The residential market has seen vast improvements in the past two years with values approaching levels experienced prior to the economic downturn. Specifically, the market for waterfront residential properties has appreciated steadily with continued improvement expected. Waterfront properties in the Twin Cities market are highly sought-after and command strong sale prices because of limited supply and attractive amenities. Today, there is pent-up demand for lakefront properties due to low inventory during the past few years as a result of the recent recession. As a result, desirable lakefront properties are going under contract at a rapid pace.
Appraising lakefront residential offers a different set of challenges compared to valuing non-waterfront residential property. The appraisal process still relies on the cost and the sales comparison approaches to value, but it also considers additional factors that contribute to value. For example, in the land valuation of the cost approach, the measurement standard is price per front foot of lakeshore. Additional factors considered in a waterfront appraisal include, but are not limited to:
• Quantity of frontage,
• Quality of frontage (marshy, sandy, etc),
• Parcel size to frontage ratio, and
• Quality of any existing improvements.
However, depending on the quality of the lake, location on the lake, amount of frontage, and other factors, existing improvements might not add contributory value. Therefore, in waterfront property appraisals it is critical to examine the local market, the relevant neighborhood, and the specific property to determine if the valuation includes existing improvements or if it is strictly a land appraisal.
Lakefront Properties Recent Sales Data
Based on 2015 year-to-date sales data from NorthstarMLS the average sale price per square foot for all lakefront residential properties in the seven-county metro area, was $213.51 per square foot. For the same time period, the average sale price per square foot for non-lakefront residential properties was $175.87 per square foot.
To illustrate the market improvement, in 2014, the average sale price per square foot for all lakefront residential properties sold was $212.12 per square foot. In comparison, the average 2014 sale price per square foot for non-lakefront residential properties was $116.29 per square foot. In 2013, the average sale price per square foot for all lakefront residential properties was $204.21 per square foot while the average 2013 sale price per square foot for non-lakefront residential properties was $128.28 per square foot.
Although the residential market as a whole has greatly improved, because lakefront property usually trades in a higher price bracket than standard homes, it is slightly behind on recovery but expected to catch up quickly.
High-Value Lakefront Sales
The most sought-after waterfront in the Twin Cities Metro area is generally considered to be on Lake Minnetonka. Prime properties on Lake Minnetonka continue to set the high benchmark of sales in the seven-county metro, as well as statewide. Some notably high lakefront property sales in the Twin Cities from 2014 and 2015 are:
Although the sales noted above set the upper bracket of residential sales in the state, they are a good indication that the residential lakeshore market as a whole is very much on its way to full recovery.