An appraiser’s take on that $250,000,000 house

Have you seen that house for sale at $250,000,000 in Bel Air? After checking it out I’m certainly taken aback with its features, but I also have some things on my mind as an appraiser. Let’s kick around some ideas together. Any thoughts?

Bruce Makowsky BAM Luxury Development

Image Source: Bruce Makowsky/BAM Luxury Development

1) Listings vs Sales: Let’s be real. This listing isn’t a big deal unless it sells. If it only sits on the market at $250M, then it wasn’t a $250M house. We say things like, “This is the most expensive house in the United States,” but it really might only be one of the most expensive listings unless it sells.

2) Fat Concessions: This house comes with enormous concessions. According to Bloomberg, the listing comes with “150 pieces of original artwork, $30 million worth of classic cars (owner’s estimate), a dozen high-performance motorcycles, and a deactivated helicopter.” At the very least the owner is giving the buyer $30M in personal property, so it starts to sound like we might be dealing with a $220M house instead. This is exactly why appraisers ask agents if there were any concessions or credits in the contract price. Would the house have sold at the same price if the personal property was not included? In other words, did the sale at $500,000 only close that high because there was a $50,000 car included in the sale? If all the comps are around $450,000 and there is one “Lone Ranger” at $500,000 (with a car), then we probably have to subtract that car out of the purchase price if we’re going to use it as a comp. Here’s more information on concessions.

3) Publicity & Overpricing: For the sake of conversation let’s assume this house is overpriced. On one hand the benefit of the sensational figure of $250M is the property has generated an incredible amount of publicity. That’s huge in real estate because it can help find the right buyer. But on the other hand, if publicity doesn’t lead to contracts, then it’s really just temporary attention. It’s like Eddie Murphy’s former house in Granite Bay that was listed for $12M in January 2014. The property got some air time and print for sure, but guess what? After 954 days it is still on the market for $12M. Thus we remember the importance of being priced realistically according to the market. Does the price line up with other competitive sales and current pendings / listings? Or is the property priced far differently than anything else that is similar? Whether values are increasing or declining, we have to ask these questions and pay close attention to realistic comps (that’s what an appraiser is going to do). In this case I really don’t know if the property is overpriced, but the inclusion of personal property  at $30M+ is a tell that it might be.

4) Bathroom Adjustment: This home has 38,000 sq ft and a whopping 21 bathrooms, so if we see a comp with 20 bathrooms, we should make a value adjustment, right? I mean, we were taught by our mentors to give a standard $5,000 or $10,000 adjustment any time there is an extra bathroom, so there has to be one. Okay, hopefully you get I’m being facetious. This example reminds us to not give token made-up adjustments for differences in bedroom count and bathroom count unless it’s really reasonable to do so (and there is support to do so in the market). In this case I would be shocked to see someone adjust such a petty amount because it’s not like billionaires walk in there and say, “Shoot, I would’ve paid $10,000 more if there were at least 22 bathrooms.” More on adjustments here.

I hope that was helpful or interesting.

Questions: What else stands out to you? What is #5? I’d love to hear your take.

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Comments

  1. says

    I love your commentary Ryan and I agree, the highest sales price is news, not the highest list price. If you do an appraisal on this place, don’t forget to make an adjustment for the pop-up pool television. πŸ™‚

    • says

      Ha ha. I love it Gary. I’m just concerned about the non-operational helicopter not passing FHA (kidding). This place really is incredible. My oldest son watched the video and he was blown away by the screens everywhere.

        • says

          Well, good luck selling it. If the buyer doesn’t want the deactivated helicopter, let me know. My kids would love it (I may have to convince my wife we need it though). On a somewhat related note, I wonder if the helicopter into an Airbnb rental of sorts (assuming there was a bathroom that could be used).

  2. Cynthia says

    What you are describing is personal property which cannot be given value in a lending appraisal for FNMA, VA or FHA. The only time I can think of that it would not require an adjustment to remove it’s value is in some vacation homes which have furniture which is left behind for the convenience of the seller and has little or no value. Can you think of any other time it would not require an adjustment?

    • says

      Great example Cynthia. Thank you. Sometimes an estate will leave behind furniture too (usually not high-quality stuff though). I suppose on a similar note we think of refrigerators as personal property, though a highly-custom kitchen will sometimes have a fridge that definitely transfers with the property even though it might technically be considered personal property. I’m sure there are other scenarios. I’d be curious if you are thinking of others. Thanks again.

  3. says

    Hahah I’m glad an appraiser covered this. I love all your insight.

    The house also comes with 7 paid full time staff for two years, if I’m not mistaken.

    The second I heard about this, I had to do some digging since it is somewhat in my turf.

    First of all, the house is on slightly more than an acre, and it looks like it takes up about 3/4 of the lot. If I was spending 250,000,000 on a house, I would want at least 10 acres or more, especially in LA where you don’t get privacy anywhere.

    Second, at $6700/sf, there is nothing that has ever sold close to that recently in LA (If not ever). The highest sale I could find was $4000/sf in the past two years. Even the minecraft dude’s house only sold for $3,139/sf and it was the same developer as this one.

    Third, the highest sale in LA ever was $100,000,000 and it was a brand new 30,000 sf house (2016). That would be the only similar comparable. The next highest sale was $70,000,000.

    Fourth, it would never appraise, so it would have to be an all cash buyer.

    Fifth, it will never sell for that much. My guess is that it will close at around $150,000,000. That would be the next logical step in this illogical mega-mansion progression.

