How Sears Kit Homes Changed Housing…

Sears Catalog Homes
Twin Sears houses built from kits ordered from the Sears Department Store catalog in Tuscumbia, Alabama. Library of Congress

Last fall, e-commerce behemoth Amazon elicited bemused reactions when it started selling shipping container homes online. Beyond obvious jokes—was the Prime program simply finding a more straightforward way to ship you everything in your home—it was impressive that the company’s deliver-anything-to-your doorstep ethos now applied to homes, not just household goods. `

While Amazon’s logistics empire and same-day delivery service is perhaps its crowning achievement, sending homes through the mail isn’t new or novel. More than a century ago, Sears, Roebuck & Co. sent and shipped entire home kits across the country, a then-revolutionary service that would impact not just retailing, but home design and construction.

Sears House Kits

The retail chain’s bankruptcy filing this week, after decades of slow decline, obscures just how disruptive Sears was in its early 20th century heyday. While the business page obituaries will continue to position Sears as the Amazon of its day—and there’s some truth to that—the physical footprint left by Sears, especially via its kit home program and Modern Homes catalog, is wholly different than anything Amazon has yet to achieve.

Consider this: In an era before commercial aviation and long-haul trucking, Sears, Roebuck & Co. set up an operation that would package and ship more than 400 different types of homes and buildings to anybody who had the cash and access to a catalog. From 1908 to 1940, Chicago-based Sears sold between 70,000 to 75,000 homes—”from Craftsman to Cape Cods, they offered a custom home at budgets and sizes that could accommodate any size family,” according to Popular Mechanics—which were sent via train car and set up as far afield as Florida, California, and even Alaska.

As a company-produced history from 1918 noted, “the customer must be satisfied for a lifetime for every house we sell is a standing advertisement for Sears, Roebuck and Company.”

Cover of a Sears Roebuck & Co. Consumer’s Guide, Fall 1900.
Bettmann Archive

The dawn of catalog houses and DIY construction

To fully appreciate the impact of the Sears kit homes, it’s important to understand the reach of the company’s famous catalog. In 1908, when Sears began selling homes by mail, one-fifth of the country subscribed, according to a 99 Percent Invisible podcast about the program. Americans anywhere could flip through the four-pound, 1,400-page Bible of consumerism, thumb through more than 100,000 items, and have any one of them delivered to their door.

Sears gave consumers what they wanted, with a quality guarantee and cross-country shipping. The Modern Homes program, as the home kit division was called, simply took that philosophy to its conclusion, with the hope that anyone building a brand-new Sears house would furnish it with brand-new Sears goods.

Sears Home Kits

Additionally, the Sears kit home program showcased some ingenuity in turning a loss into a sales leader. In 1906, the company’s building materials department was flailing, a result of an unwieldy number of items. Unsold goods sat in warehouses. That’s when Frank W. Kushel, former manager of the Sears china department, stepped in and suggested bundling inventory as a kit, an concept that competitors such as the Aladdin Company had already begun trying out.

As the company’s own archive site states, “Sears was not an innovative home designer. Sears was instead a very able follower of popular taste.” The company picked models, with appealing and aspirational names such as the Avondale, Crescent, or Starlight, selling the growing American middle class, and WWI veterans, the dream of their own home.

Buyers could request changes, and even send entire blueprints to Sears, which would have workers assemble all the requisite materials and ship everything needed to build their dream home. Buyers would simply provide land and labor. Sears would later even sell mortgages, until the Great Depression forced the retailer to foreclose on millions of dollars of customer homes, never a good look for building brand loyalty.

The public loved this new affordable means to buy a home, and still loves these homes to this day. In Carlinville, Illinois, Standard Oil bought $1 million worth of catalog homes to house their works, creating a 12-block area of Sears homes, the largest such collection in the U.S. (the company eventually named the Carlin model after the town). At one time, Pleasantville, New York, had a Sears & Roebuck hill because of the proliferation of mail-order homes, according to the book Houses by Mail. Today, several Sears homes are listed on the National Historic Register.

