It’s been a record-breaking couple of years. In New York we saw the highest residential sale ever in the United States at $238M. Then a couple months ago California got a new record with the Beverly Hillbillies mansion at $150M. And now there’s a listing in Bel-Air that just hit the market at $500M. The truth is it’s easy to get distracted by the bling of outlier sales because of how lofty the prices are, but here are a few things to keep in mind.
Price records: It’s not a price record unless it actually sells. In many cases higher-end sales are overpriced by hundreds of thousands of even millions of dollars. As an extreme example, that $250M listing finally closed for $94M after two years of aspirational pricing.
That “One” five hundred million dollar flip: Have you heard about that five hundred million dollar flip in Bel-Air? This property hit the market last week and it’s called “The One.” It’s said to be one hundred thousand square feet and it comes with a bowling alley, night club, and four swimming pools. This property has been talked about for years and it’s finally here. You can buy this one or here’s what you can get in Sacramento instead:
Price records in Sacramento this past year:
– Sacramento County $5M
– East Sacramento $3.8M
– Woodland $2.94M
– El Dorado Hills $3.9M
Growth at the top: Here are a couple visuals to show growth in the million dollar market over time in the Sacramento Region.
Sales over $50M in the United States: If you woke up wondering how many homes are selling above $50M in the United States, you’re in luck thanks to Jonathan Miller who tracks this information and let me share the image. There were twenty three sales above $50M last year in the country. On one hand we’ve definitely seen more sales lately, but this is still a really uncommon price point (probably because FHA financing isn’t available). 🙂
Now here’s some final commentary.
QUICK CLOSING THOUGHTS:
1) These sales don’t pull the market up: Outlier sales don’t pull the rest of the market up, and they have nothing to do with the entry-level market or affordability for the average person.
2) I just gotta have it: My observation with the highest sales is sometimes cash buyers offer prices that seem disconnected from what looks reasonable on paper. This doesn’t happen in all situations, but sometimes it does where the buyer simply says, “I just gotta have it.”
3) Not the new comps: Unless you have an outlier home, the highest sales in town aren’t the new comps. In other words, don’t price higher because of an outlier. What is similar and selling? That’s probably the better question.
4) They sometimes sell for less: What’s interesting is watching record-breaking sales list again after having sold a few years prior. Sometimes they sell for more, but in other cases they end up selling for less than their original purchase despite the rest of the market having risen since the purchase. This actually happened with two of the top ten sales ever in the Sacramento region.
5) A different trend: I was asked recently if you can look at what a high-end sale sold for years ago and simply apply the appreciation rate from the city or county to come up with the value today. Look, there are many ways to figure out value, but as an appraiser I’m more interested in comps today rather than giving too much weight to a previous sale. After all, a past sale might have sold for too much if it was a unicorn “gotta have it” type deal. I saw this recently with a home that ended up selling 25% lower than the original purchase six years ago despite the surrounding market having seen massive gains. In short, I’m cautious about applying county or zip code metrics to these high-caliber sales. It’s just a completely different market that may or may not follow the county trend. What will the current market bear? That’s the bigger question.
I hope this was interesting or helpful.
CLASS I’M TEACHING: I’m doing my favorite class at SAR on Feb 18th from 9am-12pm called “How to Think Like an Appraiser.” Sign up here.
Questions: Why do you think people are so fascinated by lofty sales? What else have you observed about the high-end market? Anything to add?
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Ryan,
Interesting comment about applying the appreciation rate to a home that sold a few years earlier, What about applying that principal to a normal neighborhood and normal house. I’m trying to establish a list price on a home in a rural area that has very few sales. Last one was 18 months ago on a home similar to my client’s home in the same area .
Hi Rick. There is something to be said for understanding the appreciation rate. But we still have to ask whether the rate of change for a county or zip code really applies to this individual property or not. After all, if the bulk of sales are at the lowest end of the price range, then what’s happening on the low end might not mean much for your listing. Or if a trend for the county reflects the suburban market, it may not capture the trend in this rural area.
