How do you know what a lake location is worth? How much value should you give to a house with a lake view compared to a house across the street without the view? I had this conversation recently with a real estate agent who had some questions about pricing a lake house, so I wanted to share some tips for uncovering value from an appraiser’s perspective. It’s honestly quite a bit in principle like valuing a golf course location. Have a read and let me know what you think.
5 Things to Consider When Valuing a Lake Location:
- Lake sales vs non-lake sales: It’s going to be important to find sales on the lake at some point because these sales will help indicate how much buyers have been willing to pay for a lake location. It’s obviously helpful if you have recent sales, but even if you have to look over the past ten or so years of sales, find something that sold and then compare how much of a premium it had at the time to similar-sized non-lake homes. For instance, if you find a 1600 sq ft house on the lake, compare this house to other 1600 sq ft sales at the time to extract the value difference for the lake. Or if you find a 2300 sq ft house on the lake, compare this house to other competitively sized homes at the time without lake locations. Once you find a few sales to work with, you can then apply the percentage difference between these sales to your situation. Keep in mind the perception in the market among buyers could have changed though over time, so know your market. Also be aware that builders may sell homes with very large lake premiums. It may be best to look at the resale market to see how much buyers are willing to pay without any builder mark-ups.
- Subject Sale: If the subject property sold previously in recorded MLS history, you may have a good example of how the market has viewed the subject property. Was there any premium for the lake in the previous sale? If so, how much? This can be great secondary support, especially if the subject property has sold multiple times recently.
- Use Other Competitive Lake Houses: You can attempt to find a competitive neighborhood with a lake, extract the percentage value of the lake by completing Step 1 above, and then apply this percentage to your situation. However, a competitive neighborhood might be really far away, and the real issue becomes whether the community is truly similar or not. These are important things to keep in mind because you want to compare apples with apples so to speak.
- Conversation with Local Pros: Talk to local pros who know the market well, explain your situation, and ask them questions. It’s ideal to compare actual sales, but if there are none for whatever reason, nothing will beat the knowledge of agents who know the idiosyncracies of a market (they’re often spot on – though not always). Also be sure to look at withdrawn listings and current listings to see if there is any potential helpful data to mine.
- Be Aware of the Lake: Be aware of the location of the house on the lake, the view and how much frontage the property has. Also, can a dock be installed? If there is a dock, does it matter much for value? Does the property owner have rights to the lake? Are those rights any different from the rights for other nearby properties? This probably isn’t an issue for a man-made lake, but having water rights (riparian rights if you want to sound fancy) will very likely make a value difference elsewhere.
I hope that was helpful. Anything else you would add? If you’re in real estate, what have you learned about lake locations?