There is much confusion amongst agents, buyers, and sellers when it comes to the definition of a Geneva lakefront home. As our eyes see it, a lakefront home is a home that sits on the lake. This is the easy part. As the MLS sees it, a lakefront home is one that has some ownership on the lake, but this is not the same as an association home that shares deeded frontage of the lake, except that it sort of is. The Congress Club is listed usually as lakefront, but it is in fact no more lakefront than the Harvard Club, or than Belvidere Park. This confusion appears to have no end, and as this discussion will likely continue, it’s best to allow me to be the judge and jury. Lakefront homes are homes that the market considers to be lakefront both in terms of desirability and of value. This is the best answer to a tricky question.
It is with this understanding that we must review the lakefront market on Geneva, and how it fared during 2011. I’ve read many articles and tweets and blog posts written by people who are glad that 2011 is over. I am not necessarily one of those people, and if the lakefront market on Geneva were a person, I doubt she’d feel that way as well. 2011 was a good year to be a lakefront home here. There was plenty of volume, spread out over all but one segment of the market, and there was a pattern that at least one chubby Realtor saw quite some time before it developed.
I’ve been telling buyers that most lakefront homes listed in the $1.75MM to $2MM range will ultimately capitulate to a market that sees entry level demand lessen over $1.5MM. The buyers seeking a home for $1.8MM are either buyers looking to steal a large lakefront parcel, or they are buyers looking to buy an entry level lakefront. There are very few caught in between. So if you’re a lakefront house of reasonable integrity but only a 50′ lot, then it stands to reason that you’re going to be attracting buyers that want to pay you $1.4something. If, conversely, you are a lakefront home with 90′ of frontage, and it is only your structure holding buyers back from rewarding you with an offer, then you may have a shot at that $1.5MM to $1.8MM sales price. I can’t tell if this is making sense.
I knew the lakefront market was going to soften in 2011, but not in terms of overall valuations. It would soften because sellers would reduce their unrealistic list prices to meet buyers expectations. It stood to reason that the buyers are where they are, and 2011 didn’t look like a year wherein buyers would step up to a higher price point. Instead entry level buyers huddled around the $1.5MM mark, and waited for weaker properties to drift towards their ambush point. While sellers are slow to adjust their list prices, they have shown a propensity to accept low offers when presented to them at moments of unexpected motivation. The proof of this movement is evident if you’ll review the four lakefront sales from 2011 that closed below $1.55MM. Excepting my Sylvan sale at $1.495MM, the other three properties all experienced significant reductions off of the original list prices before finally settling in that entry level segment. These are not sellers pricing to sell, these are buyers pecking away until the sellers cave.
There were 16 lakefront sales on Geneva in 2011, and I was personally so fortunate to sell four of those homes. I know of at least four other private sales, but we won’t get into those. I will say that the four private sales reflected sales prices that were in line with the open market. Buyers did not root out some rare and treasured offerings at below market prices. They paid market, as it’s impossible today to discover a seller on Geneva who undervalues their own property, listed or not. Find a seller with a $2MM property who has been living under a rock since 1978. Lift up the rock and they will likely crawl out, ask for food and water, smile to find out Jimmy Carter is no longer in office, and list their home for $3MM. The 16 sales include one of the offerings on Wrigley, though I hesitate to consider that lakefront. A road running between my home and my pier is not my idea of single family lakefront utopia. Those sales also exclude two sales at the Congress Club that some might consider lakefront. The sales do include my sales in Glenwood Springs ($2.269MM) and Buena Vista ($1.495MM) as the market agrees with me in terming those lakefront. There are two other lakefront properties that ended 2011 pending sale, which puts our volume number at 18. There were also vacant lakefront parcels that sold, but we’ll discuss those in a different review.
Lacking from those sales were any sales over $3.5MM. If you’ll recall, 2010 had my $5.885MM sale to put on a pedestal and exalt and praise, but 2011 had no such signature sale. The marketability of those large lakefront estates over $5MM in price remains a question for our market. We know there are buyers that can afford these homes, but those buyers have shown far more interest in buying something for $3MM and then tearing it down. The financial impact of this process is significant, as many new buyers who have opted for this buy and raze path now find themselves all-in for $7, $8, or even $10MM. If they aim to keep these homes for life and set them up as generational retreats, this is a noble legacy. If they, however, entered into this on a relative whim with thoughts of someday selling, the market has not yet been clear on its verdict. Again, there will be buyers for these homes, but if we see one sale per year over $5MM, that isn’t exactly a comforting thought given the huge influx of $5MM properties over recent years.
Something to note, again, on the entry level lakefront market. This market is drying up. It is drying up because the buyers of these old cottages and run down structures have proven a willingness to buy and renovate, or buy and raze. We continue to eliminate this inventory from the market- not from the open market- but from the market in general. There are fewer entry level lakefront homes in existence every year, and I can envision a market where nearly all of these traditionally $1.4MM homes are all but wiped from our shoreline. The larger estates in the $2.5Mm to $3MM range are also drying up, as the only way a 150′ lot sells for $2.7MM is if the home on it is badly in need of a wrecking ball. Again, for each and every one of these existing homes that sell there is one fewer that exists. While gentrification has slowed in most parts of the country, it has, if anything, experienced a resurgence at Geneva over the past few years.
During January of 2011, I predicted there would be between 15 and 19 lakefront sales this year, and I was dead on. I see similar numbers in store for 2012, and actually think that we can duplicate the success of 2011 fairly easily if we have a positive year in the stock markets and avoid catastrophic geopolitical events. There will be a gradual building of inventory this month and the next, and sellers who failed to sell last year will hopefully list for lower valuations this year. One lakefront home has actually raised its price recently, a move that will prove to be a mistake, and a trend that won’t be followed. The entry level market will experience more sales as sellers slowly face their own personal valuation realities, and I currently see at least two entry level lakefront homes that I believe will sell soon for terrific prices (I’ve been saying that for five months). 2012 should be a great year for the lakefront here, with sales on par with 2011 and valuations holding steady at the currently reduced levels. If inventory builds again and those prices remain soft, it’ll also be a great year to be a lakefront buyer.