It’s probably a good time to think about valuations. Specifically, how valuations should be viewed in light of comparable sales. One year ago, I closed on Aloha Lodge. Aloha Lodge is a beautifully updated and expanded Howard Van Doren Shaw property on the south shore, consisting of 360+ feet of frontage and around 12 acres. The immaculate property sports a guest house, multiple other structures with varied uses, a gated entry and manicured grounds. There’s a magnificent boathouse structure at the water’s edge and massive pier system, along with a lakeside pool. The estate was $22M, and is undoubtedly one of the most important properties on the lake.
How do we value homes of similar stature, considering we have this sale from 2024 at $22M and the $17M sale of Hortensia a year earlier. This was also a Shaw home, but this one was situated on an even more important lot that measured 20 acres and more than 500′ of frontage. Do we take these two sales and then work our mathematics to decide that any old house on any marginal lot should be worth $20M, $25M, or $36M (as in the case of Glanworth Gardens)? That’s a question the market is trying to figure out today, and I’m going to go ahead and answer the question in the negative. That’s why the resounding theme of my valuation efforts is that of repeatable value. Sure any old house can sell for way too much money once, but can it sell twice or three times at that price?
If the answer is no, then the price paid is an outlier, and should be treated as such. Those who would argue against my theory would suggest that a house is worth whatever someone will pay for it. If we’re trying to be transactional in our relationship, and what you pay is your business and I’m here to help you make your own mistake, then I suppose that’s a fair retort. But if we’re trying to be nuanced in our comprehension of value, we should understand that one sale does not make a pattern. Multiple sales are needed to create a pattern, and a pattern is how we should value real estate. This is increasingly difficult for our market to understand.
A good example is a sale that occurred many years ago in Door County. Judith Blazer built a massive home there and sold said home in 2005 for $20M to a buyer from California. That home sale at $20M far eclipsed any other residential sale in the state both at that time, and for nearly two decades to come. Did that sale propel Door County into a $20M valuation frenzy? Of course it didn’t. That $20M home resold in 2015 for $2.7M. Did one sale create a pattern, or was it an outlier of outliers that was treated as such by the market?
When considering pricey real estate in low volume markets it’s important to remember that not every sale is something to be celebrated. Not every sale is a market maker, and not every sale makes sense. Sometimes it’s best to let other people jump at the overpriced things. How to avoid becoming the outlier? Just work with me and we’ll avoid a transactional mindset and make certain that you don’t make a market mistake.