How Do You Price a Luxury Home in the Treasure Valley When There Are No Comparable Sales?

Lightly edited for clarity — filler words and false starts removed; the substance of the conversation is unchanged.

Jerod Lee: Thanks for joining us today. We have a new series we're starting on luxury listings here in the Treasure Valley and Boise, Idaho area. We've had a number of conversations come up lately that we want to answer in a group format — these questions come up quite often, so hopefully this is a valuable resource for you to refer to, or certainly reach out to us; we'd love to help. We're going to dig into the things people immediately run into: the difficulties of pricing a luxury home, things that change the values of a luxury home, what happens when there are no comps, when you get that unicorn, and what the cost is of missing on that initial pricing when you put it on the market. And we're bringing on Chase, who is pretty much the perfect co-host for this particular topic. I know you don't like to talk too much about yourself, so I'll introduce you — because I think it's important that folks know you spent the better part of a decade doing appraisals here in the Treasure Valley.

Chase Hodgson: Yep, that is correct. A past life in and around real estate my whole life — as a subcontractor, in many different forms; built homes, flipped homes — but yeah, I spent the better part of a decade as an appraiser before becoming a lender.

Jerod: And even before that, your family owned a flooring company, so you're familiar with that whole world.

Chase: Yeah — the people I grew up around were builders and developers, just because when you're running a small business, those are your clients, and they kind of become your circle of friends. That's all I knew growing up, so I've always been around real estate.

Jerod: I sincerely appreciate your experience — and your access, I guess I'll call it, for lack of a better word — when we come into these kinds of stumpers. I think you've been impressed recently at the stumpers we've come across. The way I would sum it up, and you can correct me if I'm wrong: as you get up into that luxury space, it becomes less of a science and more of an art. You're doing a lot of pushing and pulling in different areas, and there are a lot of things you have to factor in that cookie-cutter homes don't need, because there a comp is a comp and adjustments are fairly easy. Is that a fair way to sum it up?

Chase: No, I think that's a great way to sum it up. It's definitely a different animal, and it requires a certain expertise and an amount of experience to be able to do these types of properties. A lot of it is having that expertise not just in your market, but in that specific product within your market — you're talking the Treasure Valley market, maybe a macro market, a county, and then a micro, nano market.

Jerod: Very specific, and we can talk about some of those. What we're not going to do today, so folks know, is talk about any particular properties specifically. There are nuances that sellers might not want shared, or things they're contending with. We're going to bring in the last few months' worth of conversations, but not get into specifics. At the end of the day, what you have to appreciate is that this is a specific conversation about your specific property with your specific goals. Is that what you see out of this conversation, Chase?

Chase: Yeah, absolutely. High-end luxury is just a different animal, and we're seeing more and more of it here in the valley. We don't have a really long history of it, so it's been an interesting one to watch grow.

Jerod: And what's compounded this — we've had an episode on it — is the lock-in effect. We were struggling to get comps for even mid-priced homes, because the fewer homes that sell, the more you're pushing and pulling on those levers: how far back do you go, what's the trend line for those sales? We've been seeing agents struggle to calculate good comps and recommend go-to-market sales prices in the mid-range, because the lock-in effect means people aren't moving and properties aren't turning. So it's not surprising to see it in the luxury space.

Chase: Yeah, it's definitely an interesting market with a lot of different obstacles to overcome.

Jerod: Let's talk a little bit about luxury. It's kind of a nuanced thing — some people say it's the top ten percent of the market, or it's the super-custom home, however you want to calculate that. But would you say a fair assessment is that it becomes luxury when there's a uniqueness factor — when it becomes difficult to find comparables because it's so unique? Price point comes into it, because it costs a lot to make unique properties, but that's the art thing again.

Chase: Being from the lender side of it, I would tend to look at luxury as more of a "we want to buy it, don't have to." Maybe they don't need financing, because you get into that space where the money doesn't matter as much. Think of sports cars — a Corvette versus a Ferrari. Everything's more high-end, the best of what you can get, performance-oriented. Ultimately you're getting into an area where it's not about the money.