The cultural effects of homes by mail

Providing cheap, accessible, and quality housing is a significant accomplishment. But the cultural impact of Sears kit homes goes beyond just being a good buy.

Sears promised that a buyer with only rudimentary skills could assemble a kit home in 90 days. To back up this claim, the kit homes utilized balloon framing, a simpler method of building the skeleton of a home, helping to popularize the process. In addition, Sears also helped standardize the use of drywall and asphalt shingles, which both brought down the cost of construction for the average buyer.

Sears sold kits that lived up to the Modern Homes brand, making then new, novel, and costly modern conveniences such as central heating, indoor plumbing, and electricity available to a wider array of Americans.

Sears’ more simplistic home system also shifted social views on housing, according to 99 Percent Invisible. Americans had been living in multigenerational housing, with different rooms for different family members. Sears helped popularize new homes for newlyweds, and helped kickstart the rise in single-family living that would dip during the recession, but accelerate dramatically after WWII.

These homes were also technological feats. Prefabricated in mills and workshops across the U.S., Sears homes utilized pre-cut timber and parts before Ikea, and foreshadowed the prefaband modular home movements decades before they became buzzwords.

Finally, the anonymity that catalog sales offered was a powerful corrective to the abuses of the Jim Crow era. This idea of delivering anything to anyone, anywhere, was selling social justice at a time when segregation and racism severely restricted the rights, as well as shopping habits, of black Americans.

Today, Sears homes still capture the imagination of history buffs and home buyers. Realtors place a premium on these quaint, Victorian-inspired designs, which often seem straight from a scene in the (fictional) Pleasantville, and some have recently sold for more than $1 million.A community of Sears catalog home fans has created books, maps, and tours of the homes (finding stamped lumber can be a sign your home was built from a kit).

In so many ways, the Sears kit homes popularized many trends that would shape American housing. Who would have thought that homes delivered through the mail would perhaps stand longer than the legendary company that sold and shipped them?

via Patrick Sisson, Curbed

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Do You Think The Real Estate Market Finally Getting Back To Normal?

Keeping Current Matters discusses how the housing market has been anything but normal for the last eleven years. In a normal real estate market, home prices appreciate 3.7% annually. Below, however, are the price swings since 2007 according to the latest Home Price Expectation Survey:

After the bubble burst in June 2007, values depreciated 6.1% annually until February 2012. From March 2012 to today, the market has been recovering with values appreciating 6.2% annually.

These wild swings in values were caused by abnormal ratios between the available supply of inventory and buyer demand in the market. In a normal market, there would be a 6-month supply of housing inventory.

When the market hit its peak in 2007, homeowners and builders were trying to take advantage of a market that was fueled by an “irrational exuberance.”

Inventory levels grew to 7+ months. With that many homes available for sale, there weren’t enough buyers to satisfy the number of homeowners/builders trying to sell, so prices began to fall.

Then, foreclosures came to market. We eventually hit 11 months inventory which caused prices to crash until early 2012. By that time, inventory levels had fallen to 6.2 months and the market began its recovery.

Over the last five years, inventory levels have remained well below the 6-month supply needed for prices to continue to level off. As a result, home prices have increased over that time at percentages well above the appreciation levels seen in a more normal market. 

That was the past. What about the future?

We currently have about 4.5-months inventory. This means prices should continue to appreciate at above-normal levels which most experts believe will happen for the next year. However, two things have just occurred that are pointing to the fact that we may be returning to a more normal market.

1. Listing Supply is Increasing

Both existing and new construction inventory is on the rise. The latest Existing Home Sales Report from the National Association of Realtors revealed that inventory has increased over the last two months after thirty-seven consecutive months of declining inventory. At the same time, building permits are also increasingwhich means more new construction is about to come to market. 

