Appraising Lake Property


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Editor’s Note: 
One in a series of insider looks at appraising niche or unique properties. Many appraisers supplement and stabilize their business by diversifying into unique property types.

Appraising Lake Property
by Rachel Massey, SRA, AI-RRS

What motivates a buyer to purchase a lake property? Is it the tranquility? The beauty of the water? The excitement that comes from driving a speedboat or waterskiing? Maybe it is casting a line into the water in hopes of landing a trophy.

It is all of these things and none of these things. The motivations are just as numerous as the buyers. Different types of lakes attract different buyers and one buyer’s paradise is another buyer’s hell. The buyer looking for tranquility is going to be very unhappy purchasing a house on a lake crowded with jet skis and powerboats. Likewise, the buyer who wants to have all the lake toys would be dissatisfied purchasing a property on a small quiet fishing lake. It is important for the appraiser to know their market and what drives value in that market. Legal ramifications such as docking rights and anything restricting the use of the lake also need to be considered but are beyond the scope of this brief article.

Lake appraisal, by its very nature, is complex. There is a lot that needs to be considered, and different areas of the country face different influences. In Michigan, many residential appraisers end up having a lot of experience with lake properties due the many inland lakes. This is the same in states such as Minnesota and Wisconsin but may not be at all the case in Arizona, where there is much less of an opportunity. Therefore a licensed appraiser in Michigan may well be competent to complete this type of assignment, whereas an appraiser in a state with few opportunities, might not be until they have a higher license level. It is a specialty to a degree and if this type of work interests you, I’d recommend that you get out and start looking at lakes and learning the nuances of what drives buyers in your market, and how the different lakes are positioned in the marketplace. In addition to standard mortgage work, appraisers who are competent in lake properties can leverage their expertise to snag other high-end properties in addition to the lake work for private parties.

This article is directed towards residential appraisers who are providing lake appraisals for mortgage lending or anyone who wants to understand the considerations involved in valuing a unique property. Because of increased scrutiny from underwriters, reviewers, and GSEs, and moves toward more and more repurchase demands, I hope this offers some insight into how to provide a more defensible appraisal on these complex properties.

What’s Comparable?
Many appraisers insist that the value of a lake property is directly related to how many linear feet the property has along the water, but this is not always the case. The amount of frontage usually relates to the space that you have between neighbors and how much area you have for docking and beach toys. But consider the house sitting on the edge of a bluff, with 200 feet of frontage but 100 steep steps down to the water. What if the shoreline is rocky and reedy? Five lots south, the topography is sloped into a gentle, almost level lot with the frontage itself being a natural sandy beach. This lot is only 50 feet in width at the lake. Which is more valuable?

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The property’s ease of access to the lake and the quality of the frontage are important factors in the property’s value. However, the value effect of these elements can be positive or negative depending on the lake itself. For a clean swimming lake, the smaller, 50 foot water frontage might be much more valuable than the less accessible 200-foot lot, but for a lake that is picturesque but not a good swimming or boating lake, the 200-foot lot with the elevated views might be the more valuable site. It all depends on the lake and why buyers look to that particular lake.

What about the lake itself? I live and work in Michigan, a place that is surrounded by lakes. The Great Lakes are a treasure but do not exactly deliver the private and quiet feel of some of the smaller inland lakes. Some of our inland lakes are deep, clean, and massive in size. Some are shallow, reedy and mucky, making them more of a view amenity than anything else. Some lakes allow all the toys and others only a kayak or canoe. Some are merely ponds in a buyer’s eyes.

What two buyers want from a lake can be completely different. As our population ages, there is an increasing desire among buyers for quiet lakes that do not allow gas motors. It used to be that these quiet, “no-wake” lakes had less appeal, but they are now attracting buyers that would not have considered them 10 or 20 years ago. There is something to be said for the quiet of a lake without loud motors and loud reveling at all hours of the day and night.

All of this is a prelude to a simple, yet important fact: when developing and communicating an appraisal for a lake front property, it is critical that you also address the lake. You need to talk about the lake itself, and what lakes are alternatives if no comparable is available on the lake on which you are doing your appraisal. How large is the lake? How deep is it? What types of activities are allowed? What are the other lakes that the buyer of our property would reasonably consider and why? The answers to these questions should be spelled out for the client.

