Luxury Home Appraisals
September 21, 2016
Certified Residential Appraiser, Censeo Valuation Consultants, LLC
The Phoenix area has a diverse housing inventory in terms of size, design and quality of construction. The luxury home market, defined loosely as homes priced over $1 million, is also quite diverse. The market includes relatively small, high rise condominiums with expansive views to the large palatial estates on multiple acres.
Appraising residential real estate is a fairly straightforward process, following the guidelines of USPAP, (Uniform Standards of Professional Appraisal Practice), while employing techniques such as the Sales Comparison or Market Approach, the Cost Approach and to a lesser degree for residential real estate, the Income Capitalization Approach, to determine an opinion of value.
The valuation of high-end luxury real estate is no different in terms of the methods used; however, it can be an intriguing, interesting and a more complicated task. Typically, luxury real estate is more unique and as such, finding comparable sales can be more challenging. There are many luxury properties that set within high rise urban towers where the task of locating comparables can be a bit less arduous. Fortunately, Phoenix metro resides in a relatively active real estate market which typically provides an abundance of data for the appraiser’s purposes.
The ideal comparable sale for any appraisal is the exact same home as the subject that is right next door, the same age, design, in the same condition and sold very recently. This is the ideal ‘comp’ or comparable. However, in the luxury home market that comparable typically does not exist. A lot more time and research must occur for the appraiser to find the best comparable sales, and then analyze it further in order to make appropriate adjustments for differences of each for the report. A standard residential appraisal would include, at a minimum, three comparable sales and one or two pending sales or active listings. A luxury home appraisal report might include in excess of four or five sales along with three or four pending sales or active listings.
Well known neighborhoods such as Paradise Valley, Scottsdale, Arcadia, Biltmore, and Central Phoenix all have some of the Valley’s most unique and expensive homes. Other market area’s such as Tempe and Downtown Phoenix, with their urban construction, are seeing more and more luxury real estate in development. To a lesser degree, the South and Southeast Valley, North and North Central Valley, and Northwest suburbs, each have some sporadic luxury development throughout.
While the overall housing market has been experiencing somewhat steady and modest growth over the past few years, there is a trend in the ultra-high end luxury home market, defined as homes priced over $3 million. First is the downsizing trend. Large estate owners are moving to smaller homes with less maintenance and upkeep within close proximity of an urban core.
Other trends adversely affecting the luxury home market include global economic volatility, large stock market fluctuations and a strong dollar which has slowed many foreign buyers from purchasing luxury real estate here and throughout the U.S. As a result, we have seen higher inventories of luxury real estate available along with increases in days on market, which in turn has softened prices.
Paradise Valley is a good market to analyze for the purposes of discussion – a majority of homes by definition are considered luxury in that area. Per ARMLS, the current, average sales price for single family homes over the prior six-month period is slightly under $1.6 million. As of August 2016, there were under 11 months of inventory, down from near 13 months at the beginning of the calendar year, but down from fall 2015 when inventory was under 9 months. Concurrently, number of listings peaked near 500 in the spring of 2016 after reaching the 300 range in the fall of 2015 and as of August 2016, under 400 homes listed. Average days on market has fluctuated wildly to around 150 listings fall 2015, spiking to approximately 220 this past winter, dropping back down to the 150 range during the spring selling season — as of August 2016, back up to approximately 175 days to sell a home in Paradise Valley.
The best advice that can be given to real estate professionals dealing with clients in the luxury home market is to set expectations up front. Provide your clients with data and research occurring in their specific market ahead of time so they are educated. Providing your clients with an independent, third party opinion of value can also take some of the pressure off of the agent, when trying to get clients to ‘come down to earth’ and price their home realistically. This can also assist in shortening average marketing time and prevent a listing from getting stale.
Andrew Ament is a Certified Residential Appraiser. He is the founder and owner of Censeo Valuation Consultants www.censeovc.com, a residential real estate appraisal firm that has been serving the metro area since 2004. Andrew also has held an active real estate sales license for over 20 years. His firm regularly assists banking and mortgage professionals in addition to Realtors, investors, attorney’s, and insurance professionals. Andrew can be reached at email@example.com or 480.718.5298.
Luxury Home Seminar
FRIDAY, OCTOBER 21, 2016 – 9:00 AM TO 12:30 PM
Topics include: Property Value Analysis, Market Trends & Cycles, Determining Value, New Contract Changes, Showcasing the Property, Most Desired Amenities, Financing Options, Sellers Share Expectations and Much More.
Advance Tuition: $40 At The Door Tuition: $50
Credit: 3 hrs. Contract Law