If you think it’s difficult being a buyer at Lake Geneva right now, imagine being an agent. The lack of inventory is pervasive and pronounced, with each segment of our vacation home market lacking any and every sort of inventory. This is causing buyers to stress, sellers to flex, and agents? Well it’s causing us to wallow in the misery of it all. Without inventory, the market will cease to function normally, which is to say that the ongoing battle between buyers and sellers will continue, it’s just that buyers no longer have any weapons, and are forced to wear pajamas.
The concern I have is related to pricing. That’s the concern I always have. Pricing is vague at the lake, as anyone who has bought or attempted to buy here should understand. How can 100′ of frontage be worth $60k per front foot, or maybe $20k per front foot, depending on where on the lake the parcel exists and when it comes to market? The answer is technical, but also “it just is”. With a normal flow of inventory, even a constricted flow, we can continue to have relatively normal markets. Fewer, but consistent, lakefront offerings in all price points will continue to spur buyers to action and a few overpriced offerings will force sellers to react to their mistakes with begrudging price reductions. But what happens in a year like this, when inventory dries up completely?
As of this morning, there are four listings available on Geneva Lake. Two are priced over $12M. The other two are priced over $5M. What does that mean for a $3M buyer, and moreover, what does that mean for a $3M seller? Does it mean that a house that should be $3M will now come to market for $4M? Will you hate me if I say, maybe? If you’re a buyer, I assume you will very much dislike that possibility. But if you consider the plight of the 2021 seller, could you blame him? If supply is nonexistent and buyers are plentiful (that might be an understatement about the number of active buyers in the market), why wouldn’t a seller press his ask to the highest possible number? There’s an obvious, but not well understood answer to that question. In spite of pricing being vague, there is still danger for a seller that wildly overprices his listing at the suggestion of an overeager real estate agent and that has everything to do with the market pressures that accumulate against an overpriced property over time.
We’ve already been seeing this play out just in the past few months. Regular lakefront homes hit the market and endure the initial frenzy of buyer activity. It should be noted that every home priced under $7M will experience this sort of frenzy today. More pricy offerings, like my new listing on Snake Road, don’t play by these same market rules as the extreme rarity of the offering plays not only to a different market altogether, but it dictates a much different market response. If a sub $7M home comes to market, the frenzy will ensue, but what happens when the dust settles and the seller looks around after 60 days of market time that hasn’t yet produced an offer? The answer is one to two things. Either the seller doesn’t care, and proceeds to leave the home on the market, or the seller cares, and reduces the price. The end result is either long duration market exposure or price deterioration. Either outcome is less than ideal for a seller.
What I would suggest is the accurate pricing model for this current, complicated market, is one where a realistic fair market price is established, and then, if the seller wishes to gamble with the market conditions, the price is increased a reasonable percentage. If a home is worth $3M, and the listing is suggested at $3.15M, would it be a wild stretch to list that home for $3.4M? I don’t think it would be, and so that’s what a buyer might want to expect in this cycle. With the number of buyers actively looking for their own piece of this lakefront, all it’ll take is one buyer to hit that seller’s elevated number. The bad news is once that happens a few times (as it already has), the market itself will adjust to those new print values and the broad market valuations will increase (they already have).
Of utmost importance for buyers in this market is that they understand certain homes are being priced at slight premiums and certain homes are being priced at wild premiums. The key is to work with someone who can tell you which is which.