18 months isn’t that long ago, so a graph could be very helpful depending on whether you really have data. Yet if it’s rural a graph simply might not have enough data. Moreover, if a graph doesn’t have competitive data to the subject, then the trend line might not mean much.
This is where you might have to compare sales in the market area from eighteen months ago with current similar pendings, listings, and sales. That will be a clue into how the market has changed. In an ideal world you might be able to line up a few examples so you can figure out a percentage change. I think some people look at the dollar change too and that’s fine. I say do both.
Rick,
I hope you are okay with me answering this too, though it was addressed to Ryan. I’m a Realtor too, not an appraiser. We Realtors are not as time bound as appraisers, so I think there is sense in that approach. Nor are we as area bound. We Realtors have more leeway to use heterodox information than appraisers have. A cross check to that would be comparable neighborhoods in comparable towns. For example, you might find no comparable in Wilton for a particular house, but have something similar in Elverta. Even though an hours drive apart, you might have enough matches in property and house size, age, quality and amenities, such as pool and horse facilities, value ranges of neighboring homes to inform your thinking. It is feasible that the same buyer could be considering both properties because of the rare specifics involved, despite the distance.
So glad you said that. I could have easily mentioned looking to competitive markets, but obviously I didn’t. That’s exactly what needs to happen if there is no data in the subject market.
Fun stuff, Ryan. Market approach is difficult with these ultra priced outliers. I wonder if cost approach would take more weight. The ask price is $5,000 per square foot on that 100,000 square feet palace. That kind of atmospheric pricing is seen in Manhattan penthouses. – So why not? I speculate the why not could be cost approach.
Reading about the size of the construction loan: $82 million, the ask price of Niami’s other projects: $65 million, the 62% discount applied to the $250,000,000 listing that sold for $94,000,000 and a cursory look at other ultra sales in the four figure per square foot category, a case could be made that Niami’s costs, including overruns, financing and holding costs are not much more than $100,000,000. A 62% discount applied to the $500,000,000 would still bring in $188,000,000 enough to pay off his loan and still squeak out an eight figure profit. While a half billion is a lot of money, it is a fraction of the one day swing in the common stock net worth of men like Jeff Bezos or Elon Musk. Men that are terrified of spending that kind of money to provide workplace safety or health care to their employees.
Love it Jim. This is a golden comment full of insight. I think most people are looking in thinking, “There’s no way you’re going to get that.” I think at times the high end of the market starts out ultra high but there is always that realistic price in mind. But sometimes sellers get stuck thinking value is actually there at that high price. It does seem like some listings are able to close higher too with a higher price because maybe the buyer feels the seller wouldn’t accept something lower. So maybe there is some real strategy here. Again, thanks for the commentary. Let’s watch this one closely.
Love your take Ryan. It’s always fun to keep and eye on those high listings to see what really happens when they close.
Thanks Gary. Agreed. The high listings are like eye-candy. They can be such a conversation piece.
On a side note, if 50,000 of your closest friends all brought $10,000 to the table, then this $500M flip could be purchased. The only issue is if we divide up one year equally between all buyers it means each person would only get 10.5 minutes in the house for the year. On that note, I call Christmas morning…
Thanks for launching into this discussion as our spring markets are starting to percolate. I would have to agree with the recent sales data and only give distant secondary or tertiary consideration to sales older than a year. I still have clients in southern Marin that point at an eye-popping sale at the tip of Belvedere that sold 8/26/2015 for $47,500,000 and ask why not me?
Thanks Mark. I appreciate your thoughts. Wow, that is a lofty sale. It’s not surprising to hear others fixating on it too. We don’t have sales anywhere near that in my market, but I see sellers try to price according to the top all the time. It takes a special property to break a record (and sometimes a special buyer to pay that much too).
Wow! A $500 million dollar flip? That sounds like an HGTV special. It seems like the high dollar outlier sales really don’t follow any typical characteristics that homes in the lower price ranges do. We really have to take them as anomalies for entertainment value only.
Thank you Tom. I like how you said that.