Q&A: Don Saba on appraising mansions

Snook Inn has sold for $10 million.

Snook Inn has sold for $10 million.

Veteran real estate appraiser Don Saba, who has spent his career valuing luxury properties in the Sarasot a market, spoke recently with real estate editor Harold Bubil to discuss the recent sale of a $10 million waterfront mansion – the No. 5 house sale in county history -- and the transaction’s effect on the local market.

Q. How will the $10 million sale of “Snook Inn” on the northern tip of Siesta Key – Bay Island, to be specific – affect the luxury market in Sarasota?

A. Every sale in excess of $10 million will have a positive effect on the high-dollar market. But when we are dealing with properties in excess of $10 million, the market expands considerably and doesn’t just include those homes in the immediate Sarasota area. Generally speaking, the higher the sale, the larger the market area. It is not uncommon when I am appraising homes in excess of $10 million to look also at the Naples area. When a person can afford $10 million, they are not usually restricted to one geographical area. Through the principle of substitution, they might also look at other areas.

When you look at homes In excess of $15 million, that is always the case. A person in that type of a market parameter will look from Sarasota all the way to Marco Island.

A $59 million listing in Palm Beach.

A $59 million listing in Palm Beach.

Anything in excess of $20 million, I would go to Naples and also go to Palm Beach.

An appraiser in California was once asked to appraise a $150 million property. I asked her where she went for comps, and she said, “To Europe.”

What has happened with some high-dollar homes in Sarasota is that the appraisers, on a $12 million home, might only appraise it for $6 million or $8 million because they don’t understand that principle.

Q. What is the principle of substitution?

A. When you are comparing like properties, homes of $10 million or more are very similar in terms of site values, type of amenities and size.

Q. So buyers will look at what else is available in the market at that price. But the number of $10 million properties on the market in Sarasota is very small, so they will look elsewhere in the region, as well?

A. The buyers are less likely to be constrained geographically. It might be one of five or six homes around the world that they have. While they may enjoy the amenities of the Sarasota area, they are not necessarily restrained by the area because of employment purposes. So the market parameters expand tremendously the higher the value of the home.

Thrifty pretension: This new house in Naples, a block from the beach, has classical detailing only on the facades that are easily visible to passers-by. The back and north sides of the house are unadorned. Staff photo / Harold Bubil; 3-2-2013.

Thrifty pretension: This new house in Naples, a block from the beach, has classical detailing only on the facades that are easily visible to passers-by. The back and north sides of the house are unadorned. Staff photo / Harold Bubil; 3-2-2013.

Q. Naples had two $40 million mansion sales in 2012. What drives the price up?

A. The main reason is the land values. The peak of land values on a barrier island was $35,000 a front foot (of waterfront or beachfront), and that was on the north end of Casey Key. It is my understanding that there have been some Gulf-front parcels in Naples that have sold for $100,000 a front foot. The difference in land values is why you see that. There are certainly homes in Sarasota that have been constructed, that there are no finer homes in Naples. But the land is significantly more.

When you are looking at the parcels, you need to make sure there is significant depth as well as width. Some of those homes on Gordon Drive in Naples, the land is worth $30 million.

 Q. We have talked before about the desired ratio of land value to improvement value – the worth of the house vs. the worth of the dirt. Would you put a $60 million house on a $30 million site?

A. It certainly would support it. But the problem we see in Sarasota – I got a call once from a person asking me, “Don, what do you think about building a 20,000 square foot house in The Lake Club?” The land value doesn’t support it. The land value has to support the improvement, otherwise you have functional obsolescence as a result of overimprovement.  Those ratios are very important, and where people get in trouble is when they violate those ratios.

When you get into a situation where the land value is 5 percent of the overall value, you have serious problems, where it should be 25 to 30 percent.

Q. How about this: On a multimillion-dollar site, can you put too small of a house on it? On that $30 million Naples lot, is a $10 million house of 12,000 square feet -- $833 a square foot – too small?

A. It is difficult to significantly underimprove something. When properties appreciate or depreciate, it is because of the land value, not because of the improvements. Improvements have an age and life and they depreciate over time. Generally speaking, when someone is investing in a piece of real estate, the most important thing they consider is what the site value is, and the locational characteristics  pertaining to what causes that site value to increase or decrease. So where you get in trouble is when you significantly overimprove.

A $9.75 million listiing on Edgewater Drive in Coral Gables.

A $9.75 million listiing on Edgewater Drive in Coral Gables.

Q. Let’s say I own a $2 million bayfront lot. How much should I spend on my new house?

A. It depends on where it is. The mainland ratio is different from the barrier islands. But generally speaking, the land should be worth 40 to 50 percent (of the overall property value when the house is completed). You should be spending $2 million to $3 million on your improvements, not $6 million or $8 million.

When you get into problems is in golf-course communities when it is 10 percent or less, where it should be 25 to 30.

What you are investing in with a waterfront property is the land, and the view is what contributes to the value primarily. If someone were to buy a $2 million lot and puts a $15 million house on it, you have a problem.

Harold Bubil

Recipient of the 2015 Bob Graham Architectural Awareness Award from the American Institute of Architects/Florida-Caribbean, Harold Bubil is real estate editor of the Herald-Tribune Media Group. Born in Newport, R.I., his family moved to Sarasota in 1958. Harold graduated from Sarasota High School in 1970 and the University of Florida in 1974 with a degree in journalism. For the Herald-Tribune, he writes and edits stories about residential real estate, architecture, green building and local development history. He also is a photographer and public speaker. Contact him via email, or at (941) 361-4805.
Last modified: March 6, 2013
All rights reserved. This copyrighted material may not be published without permissions. Links are encouraged.