2. Buyer Demand is Softening

Ivy Zelman, who is widely respected as an industry expert, reported in her latest ‘Z’ Report:

 “While we continue to expect a resumption of growth in resale transactions on the back of easing inventory in 2019 and 2020, our real-time view into the market through our Real Estate Broker Survey does suggest that buyers have grown more discerning of late and a level of “pause” has taken hold in many large housing markets.

Indicative of this, our broker contacts rated buyer demand at 69 on a 0- 100 scale, still above average but down from 74 last year and representing the largest year-over-year decline in the two-year history of our survey.”

With supply increasing and demand waning, we may soon be back to a more normal real estate market. We will no longer be in a buyers’ market (like 2007-February 2012) or a sellers’ market (like March 2012- Today).

Prices won’t appreciate at the levels we’ve seen recently, nor will they depreciate. It will be a balanced market where prices remain steady, where buyers will be better able to afford a home, and where sellers will more easily be able to move-up or move-down to a home that better suits their current lifestyles.

Bottom Line

Returning to a normal market is a good thing. However, after the zaniness of the last eleven years, it might feel strange. If you are going 85 miles per hour on a road with a 60 MPH speed limit and you see a police car ahead, you’re going to slow down quickly. But, after going 85 MPH, 60 MPH will feel like you’re crawling. It is the normal speed limit, yet, it will feel strange.

That’s what is about to happen in real estate. The housing market is not falling apart. We are just returning to a more normal market which, in the long run, will be much healthier for you whether you are a buyer or a seller.

via The KCM Crew

Renters for a Weekend or a While: What’s the Best Use of Your Investment Property?

Investment Property

The residential rental market is now the fastest-growing segment of the housing market. In the United States, the demand for single-family rentals, defined as either detached homes or townhouses, has risen 30 percent in the past three years.1 And in Canada, rental units now account for nearly one-third of the country’s homes, with particular demand for multi-family units, including apartments and condominiums.2

At the same time, the short-term, or vacation, rental market is also booming. The popularity of online marketplaces like Airbnb, HomeAway, and VRBO has helped the short-term rental market become one of the fastest-growing segments in the travel industry.3

Now, more than ever, there is an abundance of opportunity for real estate investors. But which path is best: leasing your property to a long-term tenant, or renting your property to travelers on a short-term basis?

In this post, we examine the differences between the two investment strategies and the benefits and limitations of each category.

WHY INVEST IN A RENTAL PROPERTY? The Top 5 Reasons

Before we delve into the differences between long-term and short-term rentals, let’s answer the question: “Why invest in a rental property at all?”

There are five key reasons investors choose to real estate over other investment vehicles:

1. Appreciation

Appreciation is the increase in your property’s value over time. And history has proven that over an extended period, the cost of real estate continues to rise. Recessions may still occur, but in the vast majority of markets, the value of real estate does grow over the long term.

2. Cash Flow

One of the key benefits of investing in real estate is the ability to generate steady cash flow. Rental income can be used to pay the mortgage and taxes on your investment property, as well as regular maintenance and repairs. If appropriately priced in a solid rental market, there may even be a little extra cash each month to help with your living expenses or to grow your savings.

Even if you only take in enough rent to cover your expenses, a rental property purchase will pay for itself over time. As you pay down the mortgage every month with your rental income, your equity will continue to increase until you own the property free and clear … leaving you with residual cash flow for years to come. 

3. Hedge Against Inflation

Inflation is the rate at which the general cost of goods and services rises. That means as inflation rises, the money you have sitting in a savings account will buy less tomorrow than it will today. On the other hand, the price of real estate typically matches (or often exceeds) the rate of inflation. To hedge or guard yourself against inflation, real estate can be a smart investment choice.

4. Leverage

Leverage is the use of borrowed capital to increase the potential return of an investment. You can put a relatively small amount down on a property, finance the rest of the investment with a mortgage, and then profit on the entire combined value.

5. Tax Benefits

Don’t overlook the tax benefits that can come with a real estate investment, as well. From deductions to depreciation to exemptions, there are many ways a real estate investment can save you money on taxes. Consult a tax professional to discuss your particular circumstances.