Jerod: I think that's a great way to set the stage, because we're going to start talking about where the money comes from — who the buyers are and what they're looking for in the value of the property. It shifts quite a bit from the traditional approach: an agent finding a dozen different comps in active, pending, and sold status, extrapolating the trend line, mapping out a number and sticking to it — and, by the way, feeling highly confident in not only getting a buyer but getting the appraiser to give the value associated with that contract price. That's an often-missed component of pricing a home: a buyer might want to give it to you, but a lender is ultimately going to determine whether or not you'll be allowed to take it.

Chase: And that's where it gets interesting. Like I said, it's not always about the money in this price range, and not all of them need lending — but that doesn't mean they don't want to use it. They often have different places to put their capital, as opposed to tying it up in a primary residence. So those restrictions should still be considered when pricing these — understanding what an appraiser might have to look at in order to qualify for whatever type of lending you might need.

Jerod: Absolutely. So, a lot of groundwork there. The other thing I really want to lay out is the non-disclosure side of Idaho — states where we don't communicate what the closed price is. For the aggregator sites that pull from our MLS data: one, we don't have to disclose it, and two, they're not allowed to share it. As agents we can go into our multiple listing service and see what has sold and when, and there are often nuances even to that — arm's-length transactions, private sales that never hit the MLS. But where I'm ultimately going is that the knee-jerk reaction of going to one of these aggregator sites and getting their algorithm-assigned value is way less likely to yield success than in the entry or mid-tier price points.

Chase: It's always an issue for Idaho and non-disclosure states. You can have a high-end subdivision sitting right next to a starter-home subdivision — similar square footages, but finishes that are a different product altogether from the ground up — and it might not differentiate. As you get into that higher end, it becomes way more extreme. You mentioned off-market: a lot of luxury-type homes are custom builds that were never on the market to begin with. So how do you price stuff like that? How do you find those comparables when they're not even hitting the market?

Jerod: And we alluded to it earlier, but it might not have landed as hard as it should: we haven't been a luxury market. There hasn't been a lot of product, and the product we have hasn't been selling, because people are locked into some great rates. So you've got this compounding effect — why luxury homes lack comps, for all of those reasons and more.

Chase: Absolutely. And there's luxury in every market — it just gets defined differently. We're in that area where we're starting to be defined differently, just by the sheer number of high-end homes being built here.

Jerod: The other thing we came across fairly recently is proximity to a different market right in the Treasure Valley. Eagle is really the first community most people think about for luxury, and when you have sellers fairly close to Eagle wanting to sell — right up against a main road that differentiates one city from another — Chase is chuckling because we've had ad nauseam conversations about this — getting the sellers to understand that those are totally different markets is difficult.

Chase: It is. Perception is part of the market — how the buyer sees the market — and zip codes can matter in every price range of homes, but even more so as you get to this level. And along those lines, with a luxury custom home: Eagle is the first place people think of, but somebody could build one in South Nampa, or Kuna, or Melba — because money isn't the issue and they're looking for something different. But now when you go to sell it, that reduces the number of comps even more, because you're a long distance from where any of these types of comparables might pop up.

Jerod: You definitely want to put a lot of thought into how you begin to price it. Of course you go at it seeing what comps you have and doing adjustments — and we've got to make the assumption that there's probably going to be a financed offer with an appraisal, because that could be the worst-case scenario, so you plan for it. We'll get into situations where there just aren't any comps at all, but even when they exist they're going to be sparse. Can you speak a little to what makes a comp, and how you adjust from those comps to begin to massage those numbers?

Chase: The basics — and everything gets expanded when you're talking about unique homes — you try to start within a certain proximity, as close as possible, say within a mile. The reason is to make sure you're in the same market, because markets do change; there are micro-markets within all of these areas, and you want to get as close to the same market perception by buyers as you possibly can. You look at distance, as similar as possible in square footage within a small range — and as the homes get bigger and the prices get bigger, that range gets expanded, but you still want to minimize it. To give you an idea: the sales comparison approach on an appraisal is the main thing everybody looks at and uses to determine value. You make adjustments on the comparables to bring them up or down to the subject's level, and those adjustments add up to a net and a gross adjustment for each comparable. You don't want those to exceed certain amounts — if you're over roughly a 25% gross adjustment, it's not looked at as as good a comparable as something with a smaller adjustment. That's the reason for the ranges. Again, the rules can go out the window a little bit on these properties. But: similar in size, as similar in bed and bath count as you can, similar amenities — a pool, a shop, an accessory dwelling unit, those permanently attached amenities. And matching all of those things up becomes more difficult with a luxury property, because with luxury, everybody's luxury is different. Some people like a pool; people in Idaho still like a shop.

