Value vs. Price

Suzanne_Dranow_Malibu“How much did they pay for it?”
That’s a question I often get from clients. When I get it from my investment clients, they’re using it as one metric to gauge what they may be able to get for it after a certain hold period. 

But when I get it from the majority of my clients, it usually ends up with them saying, “They bought it for $500,000 three years ago and now they’re asking $5 million for it? What makes them think it’s worth that much?”
Which is when I remind them that the value is determined by whoever is going to pay the price that the seller accepts. Still, they are often shocked that a seller may expect to make such a huge profit on their home, almost as if it weren’t “fair,” which I will pretend means “fair market value” and is not them putting an ethical value on the home’s value (a mindset which I believe went out of fashion along with the Berlin wall, and certainly has no place in the current real estate market).
I’ve read at least ten different articles (well, at least the headlines of the articles) marveling at Leonardo DiCaprio’s 1,765 square foot, 3 bedroom 2 bath Malibu beachfront home (with single car garage) being listed for $10,950,000. 
Pretty big number, right? Let’s make it look even bigger by gawking at the fact that this breaks down to: 
  • $5,475,000 per bathroom (note to any buyer: make sure to get the sewer/septic line inspected);
  • $3,650,000 per bedroom (which means the buyer will have to charge a lot on AirBnB); or
  • $6,204 per square foot (which, when compared to the other numbers, begins to make it look like a bargain).
In case you think these numbers are excessively high (one colleague called them, “astronomically ridiculous”), allow me to remind you that over the past two years prices for LA real estate have risen at a very steep slope, and even steeper for ultra luxury properties (see my previous posts).
Which brings me to the whole point of this post. I have a client who’s been looking for Malibu beachfront property for a while, and was completely surprised when he asked, “What did he pay for it?” I told him he paid $1.6 million in 1998. And he became indignant: “$1.6 million? That’s less than 15 percent of the current asking price. Who would pay that much?” The simple answer is “whoever thinks it worth that much.”
For those who haven’t noticed, no one is making beach front property anymore, especially in Malibu. And beach front property in Malibu is sold at a premium. Plus, let’s add to the mix that this is a celebrity owned property (which is debatable as to how much value it adds to a house) and you get the perfect storm for an incredibly high (but, by LA standards) not surprising list price. 
List price and sales price are two very different animals (remember Candy Spelling was asking $150 million for her place, but sold it for the bargain rock bottom price of $75 million), so where this one sells is anyone’s guess. For every Malibu celebrity home sold, there are are probably 10 that go unnoticed by the press.* And unless it’s an incredibly slow news week, the media will certainly let us know how much this particular home sells for.
As for Mr. DiCaprio asking close to 700% more than he paid for his property, let’s just wait and see — and leave the judgement at home.
(*Note: This value may be slightly higher than in the rest of LA only because it’s tough to throw a rock in the air in Malibu and hit someone who has never appeared in Variety or The Hollywood Reporter.)

Leave a Reply

Your email address will not be published. Required fields are marked *