These are just a few of the many perks of investing in real estate. (For more detailed information, visit our previous post: Why Real Estate Investing Makes (Dollars and) Sense). But what’s the best strategy to maximize returns on your investment property? In the next section, we explore the differences between long-term and short-term rentals.

LONG-TERM (TRADITIONAL) RENTAL MARKET

When most people think of owning a rental property, they imagine buying a home and renting it out to tenants to use as their primary residence. Traditionally, investors would use their rental property to generate an additional stream of income while benefiting from the property’s long-term appreciation in value.

In fact, that steady and predictable monthly cash flow is one of the key advantages of owning a long-term rental. And as an owner, you don’t usually have to worry about paying the utility bills or furnishing the property—both of which are typically covered by the tenant. Add to this the fact that traditional tenants translate into less time and effort spent on day-to-day property management, and long-term rentals are an attractive option for many investors.

However, there are also limitations to long-term rentals, which often come down to your ability to control the property. Perhaps the most obvious one is that you do not get to use the home or closely monitor its upkeep (this is different from a short-term rental, which we’ll share in the next section). 

In addition, while you can usually generate a steady, predictable income stream with a long-term rental, you are limited in your ability to adjust rent prices based on increasing or seasonal demand. Therefore, you may end up with a lower overall return on your investment. In fact, according to data from Mashvisor, in the 10 hottest real estate markets, short-term rentals produced “significantly higher rental income” than long-term rentals.4

SHORT-TERM (VACATION) RENTAL MARKET

Short-term rentals are often referred to as vacation rentals, as more and more travelers enjoy the benefits of staying in a home while on vacation. In fact, according to Wells Fargo, vacation rentals are steadily growing and predicted to account for 21% of the worldwide accommodations market by 2020.5

Investing in a short-term rental or funding your second-home purchase by renting it out can offer many benefits. If you purchase an investment property in a top travel destination or vacation spot, you can expect steady demand from travelers while taking advantage of any non-rented periods to enjoy the home yourself. In addition to greater control over how your property is used, you can also adjust your rental price around peak travel demand to maximize your returns.

But short-term rentals also have risks and drawbacks that may dissuade some investors. They require greater day-to-day property management, and owners are typically responsible for furnishing the property, upkeep, and utilities.

And while rental revenue can be higher, it can also be less predictable based on seasonal or consumer travel trends. For example, a lack of snowfall during ski season could mean fewer bookings and lower rental revenue that year.

In addition, laws and limitations on short-term rentals can vary by region. And in some areas, the regulations are in flux as residents and government officials adapt to a new surge in short-term rentals. So make sure you understand any existing or proposed restrictions on rentals in the area where you want to invest. 

Urban centers or suburban communities may be more resistant to short-term renters, thus more likely to pass future limitations on use. To lower your risk, you may want to consider properties in resort communities that are accustomed to travelers. We can help you assess the current regulations on short-term rentals in our area. Or if you’re interested in investing in another market, we can refer you to a local agent who can help.

WHICH INVESTMENT STRATEGY IS RIGHT FOR YOU?

Now that you understand these two real estate investment options, how do you pick the right one for you? It’s helpful to start by clarifying your investment goals. 

If your goal is to generate steady, predictable income with less time and effort spent on property management, then a long-term rental may be your best option. Also, if you prefer a less-risky investment with more reliable (but possibly lower) returns, then you may be more comfortable with a long-term rental.

On the other hand, if your goal is to purchase a vacation or second home that you’ll use, and you want to defray some (or all) of the expense, then a short-term rental may be a good option for you. Similarly, if you’re open to taking on more risk and revenue volatility for the possibility of greater investment returns, then a short-term rental may better suit your spirit as an investor.

But sometimes the decision isn’t always so clear-cut. If your goal is to purchase a future retirement home now to hedge against inflation, rising real estate prices, and interest rates, then both long- and short-term rentals could be suitable options. In this case, you’ll want to consider other factors like location, market demand, property type, and your risk tolerance.

