, but this is a solid benchmark, proven out not by my own interpretation of the market mood, but by cold hard statistics. Other properties have been bought and resold over recent years, but these properties often have had some form of dramatic renovation between the time they first sold and the time they most recently sold, so those statistics offer simply more proof of a market tendency to overpay for renovated kitchens.
This property, at the time that it hit the market, was the only lakefront home in Fontana listed for sale under $7MM. As a result of that market gap, the seller of this home could have taken a common seller approach of assuming that because he was the only game in town, the market would dramatically overpay for the rights to own his exclusivity. I hear this often from sellers, and when they explain just how rare their property is I tend to daydream about things that don’t make me lose all faith in humanity, like trout streams and the lake on a calm summer morning. The sellers explain, if a buyer wants this particular thing, in this particular location, they’ll have to pay. Unintelligent sellers call this the “price of admission”. It is true that there is a price of admission, but you know I like to compare real estate to cars, so to be a seller offering his rare property for a ridiculous number is akin to me listing my 5 year old BMW for $100,000 because that is indeed the only BMW in Williams Bay listed for sale. If you want that sweet BMW, you’ll have to pay up. Sellers of houses are just as ridiculous, and this seller didn’t succumb to that absurdity. Instead, we discussed the market, targeted a price range, and we listed the home at what the market indicated would be an acceptable price. One month later we had two buyers in line, proving our theory correct.
The lakefront market as a whole is relatively slow right now. There are two other lakefronts closing this week, both to buyers whom I’m pleased to represent, and another in Lake Geneva with a shared pier. Don’t ask how I feel about shared piers. Two weeks ago the older lakefront home on the hill in Cedar Point closed for $1.515MM, representing a reasonable ransom for a house with a tremendous view and approximately three trillion stairs to and from the water. YTD there have been 9 lakefront sales. 2015 had ten lakefronts closed as of June 13th, with two of those sales being involved in a trade. The market today feels somewhat sluggish, but it’s actually right on track. Last year, from June 14th through December 31st, there were a whopping 20 lakefronts closed, meaning 2016 has some big shoes to fill. The market could very well turn on in a similar fashion to last year, and I have a sneaking suspicion it’s going to do just that. The only difference between last year and this year is that our inventory is tighter, and without enough dry tinder there’s no way to get that fire quite as hot as last year.