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?