HERE OR ELSEWHERE … WE CAN HELP

If you’re looking to make a real estate investment—whether it’s a primary residence, investment property, vacation home, or future retirement home—please give us a call. We’ll help you determine the best course of action and share insights and resources to help you make an informed decision. And if your plans include buying outside of our area, we can refer you to a local agent who can help. Feel free to contact us to schedule a free consultation!

The above references an opinion and is for informational purposes only.  It is not intended to be financial advice. Consult the appropriate professionals for advice regarding your individual needs.

Sources:

  1. USA Today –
    https://www.usatoday.com/story/money/personalfinance/real-estate/2017/11/11/renting-homes-overtaking-housing-market-heres-why/845474001/
  2. The Globe and Mail –
    https://www.theglobeandmail.com/real-estate/the-market/article-demand-for-rental-housing-in-canada-now-outpacing-home-ownership/
  3. Phocuswright –
    https://www.phocuswright.com/Travel-Research/Research-Updates/2017/US-Private-Accommodation-Market-to-Reach-36B-by-2018
  4. Rented.com –
    https://www.rented.com/vacation-rental-best-practices-blog/do-long-term-rentals-or-short-term-rentals-provide-better-investment-returns/
  5. Turnkey Vacation Rentals –
    https://blog.turnkeyvr.com/short-term-vs-long-term-vacation-rental-properties/

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Do You Want to Reach HNW Customers?

What Luxury Real Estate Agents Can Learn from Luxury Travel Blogs

Institute For Luxury Home Marketing: High net worth individuals, although known for pursuing a more lucrative lifestyle with high-end taste, have proven to value experiences above all else. While people of affluence are willing to invest large sums of money into items or brands, there are now higher expectations of what the product or brand should give back in return. Occasionally, this could be a profitable return, but often times, luxury consumers are simply looking for an experience or connection that can be a positive addition or improvement to their lifestyle.

Although luxury consumers have the means and capability to spend money fairly freely, they are careful not to invest in anything that won’t benefit or improve their quality of life.

With the increase of travel focused blogs and social media, the public now has an acute awareness of just how luxurious the top 1% are living, and better yet, vacationing. Traveling to beautiful and exotic places are considered a privilege to most, but for HNW individuals, it is a common and crucial part of their lifestyle. Traveling, for people of affluence, is a risk-free investment. No matter what tropical island, European village, or beautiful mountainous town is explored, these experiences are usually worth the cost and are a coveted part of their day-to-day.

With travel destinations and a demand for luxury hotels at an all-time high, luxury travel blogs are thriving in this digital day and age.

In fact, each year, Qosy.co updates it’s list of top luxury travel blogs recommended reading before planning your next lavish vacation. What makes these blogs thrive is how they market and share experiences from their own travel and bring to the table insight, suggestions, and advice for others in luxury looking for their next great experience. From events, hotels, and cuisine to the most secretive and private places to stay, the luxury travel blogging industry has not only raised the bar for traveling and luxury vacations but also guided the way we market to the HNW and UHNW individual.

When marketing to the top 1%, experiences above all should be the main focus. As a luxury real estate agent, your HNW consumer is not just looking for a house, but a home – a place that provides them a higher quality of life and entertainment. By taking a look at what luxury consumers love best about vacationing, real estate professionals can better pinpoint what aspects to focus on when helping HNW individuals purchase a lifetime home.

With evoking imagery, and high-quality media, sometimes even video, these blogs not only have many people wishing to live their lifestyle, they are also showcasing new ways for even the most seasoned HNW traveler to experience surprise and delight on their adventures. For those that think they may have possibly experienced or seen it all, these luxury blogs will help open your eyes to new travel possibilities and a richer and fuller overall experience. As a luxury real estate professional, your goal should be to evoke these incredible experiences and emotions for your clients when working with them to buy or sell a home. A home and its amenities play a large role in the lifestyle they are able to live. People of affluence truly want to feel like they are still being fulfilled, even without leaving their house.

