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Vacation homes are in high demand because of the pandemic, as more Americans can suddenly work remotely.
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‘The Big Move’ is a new MarketWatch column seeking to answer questions about navigating the world of real estate.
Do you have a question about buying or selling a home? Do you know where your next move should be? Email Jacob Passy at jpassy@marketwatch.com.
Dear MarketWatch,
My wife and I are buying a primary residence in the next few months. The house we want is $785,000 right now, right on Lake Huron. I think the house is $300,000 overpriced.
My wife and I have just acquired a couple million dollar estate and about $900,000 in cash. I am also starting a home investment business. The other thing is both of us have a credit score of less than 600.
The local Realtor is saying that the house’s value will go to $1 million in five years. The house checks all of the boxes — the only thing I am hesitant about is the price. What do you think?
Sincerely,
Lake home living
Dear Lake Home,
I can hardly blame you for being so price-conscious in this situation. After all, who wants to spend more than necessary for anything — let alone a purchase as expensive as a house?
Without knowing the home you’re considering in particular — or even where along Michigan’s Lake Huron coast the home is located — it’s hard to give a specific recommendation as to whether or not the property you’re considering is appropriately priced. However, there are some factors you should consider when thinking about this home’s price and where to set your offer.
For starters, keep in mind that the home-buying market is very hot right now, including for homes in vacation markets. At the beginning of the pandemic, when far fewer people were traveling, some people, including the CEO of Redfin RDFN, +1.95%, suggested that the market for vacation homes was “toast.” As fate would have it, just about the opposite occurred.
With the adoption of remote working, many people have suddenly found themselves free to consider living far beyond where their company is headquartered. Particularly for people sick of being cooped up in major cities, this has led many Americans to seek out homes further afield, whether as getaway retreats or permanent residences, as in your case.
A recent report from Zillow ZG, +3.78% found that at the tail-end of this summer, page views for home listings in popular vacation destinations were up 50% compared with a year ago, while nationwide page views were only up 37% overall.
You don’t say how long the home you’re considering has been on the market — but I have a hunch it’s been listed for a while, or else you would have bought it already.
“If the home’s been on the market for a while, it is overpriced,” said Glenn Phillips, CEO and lead market analyst at Lake Homes Realty, a nationwide brokerage that specializes in lake homes. “Because everything that is priced appropriately is not only going quick, it often has competing offers and they’ll bid above list.”
“ ‘Houses even in similar parts of the waterfront can vary wildly [in price] because of water depth.’ ”
In fact, the longer a home has been on the market, the more likely it is that it’s overpriced. Another factor to watch out for is whether or not the seller has cut their asking price. If so, they could be digging their own grave. When buyers, like you, see a home’s asking price has been trimmed, they’re that much more likely to wait on the sidelines for another price cut.
I would caution you not to wait too long, though, if you’re really interested in the home. If the seller does end up adjusting the list price, you could see a boatload of other buyers pour in who were concerned about the price like you are.
And when coming up with the offer, I’d advise you to approach pulling comps carefully. You don’t say whether or not you already own a home, but if you do, I’m sure you’re familiar with this part of the process. It’s a standard practice to look at nearby homes that have sold recently to judge how much the home you’re considering is worth and to set your bid accordingly.
But comps can be “very deceptive” when it comes to lake homes, Phillips said. “The first-time lake home buyer often doesn’t understand the other price-influencing factors,” he said. “Houses even in similar parts of the waterfront can vary wildly because of water depth.”
This home might have deeper waters than your potential neighbors’, which would make it easier to dock a boat off your property. That alone could explain some of the difference in value between the two properties, even if they are otherwise alike.
Beyond water depth, you need to consider whether or not the home has a beach, if it has a view of the sunset or how weather patterns might affect it. Plus, with lake homes, a great deal of the price is reflective of the value of the land itself and not the structure built on it.
Because of the importance location has in this market, you will find buyers who are more focused on getting the lot they want than a home that meets all their specifications. And those buyers would consider bulldozing a property and building it back from scratch if it means being able to enjoy their lakefront lifestyle to the fullest.
And although you didn’t ask, I’d also like to encourage you to consider whether you can afford making an all-cash offer on this home. All-cash offers are much more common with lake homes, Phillips said, and if the seller receives multiple bids they may be more inclined to go with someone who doesn’t need to rely on financing coming through. Plus, given you and your wife’s credit scores, you may have trouble qualifying for a mortgage because lenders have tightened lending standards during the pandemic.
