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Palo Alto Weekly

Real Estate - October 26, 2012

Real Estate Matters

How to value luxury real estate

by Michael Dreyfus

Maslow's hierarchy of needs says that human beings make decisions first based on fulfilling their physical needs, then their safety, then the more abstract concepts of self-esteem, and finally, if all else is satisfied, decisions are made to further their self-actualization, to become "everything that one is capable of becoming."

Valuing high-end, luxury real estate is challenging because decision-making has climbed up Maslow's hierarchy to those higher, abstract levels and the basic objective standards have less importance. Put another way, you don't "need" a 5,000-square-foot house or a view of the hills to the west or even a short walk to school. You want that. And the value you put on what you want is directly related to how many options you have in the real-estate market and how many homebuyers want those same things.

That is why a straight price-per-square-foot analysis is ineffective in putting a value on luxury real estate. It assumes fungibility — that one house of the same size and quality is substantially equivalent to another in the same time and place.

A price-per-square-foot calculation, as well as comps provided by many real-estate agents, often don't take into account lot size, location, amenities and, most important of all, the hundreds of unique attributes people value that can't be stuck into a Zillow algorithm. And they most definitely don't take into account the "I've never seen anything quite like this" or the even more amorphous, "I just have to have it" factor. In placing a value on luxury properties, subjective ideas of what is important have a dramatic impact.

When valuing luxury real estate, you do start with the basics: bedrooms, baths and square feet. Then you need to consider the more abstract but often more significant features of lot size and location. In this luxury market, a square foot of dirt in one neighborhood is worth a lot more than a square foot of dirt in another neighborhood. Heck, a square foot of dirt may double in value from one street to the next!

And that's where the most subjective assessment comes into play: evaluating the property for any unique attributes for which people will pay a premium. Those unique attributes are often obvious, such as expensive finishes, a pool, a tennis court. But sometimes they can be subtle, or they can speak to only a small group of potential buyers, but speak very loudly. Is the property new construction? Is it new construction by a well-known architect? Is it new construction by a well-known architect with a hard-to-get interior designer? Is it on a cul-de-sac? Is it on the ONLY cul-de-sac? Is it a large lot? Is it the largest lot in town?

All of these factors increase value, and the amount people will pay for those attributes is a condition of local mores and the local economy. It is in this area of subjective qualities about a home where mistakes can be made and value can be lost and gained.

Before you set a price on your home, ask yourself, "Could a buyer easily find a house similar to this one? What qualities about my house are different from other houses currently on the market?" If something about your house is truly unique, but that unique feature may speak to a smaller group of people, such as horse stables, a location within walking distance to a country club or private school, make sure you and your agent market that specific feature to that target group.

Identifying that "hook" for potential homebuyers, speaking to their higher needs on Maslow's hierarchy, could mean the difference of hundreds of thousands of dollars in the final sale price of your home. And while it may not be your ticket to being the best person you can be, it just might get you the best price you can get on your home.

Michael Dreyfus founded boutique brokerage Dreyfus Properties, with offices in Palo Alto and Menlo Park, in 2000. He can be reached at


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