Jerod: I appreciate your insight there. And it occurred to me we should clarify a little more. On the appraisal and lending side, your mind goes to the in-the-books, solid numbers — historical data. On the real estate agent side, we're trying to figure out where the buyer's mind is at and how you're competing with other properties. As your listing agent, we want to understand what a buyer is willing to pay for it — there's a lot of nuance around that, especially in the luxury space. But what we have to take into account is the degree of likelihood that this will be a financed deal, and if so, what the appraiser is going to look at, so we can match those up. For example: I could tell you I think buyers out there will pay $2 million for your property — but when I look at it through an appraiser's lens, I think they'd struggle to reach $1.7 million. That's not a deal-breaker. But what we have to do as your listing agent is prepare the home to be marketed such that we're asking buyers to guarantee, up front, the delta between what the lender comes up with and what the contract price is — because if you don't get that up front, it typically falls back to whatever the appraised value is.

Chase: And it's not necessarily overpaying — it's what's provable with the data that's out there in the market. If it's a deal that's going to go through financing, or possibly go through financing, then you have to prepare for that, just like any other home. And you and I have had this conversation a lot: the real estate agent's job is different from the appraiser's job, and people should understand that, for good reasons. The real estate agent is trying to maximize your profit from the sale. The appraiser is taking historical market data to show what a house is worth — to protect the lender putting out money on the deal, but also to protect you, to make sure you're not overpaying. There's a dance you do there. My personal opinion: if somebody's willing to pay that, that should be part of the market — we're supposed to be determining market value. But sometimes we also have to protect people from themselves. Especially if you're borrowing money on it — you don't want to overpay for a property, have something change, have to sell in two years, and now you're upside down.

Jerod: The lender's perspective is exactly what you just said: if they get it back, they're not going to keep it and live there — they've got to sell it. And if there's no buyer out there willing to appreciate the uniqueness and the additional value in that property, that hit on a luxury home could be very significant. So I just want to give our luxury home sellers some insight into the agent's lens. Our objective is certainly what we could get your home for in contract — with all things considered: the comparables, the strength and weakness of the market, the trending of the market. But at the end of the day we'd be remiss not to share that there's a high degree of likelihood we'll have to consider the appraisal value, and how we're going to contend with it — either up front, before it goes to market, saying we're accepting offers with this wording, this kind of guarantee.

Chase: And it gets more interesting the higher end you get. Where is the property located? What amenities does it have — a pool, a shop? The appraiser's job is to put a value on that, and they have a process for it called match-pair analysis, where you try to isolate that item within the market to narrow down what the market's perceived value of it is. For example: you have a three-bath, four-bedroom house at 4,000 square feet with a pool. You need to see what that pool is worth — so you find 4,000-square-foot homes, similar finish, similar location, similar bed and bath count, without a pool. The difference in what the market paid is the value of the pool. That's match-pair analysis. Very difficult and time-consuming, but it gives you a baseline — though it's hard to be exact; it's an opinion of value. Then with luxury homes you get into: are they in a gated community, are they on water, are they near a golf course? All of those change the value of the lot and the house. And they can be in some interesting places — I'm helping a few people right now with some really unique infill lots in Boise, in the foothills, near golf courses. The rest of the homes around were built in the '70s, and there are no more foothills lots available. So what's that worth? And what's the house worth once it's done?

