Determining Market Value for Luxury Homes
Ascertaining the proper price and value for a luxury property is a little more complex than valuing a typical residence. Luxury homes are generally very individual in character and design. Determining market value for luxury homes that have been designed by an architect and custom built to the homeowners specifications requires more expertise in this specialized market. Thus, the standard agent prepared CMA or Zillow “Zestimate” is of little significance when determining price and market value. The primary issue in valuing these homes is the fact that very few, if any, close comparable properties exist in which to compare. Moreover, when the number of custom amenities and high-end materials included in the home are increased, the fewer homes you have in the pool of comps. Elements like: radiant heat, handmade rare imported cabinets, numerous sub zero builtin refrigerators, wolf appliances, rare granite and marble, pasta spigots, whole house lighting and security systems, safe rooms, infinity pools, etc. accentuate the difficulty in valuation. There is a need to examine a broader geographic area to obtain accurate comps in the luxury market versus the general market.
Intangibles must also be valued and they can significantly influence pricing. Items such as view, privacy and setting can dramatically alter the value. As a Realtor in the luxury market, it is important to explain this process to your clients to better help them understand value and comps and the way in which they are derived.
It can be confusing for clients when two homes, situated right next door to one and other have similar square footage but differ dramatically in price. It often comes down to the use superior materials, exceptional design, upgraded appliances and amenities with additional value placed on such variables as views.
In determining price and value, it is important go beyond looking at what has sold recently and how those homes differ from the property in question. I recommend beginning with the comps and then additionally looking at the value of the lot, square footage of the home, the finishes in the home, the amenities and the unique qualities like view and setting. Finally, it is valuable to calculate what the replacement cost of the home would be and factor that into your valuation. Appraisers use a similar formula in conducting their appraisal of a property so Buyers and Sellers can feel more confident that the home will appraise at that value.