But, as the adage goes, it’s not just about size. The most particular characteristic of the large-lot market in River Oaks is that, in addition to the absolute size of any given lot, other qualities of the property are critically important to a prospective buyer.
Buyers willing to pay $4 million or more for a half-acre are not merely content with square footage. Proportions (e.g. narrow and deep? pie-shaped? irregular?), topography, the maturity of landscape, view, building setbacks and, above all, location will make or break a sale. Prospective buyers may alternately seek or shun visibility from the street. Others will not venture outside the central original sections of River Oaks. Backing to the golf course is a piece of heaven for some, but others will wince at those unsightly utility lines.
As market professionals, we always ask lot buyers three key questions: Why do you want a large lot? What are you trying to accomplish? What is your timeline?
Perceived value will be determined by how the qualities of the land mesh with the buyer’s requirements. Setbacks add a layer of complication to those who have specific building plans already in mind. And the lot’s neighbors can make or break a sale: “Do we want to look at that stunning/hideous new house across the street for the rest of our lives?”
Adding yet another wild card to the marketing mix are nearby residents who aren’t even land shopping. But one day they see or hear through the neighborhood grapevine that a specific, long-lusted-after property is on the market. And, wham, they snap it up. No one even saw it coming.
The large-lot market is a frustratingly inefficient market, in terms of liquidity. Buyers and sellers in this sector move at a different pace (almost always slower) and are motivated by forces disconnected from the usual struggle of supply and demand. The market often includes strong personalities who can be impetuous at one moment and by turn be suddenly absent and oblivious for months on end.
These are among the factors that make the marketing of large lots especially challenging. Knowledge of the nuances of the lot and the River Oaks section and of the potential prospects ‒ both active and dormant ‒ and having the skill to communicate a genuine expertise in values is invaluable in a market sector where buyers and sellers are accustomed to always being right and often have a tendency to swing wide.
Large-Lot Activity in 2016
If one had to summarize the large-lot market in 2016, it would be something like: “Successful sellers discover that it’s not 2014 anymore.” Not that there were any fire sales. But clearly recent buyers were only interested in good value.
Looking at the graph (River Oaks’ Two Types of Large Lot Values, below), there are strikingly few data points for large premium lots. And only a few more for Tall Timbers-type lots. However, the better large-lot sales prices have consistently followed a gentle incline over the long term, with minor deflections up or down from the long term trend-line to reflect contemporary local economic conditions. Last year was no exception.
But it is telling to pay attention to the occasional outliers, notably the sale of the Tall Timbers-type lot in October 2014 for $176 per square foot for more than an acre, albeit with a large and dated house on it. The owner of the neighboring lot, who had paid $87 per square foot for his own lot just nine months earlier, was willing to pay double the market price for the privilege of combining the two lots into a larger piece. The buyer justified the business sense of it by claiming that the price of the combination was a wash. That’s all very well if one intends to build and settle in place for a long while. But it’s not rational to change plans and expect the market to pay the same price within a year.
The takeaway for large-lot market participants is that, unlike with smaller lots (i.e. 15,000 square feet or less) or those in less-desirable locations, buyers and sellers are savvy and patient when needed. There is little or no likelihood that a buyer looking at large lots will be pressed into overpaying, whether by zealous advice or the fear of lost opportunity, as can be the case in the market for smaller lots, which is often characterized by exuberance followed by correction.
Ironically, while the premium large-lot market in River Oaks is thinner, with transactions taking place sporadically, involving participants who make decisions not based on immediate market forces, the pricing of this market is steadier and more rationally discovered.
If you would like to discuss last year’s large-lot sales and the active properties available at the start of 2017, please give us a call to set an appointment.
* The above article appears in its entirety in the print edition of River Oaks Market Report – 2017 Outlook.