Secondly, these top luxury travel blogs are driving traffic and connecting with their audience not only because of their valuable information but simply because of their trusted status and relationship with their readers. As you try to market and connect with HNW consumers, a firm foundation of equality and trust is necessary.

There is certainly something to be said for the way luxury travel blogs have positioned themselves as experts in their industry and are able to market and connect with the top tier of consumers. Regardless of your profession, it’s important to remember to take notes from other leading luxury professionals and to apply their insights and outlook to help you grow your network and build better relationships with your luxury clients.

Via: Institute For Luxury Home Marketing

Has Tax Reform Impacted The 2018 Housing Market?

Starting late last year, some predicted that the 2018 tax changes would cripple the housing market. Headlines warned of the potential for double-digit price depreciation and suggested that buyer demand could drop like a rock. There was even sentiment that homeownership could lose its coveted status as a major component of the American Dream.

Now that the first quarter numbers are in, the KCM Crew begins to decipher the actual that impact tax reform has had on the real estate market.

1. Has tax reform killed off home buyer demand? The answer is “NO.”

According to the Showing Time Index which “tracks the average number of buyer showings on active residential properties on a monthly basis” and is a “highly reliable leading indicator of current and future demand trends,”buyer demand has increased each month over the last three months and is HIGHER than it was for the same months last year. Buyer demand is not down. It is up.

2. Have the tax changes affected America’s belief in real estate as a long-term investment? The answer is “NO.”

Two weeks ago, Gallup released its annual survey which asks Americans which asset they believed to be the best long-term investment. The survey revealed:

“More Americans name real estate over several other vehicles for growing wealth as the best long-term investment for the fifth year in a row. Just over a third cite real estate for this, while roughly a quarter name stocks or mutual funds.” 

The survey also showed that the percentage of Americans who believe real estate is the best long-term investment was unchanged from a year ago.

3. Has the homeownership rate been negatively impacted by the tax changes? The answer is “NO.”

Not only did the homeownership rate not crash, it increased when compared to the first quarter of last year according to data released by the Census Bureau.

In her latest Z Report,Ivy Zelman explains that tax reform didn’t hurt the homeownership rate, but instead, enhanced it:

“We have been of the opinion that homeownership is most highly correlated with income and the net effect of tax reform would be a positive, rather than negative catalyst for the homeownership rate. While still in the early innings of tax changes, this has proven to be the case.”

4. Has the upper-end market been crushed by new State and Local Taxes (SALT) limitations? The answer is “NO.”

In the National Association of Realtors latest Existing Home Sales Report it was revealed that:

  • Sales between $500,000 and $750,000 were up 4.5% year-over-year
  • Sales between $750,000 and $1M were up 15.1% year-over-year
  • Sales over $1M were up 17.3% year-over-year

5. Will the reforms in the tax code cause home prices to tumble over the next twelve months? The answer is “NO.”

According to CoreLogic’s latest Home Price Insights Report, home prices will appreciate in each of the 50 states over the next twelve months. Appreciation is projected to be anywhere from 1.9% to 10.3% with the national average being 4.7%.

Bottom Line

The doomsday scenarios that some predicted based on tax reform fears seem to have already blown over based on the early housing industry numbers being reported.

via The KCM Crew

Six Building Product Design Trends

At the International Builders’ Show (IBS), John Burns identified six new home construction and repair/remodeling design trends. For additional detail and photo examples, click here.

1. Internet of Things (IoT) technologies open the door to whole-home connectivity. Amazon’s Alexa and other personal assistants have opened the flood gates for smart home products, especially in home security, plumbing, appliances, and HVAC.

2. Labor efficient products take center stage. Building product manufacturers continue to invest in products that streamline the installation processes, with KATERRA’s large booth the poster child for potential labor disruption this year.

