Lake Geneva Sales

My son is contemplating going to law school. When I was 20, I did not contemplate this. I was contemplating whether or not I had a house I could sell so that I might be able to pay my mortgage. What a terrible shame it was to be in such a hurry to grow up. Sadly, it’s too late for me, and 25 years after that day when I was contemplating selling a house to pay my mortgage I’m sitting here at my desk contemplating selling a house to pay my mortgage. My son, on the other hand, gets to contemplate law school. I tell you this so you know I’m not an attorney. I’m also not an accountant, so if you need legal or tax advice you should discuss this with someone in one of those professions. I’m just in the contemplating selling houses profession, so here’s a thought I have on the business of real estate and the new property transfer trends that are making a mess of things.

The local MLS is antiquated and unnecessary. I know it and you should know it. It serves very little purpose in this new era, even though it was very important once upon a time. Once upon a time it was important to have a fax machine, and I have owned bunches of them. But now my fax machine is in a landfill somewhere, where there’s still plenty of space for the local MLS to join. The local MLS is where agents register their listings and sales, and in the sale column we place the price that the home sold for. Ah, but we don’t. We plug in the price at which the home transferred, which is different than the contract price of the property. Allow me to further explain.

If you purchase a home for $20,000,000, and you purchase said home fully furnished, it wouldn’t be out of line to consider that perhaps the personal property included in the sale could be worth $500,000. It might be worth $2,000,000, but for the sake of this explanation we’ll pretend it’s worth $500,000. When you contract on the house, you pay the owner $20,000,000 for the property, including the furniture. The contract for the home sale is $20,000,000. When the title is ordered and the dust of the deal settles, we often look to the terms and the attorneys and principals decide on a fitting personal property allocation, to be transferred at the same time as the real estate, which might help a seller with a lower capital gain burden and help a buyer achieve a lower transaction for future tax assessment purposes. In this example, the $500,000 figure is applied to the personal property, and we set up a transfer of the real estate for $19,500,000 and $500,000 for the personal property. The MLS requires the transfer price be recorded as the sale price, so the MLS sees a property sold for $19,500,000. Then the Chicago media jumps on the transfer because Lake Geneva is the only market in the Midwest where truly upper bracket properties transact with frequency, and the world thinks the sale price was $19,500,000, when the real value of the contract was $20,000,000.

This feels like it might not matter, after all, it’s a reasonably small discrepancy. But let’s pretend the allocation was larger, perhaps $1,000,000. Now the $20M sale looks like a $19M sale, and the market reacts accordingly. The next seller of a similar property sees the comp is $19M, when it’s really $20M. A buyer looking at a similar-ish property sees the sale at $19M and negotiates her offer based on that comp price, which, as we know, is inaccurate. More meaningful still is when this allocation occurs at the lower end of our lakefront market, when a $3.5M contract might be recorded as a $3.2M sale… This is an issue, and it begs to be fixed.

There was a time when this issue didn’t matter much. The MLS didn’t care too much about the transfer price relative to contract value, and agents often plugged in the total contract price (as they should). The MLS has changed their rules, or at least enforced them, so now the sale price must match the transfer price. This is causing confusion as to the real transaction values, and since the practice is now frequent and typical, the issue is growing. While there’s nothing I can personally do about this, and the MLS doesn’t appear interested in providing a required data field where we can show what the comparable number should be, it is important you, as a consumer, understand why you’ll see some discrepancies in transaction values. As always, if you want to know what’s happening behind the curtain, I’m here to help.

About the Author

I'm David Curry. I write this blog to educate and entertain those who subscribe to the theory that Lake Geneva, Wisconsin is indeed the center of the real estate universe. When I started selling real estate 27 years ago I did so of a desire to one day dominate the activity in the Lake Geneva vacation home market. With over $800,000,000 in sales since January of 2010, that goal is within reach. If I can help you with your Lake Geneva real estate needs, please consider me at your service. Thanks for reading.

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