You must help the client understand what the potential buyer is looking for, and you must do so in writing. Write about the subject site: not only the size and the frontage but also the topography, and access to the water. Write about whether the beach is sandy, mucky, rocky, or reedy. Write about sunset/sunrise views, about parking, docking and more. You must know your market and write about what is important to your market.

After understanding the many potential reasons a buyer may prefer a lake, and a lake property in particular, the next step is determining a logical comparable search criteria. This is especially important in lake properties, because often buyers consider lakes comparable that are 20 to 30 miles apart. A word of caution: this may scare even the most experienced underwriters and reviewers, who can then make the appraiser’s life hell if it is not well explained. To prevent this, you must clearly explain the factors that draw a buyer to the subject lake and discuss the lakes that are comparable and why they are comparable. It sets the stage for sometimes using very distant comparables.

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Consider the following example write up that I completed for a lake property in my market.

The lake is isolated, and is more of a market unto itself. However, if there are inadequate sales on a lake, you cannot just make up comparables, so communication is critical. The subject is located on Pleasant Lake in Freedom Township. It is on the south side of the lake. The “neighborhood” consists only of waterfront properties on Pleasant Lake proper, and is therefore very limited in number and has a wide variety of styles, sizes, ages, etcetera.

It is an unusual lake for the area due to size and access to area amenities. The lake is 202 acres in size, and has depths up to 36 feet, much of which is in the 10 foot depth range. The northern shore is sandy. There is a mixture of sand and marl on a large portion of the lake, some of which is directly north of the subject that provides good water frontage for the site. There are three areas in the lake that have deep spots. These include up to 25 feet deep along the mid-east section and another 24-foot deep spot towards the narrows in the middle, not far from the subject.

The lakes which I consider most competitive to the subject include Clear Lake in Waterloo Township, Independence Lake in Webster Township, and Winans Lake in Hamburg Township. Only Independence Lake is within Washtenaw County and the other two are in adjoining counties (Jackson and Livingston).

Clear Lake is a smaller lake in Jackson County. It is 138 acres in size and is a natural, spring fed lake that has state land adjoining in parts. The lake has depths up to 34 feet with much of the lake around 10-15 feet in depth, much like Pleasant Lake. There is a public access point as a county park, but the access point is not for boating. Instead it is for picnicking. The lake allows for all sports but is typically quiet other than a few weekends a year. That makes it similar to Pleasant Lake. Although distant to Ann Arbor, it is in the Chelsea school district, and has a similar “vibe” as Pleasant Lake (PL) and is expected to draw many of the same buyers. Prices on the lake over the past three years have ranged from a low of $195,000 to a high of $455,000 for the sold properties, with the median sales price at $325,500 for a 2,081 sq. ft. house. This is in the same price range as Pleasant Lake.

Winans Lake in Livingston County is a unique lake. It is not heavily populated, and is an “electric motor” only lake, which renders it much more peaceful than lakes that allow all sports. Some buyers prefer this type of lake due to the quiet and lack of worry about being hit by a boat while swimming. As Pleasant Lake is a fairly quiet lake in spite of allowing all sports, there is similarity in that respect. Winans Lake is a natural lake which is deep (up to 54 feet deep) with much of the lake in the 20 foot depth range. It is not particularly weedy and it does not have excessive housing along the lakeshore. There were only three sales on the lake through the MLS in the past three years, with the low price of $170,000, high of $452,000 and median price of $450,000 for a 2,309 sq. ft. house. Even though this lake is not a motor lake, the fact that it is natural, is independent from other lakes, and has a wide range of housing prices and appeal, does make it similar to the subject lake.

Independence Lake is unique in that it is also very close to Ann Arbor, and it is independent of other nearby lakes, much like Pleasant Lake. Independence Lake is surrounded by mostly state-owned land, with a state park on the north and east side of the lake. The lake itself is 192 acres and has depths up to 34 feet, with four deep areas and a lot of sandy beach area towards the north of the lake. There are cottages and year round houses only on the west and south side of the lake, and most of these properties are substantial in size (other than a number on Pellett that are seasonal). There have been four sales in the past three years on the lake through the MLS, from a low of $397,500 to a high of $630,000. The median price is $461,250 for a 2,511-sqft house. These houses are mostly much larger than those of the other lakes and the price range has been greater. Part of this relates to the size, but part also relates to the size of the lots, which are mostly an acre or more. Overall the prices on Independence Lake are slightly higher than Pleasant Lake.