3. Engineered products offer great design and less maintenance. Engineered products look increasingly like their natural counterparts, often at better or comparable prices. We found many examples in commodities (decks, subfloor, siding, doors) and design finishes (countertops, surfaces, interior millwork).

4. Black is back. Black finishes dominated the appliance, plumbing, hardware, and window/door exhibits.

5. Customizing becomes simpler. Customizable product offerings this year focused on minimizing costs and complexity for the consumer. Standouts included private-label hardware options, mix-and-match handle/spout colors and finishes, and appliance panel customizing options.

6. Design has shifted to ultramodern. Exhibitors highlighted ultramodern interior designs, mirroring the home builder shift to ultramodern home elevations.

via Steve Basten: sbasten@realestateconsulting.com 

 

Tips for Appraising Lakefront Property

 

Hidden Lore, Michigan
When determining the value of lakefront property, there’s so much more to the equation than just measuring waterfront space. Here’s what appraisers and agents need to know.

Realtor.com — Rachel Massey:  As summer approaches, activity on lakes—large and small—increases. But in my experience as a REALTOR® and certified appraiser, it is apparent that many agents, brokers, and appraisers have not acquired all the knowledge, skills, and perspective needed to accurately evaluate lakefront property. In the hope of filling in some of the gaps, here are some tips on how appraisers can provide a more defensible appraisal on these complex properties as well as some of the nuances that agents who are new to lake properties should consider.

The Why of the Buy

Both appraisers and agents alike need to be aware of the motivations that result in sales. Appraisers need to be in touch with the vagaries of the different submarkets in order to adequately analyze the properties they appraise, and agents need to understand that there is much more to selling lake property than front footage.

What motivates a buyer to purchase a lake property? Is it the tranquility? The beauty of the water? The excitement of a speedboat and waterskiing, or casting a line into the water in hopes of landing a trophy catch? It is all of these things, and none of these things. The motivations are almost as numerous as the buyers looking for a lake house are, and one buyer’s paradise is another’s hell. Different types of lakes attract different buyers, and the buyer looking for tranquility is going to be very unhappy purchasing a house on a lake crowded with jet skis and powerboats. The same would be true for the avid motorist who buys on a small, quiet fishing lake.

Quality Over Quantity

While some depend on how many “front feet” the property has on the water to determine value, that is not necessarily the best course. The amount of frontage usually relates to space between neighbors and how much area is available for docking and beach toys. But consider the house sitting on the edge of a bluff, with 200 feet of frontage and 100 steep steps down to the water. What if the shoreline is also rocky and reedy? Five lots south, the topography has sloped in to a gentle, almost level lot and the frontage itself is a natural sandy beach. This lot has only 50 feet at the lakefront. Which is more valuable?

The value of a lake property could be tied not only to the ease of the access and the quality of the frontage but also to the lake itself. For a clean swimming lake, the narrower 50-foot lot might be much more valuable than the less accessible 200-foot lot. But for a lake that is picturesque but not good for swimming or boating, the 200-foot lot with the elevated views might be the more valuable site. It all depends on the lake and why buyers might be interested in that particular spot.

Present and Future Demand

I live and work in Michigan, a state surrounded by lakes of all kinds. The Great Lakes are a treasure, but not exactly the bastions of privacy and quiet you see on some of the smaller inland lakes. Many of our inland lakes are massive in size, deep, and clean. Some are shallow, reedy, and mucky, making them more of a viewing amenity than anything else. Some lakes allow all the toys and others only a kayak or canoe. Some are merely ponds in buyers’ eyes.

