California is frequently the epicenter for ultra luxury listings and sales (remember back in January when news organizations began announcing a record-setting residential sale in Northern California over the $100 million mark—the second in 18 months?), attracting affluent buyers from all over the world. That is why we want to give you the first look at Coldwell Banker Previews International’s 2013 Luxury Market Report. Inside the robust 29-page report, Previews talks about the art of the “luxtimate”–an estimate of value for properties in the $10 million and up range, which frequently defy traditional notions of comparability. It’s a must-read for anyone looking to buy or sell an ultra luxury residence in California this year. Here are some of the highlights from the article:

Pricing Methodology

In the ultra luxury space, where properties are anything but typical and comps are often scarce, “there is no formula,” said Craig Lipsey, president of Lipsey Appraisal Service, who has appraised more than 100 ultra luxury homes throughout the Southern California region. “Of course, as an appraiser, we try to use verified comparable market data, but we also must step out of the box to properly evaluate unique properties where comparable data may not exist—often the case at the ultra high-end. There is also an emotional component to these properties, and no appraiser can fully quantify that with a one-size-fits-all formula.” Many Previews specialists agree that pricing the finest properties in their marketplace is not an exact science—but an art form. “A lot of it is subjective,” said Lipsey. “After all, how do you estimate the value of something as one-of-akind as a Picasso or a Neutra home? An appraisal is really just an estimate until you actually get out there in trade.”

Unique Challenge: Data

Because each ultra luxury property is so unique and accessible to a small niche of high-net-worth individuals, the challenges associated with pricing at the very top of the housing market are widespread. One of the most well known challenges is a lack of comparable data.Pricing the finest properties is not an exact science—but an art form.

“The properties are that unique.” Randy Solakian, a Previews specialist based in Montecito, agrees that scarcity implies a premium price, and many of the properties in the Santa Barbara/Montecito marketplace meet that criteria. “The market here is very heterogeneous. Santa Barbara is an established area, where lot sizes were created 100-120 years ago, so most properties here are atypical. Most of these properties have irregular shapes, sizes and diverse architecture styles. That’s where the art comes into play when pricing these estates. It’s all about finding a property’s place in the context of its market.”

Further complicating the issue is the increasing popularity of off-market or “pocket” listings, at the ultra high-end. One only has to look at a list of the nation’s most expensive sales over the last few years, as reported by the media, to see the trend: a $75 million Malibu sale in January 2013, a $117.5 million Woodside sale in November 2012, a $100 million Los Altos Hills sale in 2011.

“I’ve never experienced as many high-end properties being marketed off the MLS,” said Lipsey, who estimates he’s seeing at least triple, and maybe more, the amount of pocket listings in the $10 million and up range from five years ago. “It can lessen the accuracy level of our appraisals when you market properties off the MLS, because there is limited specific property details and public records often do not report full sales prices. In addition, there can also be a problem with lag time in reporting. We must rely on a lot of second-hand information that may or may not be fully accurate.”

Unique Approach 

When faced with a lack of comparable data, many real estate agents at the top echelons of the market have had to develop an individualized approach to pricing their most prestigious properties. Herein lies the “art” of creating a luxtimate.

“I travel frequently and visit properties in Paris, Monaco, Beverly Hills, Malibu, Miami or London,” said Laurent Demeure, president and chief executive officer of Coldwell Banker Previews France and Monaco. “There is always a comparable somewhere in the world because today’s ultra affluent buyers can choose almost any property they want…whether it’s a penthouse in South Beach, a house in Monaco or a waterfront estate in Malibu. When pricing the top properties in France, I will often look at properties sold by other Previews top agents as a way to compare and come up with a reasonable asking price.”

However, Demeure and his Previews colleagues have found that pricing a home at the very top of the market often comes down to knowledge and experience. In fact, a majority of luxury real estate specialists we spoke to said that their instincts have played a crucial role in knowing how to price a property with no comparables.

Factors Impacting Price 

Not surprisingly, there is no single element that determines price for a rarified ultra luxury property. “At the end of the day, it’s not just about square footage or lot size,” said Lipsey. “There are a lot of intangibles to consider: architectural significance, quality of finishes, rarity, irreplaceability, celebrity ownership, individual amenities and others.” Of course, Lipsey doesn’t mention location—perhaps because it is assumed and universally considered to be the most significant factor in determining the price of an ultra luxury property. Location, lot size, celebrity ownership, condition of property and irreplaceability all significantly impact price. But when there is no comparable market, numerology can also factor into pricing—which, in many cases, acts as a signal to ultra high-net-worth individuals than an expectation of value. For example, there have been several examples of professional athletes listing their ultra luxury homes priced according to numbers that are significant to them. In 2009, Joe Montana listed his estate in Napa Valley for $49 million—in what appeared to be a nod to his legendary career as quarterback for the San Francisco 49ers. Asian buyers have also been known to gravitate towards properties with the number 8 in them because regard it as good luck.

There is much more to read in the full Luxury Market Report, which can be downloaded here.