Jerod: We had one just the other day — it appeared to be a good comp, but the moment you drill into it, you realize not only is it on the river, but the other side of the house is on a green at the golf course. A double whammy — not even remotely in the same ballpark as the one we were trying to comp. So there's the value of the land, and the rarity. As agents, we're trying to differentiate, highlight, and showcase your home on the market, and draw attention from the buyer pool that can afford your place and wants the amenities and nuances of the home — but is sophisticated enough to look at what other homes are in that price point and whether those are more attractive than your listing.

Chase: That's a lot of words for a lot of stuff, because it is a lot. And it's actually some of the funnest stuff to do — if we didn't enjoy the challenges in our business, it wouldn't be fun, and everybody could do it. But it can be challenging. For the agents, it's about knowing how to have those conversations up front and how to prepare your sellers for whatever that might look like — extended marketing times, a difference between appraisal and sales price, all of those items.

Jerod: It is a tough conversation to have — not talking about anything specific here, but even a conversation around "hey, that house not even half a mile away is selling for this." Yes — but that's in a different market. And how do you explain that it's not only a different market, but a significantly *perceived* different market, with a much different buyer pool? Are we talking about a prestige factor, a perception factor? How do you put a value on that and tell a seller less than half a mile away that you don't get that?

Chase: That's the way it works, though. It's unfortunate, but that's the way it works. My dad always said — my gosh, he said this all the time — "what I'm buying is worth a fortune, but what I'm selling isn't worth anything." Sometimes it just feels like that if you're not on the right side of the road.

Jerod: There are all these different lenses — the buyer lens, the seller lens, the appraiser lens, the inspector lens — and we've got to bring all of that together to make sure it works.

Chase: I feel like in luxury real estate, you're not really pricing the home or the property — you're pricing rarity. And the rarer that property is, the more important it becomes to understand that buyer pool, even more than the real estate side of it. Understanding the people who want to look at that house — that's what gets it sold.

Jerod: That's a beautiful segue into another episode — this is a six-part series, and we get very specific into those areas. So let's also talk about this unicorn idea, because those do exist, and they can be super frustrating for a seller — trying to find an agent, and every agent will pretend they know all about that property because they want the listing. You've said a lot about what buyers will pay and how unique and desirable a property is. But when you have that unicorn — how have you seen lenders and appraisers map to that? Is there any way to capture it other than a buyer saying "I'll pay the difference no matter what"?

Chase: It's pretty tough. Having that expert appraiser is key. We've got some areas here — the North End of Boise has a different stigma; there's a certain prestige or lifestyle that goes with it. And then there are a couple of areas within the North End — you talk Harrison Boulevard: the homes, the history, just living on that road. There's only a very limited number of those homes available, because it's only one road. And it matters — a block off Harrison is different than being *on* Harrison. A lot different. So how do you price that? Getting an appraiser who understands that is one hundred percent key. They can go back and look at old sales — if they had to go way back in time to get the last time a house sold on Harrison Boulevard, they can look at the market data, show how the market has increased or decreased, and try to calculate from there. But oftentimes it is a makeup, because — there was a time, probably 2014 through '16, after the market came back from '08, when there was actually a lot of renovation going on on Harrison Boulevard and a number of houses for sale. But that's rare; that doesn't happen down there. It can become very difficult, and a lot of times it's just: if you want it, you have to pay for it.

Jerod: And just to be clear for our watchers and listeners: in the case where we really have to get our heads around where an appraiser is going to land, there will be a recommendation of having a pre-listing appraisal done. We don't have access to the appraiser on the buyer's side — so let's get an appraiser in to at least understand where their head's at, what levers they're going to push and pull, and what information they can uncover. Because we might need to submit some of that difficult-to-find information to the buyer's appraiser — they might ask us, "is there any information you can provide me to validate the number, because I'm not finding it." A good, knowledgeable, experienced appraiser, as a partner, will help you do that to a higher degree of success than just picking somebody at random.

Chase: I think that's a good tactic, just so you can understand the whole of what you're up against. But in reality, a lot of times with these homes, depending on the rarity — you're setting the market. Each time one sells, you're setting that market.

Jerod: Absolutely. So let's chat on our final topic: the cost of mispricing. Obviously, as the numbers get bigger, the cost of overpricing and underpricing gets more extreme — missing the mark by ten percent on a luxury home is a lot compared to an entry-level home in our market at $400–500,000. It requires a lot of research to bring to bear the most value for your luxury listing. But what we haven't really talked about is overpricing.