    Sixth, why would anyone want to live in LA for that much money anyways? Haha

    Seventh, I don’t even know where I’m going with this anymore, but supposedly another guy is building a 100,000 sf house that he is going to list at $500,000,000.

    That’s just straight up disgusting.

    -Austin

    • says

      This is great Austin. Thank you so much. I love the insight and the commentary. Personally I feel very similar to you in that I would want land. In my mind having more land equals freedom. To each his/her own though. I am sure the seller and agents have a realistic price in mind and I would love to hear if it is the same or far less than the list price.

      Now Tony Stark’s house in the first Iron Man would be a nice place (though it doesn’t really exist). πŸ™‚

      On a related note, these houses are just enormous. We can almost start thinking of them like acres. Each acre has 43,560 sq ft and this $250M house is therefore 0.87 acres. I remember Evander Holyfield once had a home that was 44,000 sq ft (1.01 acres in size), and Lebron James has a 30,000 sq ft home (0.68 acres). That house you mentioned at 100,000 sq ft is absurdly large at 2.29 acres. πŸ™‚

  4. says

    When selling luxury homes in this insane price range, publicity is far more important than the listing price. There are only a handful of people in the world that can afford a property like this AND actually want to buy it. As the price goes up, so does the distance away of the buyer, and so you need reach the widest audience possible.

    If we take a look at the marketing and sale of the playboy mansion, the property would’ve gotten the publicity no matter what the asking price was simply because it was the playboy mansion. They didn’t have to overprice it, but they did it anyways and it just added to the fervor.

    While this property may have some cool cars and fancy artwork that come with it, that’s nothing compared to the history and uniqueness of the playboy mansion. So then, how do they make this property REALLY stand out? Ask a ridiculously expensive price that will make headlines guaranteed. Mission accomplished.

    I don’t think they plan to get anywhere near this asking price, it was just what was required to get the property promoted and reach a worldwide audience. Same thing goes for $500M property Austin mentioned.

    Sometimes in the luxury market it’s better to not even put a price on the property. Just get a group of qualified buyers in a room and start a live auction. That will truly determine the market value of the property. Opening bid on something like this could be $100M and just let it ride from there.

    • says

      Thanks Wes. I think you’re so right about the market area. The buyer will very likely pay cash for something like this, so there may not be any appraisal involved. If there was though, a lender couldn’t say, “We want three comps in a one-mile radius.” Comps in this case could come from extremely far away. I would defer to those who work in this market to say exactly where though.

      Mission accomplished indeed. Here we are discussing the property. If it doesn’t sell I’m thinking I might be able to sell my house and buy one closet in this house (if I’m lucky). πŸ™‚

  5. says

    Oops, hold on… I just got an AMC email blast order to do an appraisal on this property. The AMC does realize the house is a little out of the ordinary and may require a little more work but they are willing to go up on the fee to $275, if I can turn it around in 24 hours.

    • says

      Thanks Shannon. Fantastic article. I appreciate you sharing it here. I think Jonathan Miller is definitely an important voice in this whole conversation, and I’m elated to see him as a prominent figure in that article.

  6. says

    This is a local property to me. I’ve done several high value cash sale appraisals in the past few years but properties like this are seldom, if ever, seen by an appraiser. Conventional rules and wisdom seldom apply in this rarified air. For example, I have not made bathroom $$ adjustments on high value, high room count properties in years. The market at this level does not think in those terms. It’s common sense.

    Nice work using this as click bait though. (grin)

    • says

      Thanks Mike. I was hoping you would chime in. I totally agree about no adjustments. I was hoping to just get a point in there at the end because it’s so important to have the right context. Click bait? I hope it’s more than that my friend. This is more like newsjacking and some great conversation. πŸ™‚

  7. says

    I no longer take these kinds of appraisal assignments because the risk is all on the individual appraiser. There’s too many specific banks, AMC or supervisor rules that hinder you as the appraiser to do the right thing and protect your liscence. The pressure to hit the number comes when you turn the report in and there is a ton of requests to re-look at certain items or sales that are less compatible, all supporting a higher number. True story, when I was younger and still seeking phrase for my appraiser skills and market knowledge, I was asked to apply for a staff position as a Senior High Dollar Property Value Appraiser with a well know bank. Several weeks after applying I went to a trade show. On my way out I pitched one last person about my appraisal business and it turned out to be a manager in the “REO department” for this same bank. I mentioned that I was up for this position and he said he knew the Chief Appraiser and was going to call him right then to put in a good word in for me. His first attempt to reach him was unsuccessful. He hung the phone up and began to tell me that he had just had a long conversation with this Chief Appraiser about a house that Mark Wahlberg had purchased and razed and was planning to build the largest, most elaborate home in the area. Mark had given them a projected value and they were looking to send an appraiser out to confirm that projected value. He then stated how big and profitable of a loan it would be for the bank and everyone at the bank was excited about closing the deal. (this guy was from the REO dept.). We shook hands and parted ways. As I was walking to my car reality began to set in. “I’d be a staff appraiser, determining property value for some of the richest and most influential people in the world, with the entire bank excited about making money on the loan. But what if I didn;t hit the number”????? Can you say “David and Goliath”? I did not get the job and was planning to reject it if I did.

    • says

      Thank you. I really appreciate hearing your take. The irony here is you get one fixed salary while the loan officer and bank rakes in huge stacks of cash over time. I’m not saying it should be different, but appraisers are often only pawns in the system or a means to an end. Some banks give off a “Boiler Room” vibe. I don’t know if you’ve seen that movie as it’s probably almost 20 years old by now, but sometimes I know right away if someone is going to be a Boiler Room type client (only there to make money and wanting me to “hit the number”). No thanks.

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