It seems to me that what this lakefront market really wants is newer inventory in the $3-5MM range. There are buyers in that range seeking newer homes on reasonably nice lots, and this is what they haven’t been able to find. My sale on Lackey Lane ($4.375MM) fit that mold. The sale last year on the hill in Fontana for $5.1MM, too. Those sorts of homes are what the market wishes for, and yet that sort of home is what we haven’t been able to offer. Inventory concerns are real, and on Geneva right now the ideal inventory is what I’m describing today.
The curious part of this hole in the inventory is that the inventory has existed, but it hasn’t been built. It’s raw land, or it’s a tear down, but it does exist and it has existed for much of the past two years. There were two sales on Sidney Smith, then a sale on Lackey (of a tear down). Then, the vacant lot in Loramoor that I sold less than two years ago came back to market earlier this year. The key to building a new house and being all-in for less than $4.5MM is in buying the dirt for around $2MM. If the dirt is more, your budget is blown before you put a shovel in the ground. If the dirt is considerably less, you don’t have the sort of property that can support that elevated target price, no matter how shiny your Wolf oven is.
This is why when a buyer asks for an entry level tear down, I question the math of it all. Yes, it’s true that you can buy an entry level tear down somewhere around $1.1MM right now. But what have you bought? Likely the answer is around 50′ of frontage. That’s nice frontage, and if you wanted to buy a tear down for $1.1MM and build a new house for $700k, that might be a good idea. But what if you’re looking to buy $1.1MM dirt and then build a $1.4MM new house (5000 square feet x $300ish/ft)? Then you’ll be $2.5MM into a 50′ lakefront lot and again, I’m not concerned about how terrific your kitchen island is because that price doesn’t make much sense. The investment was a bad idea before it started.
That’s why the market has a sweet spot, that of a $2MM type lakefront lot possessing around 100′ of frontage, and on top of that it’s reasonable to build a $2MM or so new home. The market, with the sale on Lackey and the sale on the cliff in Fontana, has proven it can absorb new construction of a higher level in the $4-5MM range. With this known, if you’re a buying in the $4 range why wouldn’t you just build a new house? The answer is confounding, usually related to a distaste for the building process, or perhaps a lack of patience to wait the 10-16 months to have a build completed. The thing buyers forget is that the house they’ll end up with for $4something will be exactly and precisely the home they wanted all along. There’s a wait involved, sure, but the outcome is individualized perfection that the market also appreciates.
Last Friday I closed on the Loramoor lot that I brought to market earlier this year. The seller had great hopes for that property, but life changed and focus shifted. That shift allowed a new buyer, a young family with eyes set on the lakefront, to find their way to the parcel that will hopefully be their lake home for decades or generations to come. They paid $2.075MM for 110′ of frontage and 1.43 acres, and that’s something that will always make sense on this lake. The trick now will be to keep the all-in budget in that $4MM range, and once that happens the buyer will end up in a home that the market simply couldn’t offer. Want to find that $4MM new construction on Geneva? Then it’s time to get a bit dirty and build it.