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?
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.