South Lakeshore Sells

Over the past four years there has been one common question on the mind of nearly every lakefront vacation home buyer. That question, if formed in the mind of my clients, has been asked. That question, if formed in the minds of some other buyers, has been merely pondered, considered and weighed but not necessarily vocalized. Most buyers have been playing this game in the form of a question over this entire real estate cycle, and it finds them wondering, some aloud some not, just how much value a particular property has shed from its valuation peak. This is a thought out question, an important consideration, and it enters into the buying decision of every buyer at the lake. Correction- it enters into most buyers at the lake, as others run with blinders on until they find their perfect piece of lakefront. What is that perfect piece? Well, that’s the one their agent shows them. Silly you for not knowing that.

There are many metrics that we can use to determine current value, with no one particular method being able to exist inside its own vacuum. We have long since graduated from the mindset that Price Per Foot is the best and only method used, yet I hear that question asked often, as if it is still some authority. The PPF matters, but only as one of many different pieces that make up a complete valuation. The comparison to a prior peak value is very important, as it shows the value path of a property over the past decade of tumult. This is why the question has been asked often, and the consideration of just how much value a property has lost is perhaps still the most telling indicator of current value.

There is something different happening now, something that few outside of the most illogical market cheerleaders would have considered before this year. There is market appreciation in the works. Before we get ahead of ourselves, remember the sale from last week on Circle Parkway at $1.2MM. This is a valuation that likely would have been in place in 2010 and 2011 and 2012, so there’s little reason to think that this small market appreciation has affected every home uniformly. Perhaps this is why representation is so important, even though it’s amazingly overlooked. Even this narrow segment of our market isn’t appreciating at a similar clip, with some homes moving forward in price even while others lag.

Case in point is a sale that just closed this week at 704 South Lakeshore in Fontana (Not my buyer nor my seller, sadly). This is a unique property in our market, one that looks sort of estate-ish from the road and from the water but is in fact only a narrow sliver of land that runs from road to lake, barely 80 feet in width. $2.9MM was the sale price, effectively blowing the minds of our Price Per Foot friends. At nearly $36k per front foot, you can rest assured that this is not some new benchmark. This is not to be the norm, so if you’re reading along and considering a piece of property with 150′ of frontage, please don’t think it’s worth $5.3MM regardless of the structure on the land. This sale is good for the sellers, bad for the buyers, and important to consider for everyone else not because of what the parcel is, but because of the sales path it took to get to where we are now.

The owner who just sold purchased the home in January of 2012 for $2.5MM. Then that owner listed that home in December of 2012 for $2.7MM or so, and quickly had an offer around what he had paid for it earlier that same year. That proves that 2012 didn’t move the needle in terms of appreciation, not from January to December. Fast forward to this summer when that same home, now with a marginally finished garage space, came to market for $2.995MM. The property was high, but not sky high, and when it surfaced this summer I expected it would sell for $2.7MM, or in that neighborhood. Lower would be a win for a buyer, higher for the seller.

Instead of selling in that range, a buyer came out of nowhere and paid $2.9MM for it. The conundrum now is simple: has the market appreciated 15% over the past 12 months? Depending on the controller of your narrative, the answer could be yes. This is, in fact, a printed sale, based not on hypothetical current and previous values, but based instead on actual sold value from before, reinforced value with a prior contract, and now solid proof of value in a paid market price. This is why some will say that the market has made this move, but I’m not convinced. I think this property, even though it sold for $2.9MM, was still a property that was worth $2.75MM. Just because a singular buyer pays a hefty ransom for a singular property doesn’t mean that property, or those that surround it, are truly worth the print price. Even though something is generally worth what someone will pay for it, that logic doesn’t always hold water.

I do think the lakefront market, in a broad sense, has appreciated. I’d place an average value increase from the lows of 2011 at 10%. Some properties have likely increased upwards of 20% from those dark days in early 2011, and other properties haven’t moved much, if anything at all ($1.2MM Circle). The market is mending, but the stitch continues to be jagged, with some properties beating the market while others under perform. This is our unique market, one requiring study, patience and guidance from the right source. The right source? The one that refuses to drink the Kool-Aid, no matter how tasty.

Above, a picture from this morning of a pier in Cedar Point Park, proving that December is a good month to have your piers already stacked on the shore…