Part of what makes these three lakes competitive, in my opinion, is that they are natural lakes that are spring fed, are stand-alone (not part of a chain) and have a good variety of housing, plus some larger sites. There are other lakes that are also competitive, but the three noted are considered to be the best alternatives if nothing on Pleasant Lake is available. Buyers of lake properties tend to focus mainly on the lake first, and then the frontage of the property (i.e., is it sandy, a gentle slope to the lake, free of weeds and rocks, etc., as well as the amount of front footage). Houses are important as well, but with lake properties often 50% or more of the value of the property is the frontage itself. Therefore it is not at all uncommon to find lake properties that sell from $100,000 to $150,000 and have the structure torn down to build a new house. In fact, on Clear Lake a sale was located that was uninhabitable and sold for $73,500 cash in 2011 (market has increased since that time) even though it was listed for $31,000. This is land value plus the cost of demolition.

The subject Lake Frontage at the time of appointment was entirely snow covered and the actual frontage could not be observed. Per the owner the lot is sandy at the beach. Per the GIS maps this appears reasonable, as does the DNR lake maps which show a sandy area. Therefore the subject lot is expected to be a good sandy lot, which should have good appeal. In addition, the lot is a gentle slope out to the beach, which makes for good usable lake frontage of higher appeal than typical or for a lot that has a steep slope. Frontage is substantial, allowing for good privacy between the subject and the neighbors. As such, sandy beach properties with good frontage were sought as comparable sales when possible…

I understand that this is rather a long, drawn out write-up, and some may view it as overkill. However, given the reasons that buyers buy on lakes, and how distant comparable lakes can be (my sales were from 12-20 miles away other than one on the lake), developing this type of narrative may be time well spent. Often it is easier to explain things at the outset than to try to defend your report a year or more down the line.

So these are some considerations for valuing lake property, a niche category of property where I live and work in Michigan and where there is an abundance of lakes. What about where you live and work? What opportunities exist for diversifying into niche or unique properties? Golf courses, churches, beach front?

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About the Author
Rachel Massey, SRA, AI-RRS has been appraising full-time since 1989. She is a certified residential appraiser in Michigan, specializing in review work for various clients, as well as lake properties, and other residential properties, in and around the Washtenaw County market. She is an AQB Certified USPAP instructor.


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Comments (8)

  1. What about unrestricted lakefront vs. restricted lakefront? Is unrestricted lakefront more valuable? Say if you took the same lakefront lot/geography/location/neighborhood and changed nothing else but in one scenario it was “unrestricted” and the other was subject to covenants/restricted which would be more valuable and why?

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  2. Thanks again Rachel for consistently guiding the rest of us with detailed analysis of subjects, markets and use.

    Please keep it up. The trade is to ever become a profession it will be through efforts like yours

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  3. Totally Agree with all of the above! Can you tell by my website and email address that I specialize in Lake Lanier property down here in North Georgia. There are so many factors to consider on the lake, all of which you touched on…The Biggest issue is getting lenders on board with selecting appraisers who KNOW the lake wherever you are. They need to “Vet” their appraisers more thoroughly if they state they have lake expertise. I just reviewed a Lake Lanier appraisal by someone who received the order via an AMC, who did not even get the County correct, who valued the property $100,000+ below sales price and this was in no way warranted or supported in the market. Plus the most shocking thing that told me this appraiser knew nothing about Lake Lanier….They used an OFF lake home to compare to a lake home and only adjusted up $50,000! NOT GOOD! There is NO lake Lot on this Lake that could be purchased for this amount. The value difference between off lake and lakefront is typically in the hundreds of thousands of dollars, especially in the case of the Subject Lake lot. Thanks for the great post. Lets get the Lenders on board because there are many appraisers who are violating Competency Rule by accepting these assignments.

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    • Thanks Mary, yes lake property is a specialty and it is important to try to get into the minds of buyers on what they look for when considering a lake house. Sometimes first time buyers for lakes just want to get a toe in the water, but on subsequent purchases, have learned that frontage matters, and it isn’t just size.

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