When Apple decided that an iPad should cost $499, with variations costing more and older models, rendered obsolete upon the announcement of a new one, should be less, many people argued over this. Some say they should be cheaper. It would be fair, after all. But fairness only matters when it’s a question of taking other people’s money, not when it comes to parting with some of your own. Some say they should be more expensive, that the demand is so high it could not possibly be quashed by a $50 price increase. Perhaps then only 142 people would camp outside every Apple store for a week before the launch date instead of 165, perhaps not.
Pricing, by its very nature is subjective. It is open for interpretation, unless you’re buying a product with a fixed MSRP. If you want a fancy pair of jeans, but you don’t want to spend $200 for them, you have two options. You can wait and hope they go on sale, or you can not buy them. There is generally no third option. Retailers, like BMW dealerships, don’t like to negotiate. If you want the badge on your hood or that stitching on your right rear pocket, you must pay the price.
Thankfully, real estate pricing isn’t like that. It is highly subjective. It is, invariably, open for interpretation. If we had a national pricing system, where a bedroom was worth this and a bathroom worth that, where corner lots received a plus one and garages counted for $8,244, then we might be able to remove the mystery of pricing. There would be a price and a market, and if you wanted a particular house you would have no choice but to pay a particular price. A price that was set by a panel of housing authorities, much like I’m guessing they have in North Korea, or something like we’d be asked to buy into during O’s second term.
The debate on price brings us to today, and thankfully to Lake Geneva. To track broad market pricing is to engage in a relatively easy study. If Case Shiller can do it, anyone can. But if we’re looking to get hyper local, and remove any macro influence on a market and gaze intently at just the micro, we’ll have to look a little closer at individual valuations over the years. To do this, we can look at asking prices today and look back through the sales history of a particular property to see what it sold for when. If we study enough small market listings, and contrast those asking prices against their historical individual sales prices, we can ascertain just how many years of froth the market has currently hacked away.
In Lake Geneva, if lakefront properties are your aim, the answer to this pricing question is simple. Lakefront valuations on Geneva are, roughly speaking, at 2003 levels. I only say “roughly speaking” to hedge against individual properties that do not follow this trend, but the trend is pronounced and nearly inarguable. Since I have a nasty habit of offering statistical proof along with these theories, consider first a home currently listed for $1.75MM on LaGrange in the city of Lake Geneva. This home sold for $1.6MM in 2002. My new listing on Bonnie Brae that I just sold over the weekend is listed at $3.295MM. This home sold for $3,025,000 in 2003. While I cannot tell you what this property is under contract at, I can tell you that my pricing theory will remain beyond the sale date.
For properties that didn’t sell during 2001-2003, there is another way to measure the accuracy of current list prices, and the ultimate true value of those particular properties. If they sold between 2006-2007, chances are they sold somewhere near the market highs. And if they sold for market highs, they are likely currently valued somewhere around 30% less than those sale prices. More proof of this assessment? A lakefront on Oak Birch sold for $2,025,000 in 2006. That property is currently on the market for $1.574MM. I don’t need to tell you where I think it might sell.
These two methods of price testing a property are not foolproof, as some lakefront homes will sell today for prices that mirror or exceed even their 2006 highs. How is this possible? Perfect properties retain value far more easily than do imperfect ones. The right mix of structure and frontage is a blue chip property here, and unlike blue chip stocks these properties actually perform in a manner consistent with their label. Beyond the rare exceptions, let these two statistical methods help you define value. Of course they are not infallible, which is why you should really be working with me on these lakefront purchases. Now, if BMW decided to start pricing new models at 2002 prices, we’d all be in luck.