There are many questions that buyers, real estate agents, and appraisers should consider in addition to the present appeal of the lake itself, because these issues contribute to whether the lake remains appealing into the future. Some lakes are manmade in that they are the result of damming a river. Some municipalities are considering removing such dams—in that case, what happens to the manmade lake? Some lakes have been invaded by unwelcome species such as zebra mussels, Eurasian watermilfoil, and other nuisances. Lakes with public access sites tend to have more trouble with these invasive species, though they do also travel naturally through waterfowl and other means. Could a lake with an invasive species problem become less desirable than one without? Is there any guarantee that a pristine lake will remain so? What about the life cycle of a lake? Is it a dying lake, or is it likely to stay in similar condition for the foreseeable future? How is the management on the lake? Is there an active association that seeks to ensure the health of the lake? Are septic systems monitored? Does the association have prohibitions against fertilizers?

But just as bodies of water can change, so too can our perspectives on them. Is it possible that we are starting to see a shift, as our population ages, to the desire for quiet lakes that do not allow gas motors? It used to be that these quiet “no-wake” lakes had less appeal, but in many instances, they are now attracting buyers that would not have considered them 10 or 20 years ago. There is something to be said for the quiet of a lake without loud motors and loud reveling at all hours of the day and night. On the other hand, these lakes have limitations of use, and buyers who want to have it all might find the sportier lakes desirable, in particular if there are limited year-round residents. The lack of year-round residents could mean that the owner has quieter weekdays, with increased activity on the weekends and over holidays.

The Tools at Your Disposal

The Department of Natural Resources maintains lake maps in most areas. These maps show the topography and composition of the lake bottom. DNR maps will also show public access points, existing housing, and other features. Appraisers and agents alike should become familiar with these maps. Plat maps are also available in many areas, and these can be used to examine other features, such as ownership issues where a third party may control the frontage in between a property and the lake shore. Another concern that can impact value is keyholing or funneling, where backlot owners have rights to a parcel on the water. Just being aware of some of these issues can help you be a better advocate for your client and know when to direct them toward legal counsel to help determine whether they have water rights.

Not All Sales Are Comparable

If possible, it’s best to find comparables on the same lake, but remember, lakes also have varied topography, both on shore and to the lake bottoms, and just because the potential comparable property is on the same lake might not mean that the properties are actually comparable.

Appraisers need to understand the lake itself and which lakes are reasonable alternates if nothing is available on the lake upon which we are doing our appraisal. Know your market and write about what is important to the target audience. How large is the lake? How deep is it? What types of activities are allowed on the lake? What are the other lakes that the buyer for our property would reasonably consider and why? Fully describe the topography, frontage, and access to the water at the subject site. Write about whether the beach is sandy, mucky, rocky, reedy, and so forth. Document sunrise and sunset views, parking, and docking. Agents don’t have the same communication requirements as appraisers do here, but they should be aware of what appraisers are considering and what they are reporting, because such factors affect the pricing conversation as well.

Determining logical comparable search criteria is incredibly important in lakefront homes because buyers may consider properties on lakes that are 20 or 30 miles apart, something that might scare some of the most experienced underwriters if not properly explained. A smart appraiser will set the stage ahead of time through the narrative in the report, which will help the underwriter and reviewers understand the thought process for the choice of comparables. Once the appraisers have spelled out the reasons that have drawn a buyer to the subject lake, discussion follows about the lakes that are competitive and why they are competitive. This can justify the use of sometimes very distant comparables.

Agents can help by providing appraisers with information about the lakes that the buyer considered and why they considered them as competitive. If your buyer would only consider one lake, explain why. While it might not be possible for the appraiser to stay on that lake due to lack of recent sales data, the buyer’s motivations to that lake over others can still be helpful.

Summer is coming and lake buyers will be out in force again soon. Be prepared to have a lake appraisal take longer and be costlier than a regular subdivision job. Take the extra time necessary for these lake deals to research the lake and the site, in addition to the improvements on the site. Hopefully the extra effort will pay off and you’ll be better able to enjoy your next lakeside sunset or cool dip in the water.

via Rachel Massey… An AQB Certified USPAP instructor and began her career as a real estate agent in 1984. She has been appraising full-time since 1989. She is a certified residential appraiser in Michigan, specializing in review work for various clients, as well as lake properties and other residential properties in and around the Washtenaw County market.