Chase: As you're talking about this, I'm thinking — we talk a lot with clients, during different times of the economy, about the cost of waiting. That's a calculation lenders do all the time: what's it going to cost you to wait? Your sellers have a cost, too — what's their cost of overpricing and extending that marketing time? There's a dollar amount that goes along with it. Whether it's staging; whether it's the different perception buyers have of what they're going to offer because they see a price cut; maybe you're making two house payments because you've already moved. There are all kinds of things that go into the cost of waiting from the seller's side.

Jerod: So the number you put on the market needs to factor in what it costs for every week and month that goes by, and what the perception means in the way of reduced offers as each month passes — because in the luxury market you're doubling or tripling your days on market, depending on what you're comparing it to. Much longer marketing times. And certainly in entry and mid-level homes, there's a rate at which a stigma gets attached to a property with days on market, because our market has been hot for so long. People wonder: why didn't it go the first weekend? Okay, a couple of weeks I'm good with — but a month? There must be something wrong with it. Luxury homes aren't impervious or immune to that either. Three months go by, six months go by — back in the day, a year would go by and you'd say, "it's a luxury home, you've got to find the right buyer." How many luxury buyers were in Boise, Idaho ten or twenty years ago? You left it on the market until it sold. You go a year now, and you've got some explaining to do. Is there any appraisal-side consideration for days on market?

Chase: Absolutely, it is a consideration. When I was appraising, days on market was a big deal — it helps you determine a lot of different things. If it sold really fast, under the typical marketing times: did they short-sell it? Did they need to get out quick? Now I'm calling and trying to figure out whether I need to make an adjustment. Did they have another house, and they were willing to let this one go lower because they didn't want it to sit? And the longer it goes, the more you're thinking it just wasn't worth that — because ultimately that's what the market is telling you. The longer it's on the market past the typical marketing time for that specific property, the market's thinking it's overpriced.

Jerod: The importance of pricing it correctly out of the gates is so important, because — as with every home — the pool of buyers that's going to see your listing is the greatest at the time you list it. There's a curve: the most people view it in the first couple of weeks, then it tapers down, and over time it's just the new people who happen to pop into the market with that budget. So then, are you trying to get exposure in smaller chunks and more dedicated areas — am I marketing to the California market, the Seattle market? But still, there are going to be far fewer people looking at those points.

Chase: And you're starting out with a smaller buyer pool to begin with — you're already limited. So mispricing is going to limit your buyer pool even more. And hey — that could be intentional. If it's a house on Harrison Boulevard that's ultimately worth it even though there are no comps, and you can afford to sit and find that specific buyer who wants that house at that price — they'll be there over time. But for those houses, that's how long it takes to sell them. Put yourself with an agent who knows how to market for that specific situation.

Jerod: But for the folks who have got to move on and don't have the time — who don't have the ability to miss that window and have it drag on — the higher you price over what the reasonable market is, the higher the degree of likelihood you're going to hold it for longer, and you may or may not have that luxury, no pun intended. So you've got to take all of that into consideration. When we're talking with sellers, it's that very thing: what are our timelines? Our objective is almost always price and net considered — but also timeline sensitive.

Chase: And buyers can be discerning at that price point — that's a lot of money, and they want the amenities they want. I want to be on the golf course, or on the water; I want the pool and the hot tub and the red-light sauna. Those amenities attached to your house can be really important — you can be drilled down to needing to find that specific buyer. Just understanding that up front, what that looks like and what the costs are — there's a lot that goes into it.

Jerod: Absolutely. Well, we've covered a lot of ground — we're a bit past our thirty minutes, but we often do that. For those folks who want a no-obligation consultation to talk through where you're at and what we can do to potentially help you, we'd love to have that conversation. Other than that, Chase — as always, we appreciate you coming on. Super valuable, certainly in this case where we're getting into some really nuanced stuff.

Chase: Love it. It's always fun.

Jerod: Very good. Other than that, we'll just wish everybody a blessed one. Take care.