Luxury’s New Market Realities
1. It is a great time to buy – really! Compared to real estate overall, the high-end has seen a resurgence in sales but there is still no shortage of excellent buying opportunities. Equally desirable are interest rates, which even for jumbo loans are exceptionally low.
2. Trading up? Sell low, but even lower. Even if you have to sell your current home for less than you want, chances are you will still come out ahead. “Once you find out what a good deal you might get on a purchase, that big discount on your existing house will be much easier to stomach,” says Paul Boomsma, president of Luxury Portfolio International. Factor in ultra-low interest rates and the prospect of selling low becomes even more palatable.
3. Don’t be surprised to discover you are not the only buyer in the marketplace. The opportunity to own a fabulous home for a fraction of the cost of only a few years ago continues to entice consumers worldwide; interest from international buyers in U.S. real estate never has been higher.
4. Multiple offers still happen. Even though there are a large number of homes for sale, really good inventory gets noticed. “When a property is done and priced at the market, it will definitely attract multiple offers and that’s very surprising to buyers,” says Betty Graham, president of the Coldwell Banker Previews International division for NRT.
5. Not all sellers are desperate. “Distressed sales are part of the market but they are not the whole market,” observes Mark Nash of Coldwell Banker.
6. Taking a hard line in negotiations isn’t always the best strategy: sometimes patience brings a better pay-off. It is important to “give sellers enough time so they will thoughtfully consider your offer,” says Graham.
7. Cash is king. One of the biggest changes in the last five years is that move luxury buyers are opting for a cash deal. The motivation is not a lack of available loans; rather, luxury buyers understand they often can negotiate a better deal using cash, observes Joyce Rey, executive director of Coldwell Banker Previews International. “If there are fewer contingencies, then sellers are more likely to accept a lower price.”
8. Don’t worry if it’s a buyer’s market or a seller’s market; instead, focus on getting a handle on what’s happening today in your target location and price range.
NEW PARADIGM FOR BUYERS
9. Before you search for a home, do some soul searching of your own. What is your goal for the purchase? Luxury homes are more about lifestyle than bedrooms and baths. Consider how you want to live in the house and how long you might want to stay in one location. Clarify your wants and needs, separating the “must-haves” from the “would be nice” preferences.
10. Balancing head and heart is often a challenge for affluent consumers, says Mike Tucci, president and co-founder of Lexington Wealth Management in Lexington, Mass. Many clients come in with a lot of emotion surrounding a potential purchase, including fear and guilt, reflects Clint Frank, director of investment tax strategies for Lexington Wealth Management. “We run the numbers and temper the emotions.” It’s important to consider what a specific purchase, especially for second homes, would mean for your family and what the long-term implications would be for you financially.
11. “Very successful people usually have an intellectual checklist for home buying; however, recognize that the vast majority of us buy what makes our hearts leap. Make an emotional decision, but then step back and ask yourself which questions on your intellectual checklist you really do need to answer,” observes Laurie Moore-Moore, founder and CEO of the Institute for Luxury Home Marketing.
12. Be sure you really do want to move. If you are considering downsizing, don’t jump the gun. Give yourself time to envision how you would live in a smaller home; how much space you need for guests and returning children; and, most importantly, if the time is right.
PURSUING THE PERFECT PURCHASE
13. Scope out the market online. There is no better place to begin than the websites of local real estate companies. “This is a quick way to determine what’s available, what homes look like in the area, and what you’ll get for your money,” says Moore-Moore.
14. Shop as hard for your broker as you do for the property. Look for someone who is as much a pro in her field as you are in yours. Ask about education, special training, designations and experience. What consumers really pay agents for is their expert market knowledge, adds Casey Margenau with RE/Max.
15. A trusted relationship with an excellent agent also will put you on the inside track to be one of the first to know about price reductions and properties that are ready to come on the market.
16. Special properties – ranches, waterfront, equestrian estates – require specialized knowledge. You, and an agent who doesn’t normally work in this arena, might not be aware of what such a property entails, including legal requirements and potential liabilities, but agents who focus on specific property types make that their business.
17. Discuss how the agent will represent you. Hiring a buyer’s agent is a contractual obligation, so be absolutely sure the agent is the best for you before committing. Many top Realtors include agents on their team who specialize in helping buyers.
18. How homes are bought and sold varies by state, region and country. If you are new to an area, have your agent explain typical real estate practices. Even if you have bought in this location before, get an update on changes. Ask about transfer taxes, how much and who pays. Take the time to review all disclosures and have your agent explain them either when you write a contract or ideally when you begin your search.
19. Be prepared to demonstrate your ability to purchase, unless you are well known. At the highest price points this might be required to even view a property.
THE NEW OLD RULES
20. The old rules are back. During the boom consumers purchased with abandon and little attention to tried and true principles of the market. Today, risk-averse buyers are fueling a transition back to a traditional market and in the process are reviving many of the old rules.
21. Location, Location, Location is once again real estate’s guiding principle. The new value equation has buyers thinking long term, often years, possibly decades, into the future. Finishes and décor can be updated, square footage augmented, landscaping redone but the one thing owners can’t change is the location.
22. Keep resale in mind. During the heady days of the boom almost every property sold quickly for top dollar. Those days are long gone and traditional advice – don’t buy an over-specialized property or one that is larger, more elaborate and more expensive that others in the neighborhood – reigns.
23. Plan for life changes. “Real estate is a long-term asset and you can’t look at it and think of selling in two to three years,” says Margenau. As a general rule, buy something that will accommodate your needs over the next five years, possibly even longer.
24. Buying a condo requires an extra measure of due diligence, especially in states hit hardest by the downturn. Be sure to check out the financials of the condo association as well as the number, if any, of owners who are in arrears.
25. Problems with title clarity can and do occur. Water and mineral rights, historic roads and paths, utilities and confused boundaries all affect ownership. Have an attorney review the title and explain any easements or encroachments, especially if the acreage is extensive or specialized.
GETTING A HANDLE ON VALUE
26. Determining value and gauging price are the top challenges buyers face today. Some homes have significant price reductions; others are priced to sell when they come on the market. MLS records don’t always accurately reflect days on the market.
27. Understand how the house is positioned in the current market. Research and visit comparables. Once you have a good idea of your target market and price, ask your agent for an analysis of the number of sales, the number of homes in contract that failed to sell, the sale-price-to-list-price ratio and days on the market for the last 12 months. “A true luxury agent will be able to provide these stats and will know how to use them when negotiating for you,” says Moore-Moore.
28. Garnering a big discount doesn’t always mean you are getting a great deal. “There are deals where you can pay full price and get a good value and then sometimes you might get a big discount and still get a bad deal,” says Margenau.
29. Don’t forget potential fuel costs for commutes to work, school, shopping and the airport. Utilities and taxes are something most buyers take into consideration, but they often overlook the cost of fuel.
30. Look for hidden gems. Although most buyers want homes that are completely up-to-date, some of the best deals might be hiding being passé over-stylized décor, according to Boomsma. If your creative quotient is deficient, bring along someone who can supply the vision for you.
31. Avoid any last-minute surprises or, even worse, buyer’s remorse. A home inspection is still a must, but savvy buyers often have specific inspections for any number of features from pools to electronics to sewers. This is one of the biggest changes in the process in recent years, according to Rey.
32. The seller, the seller’s agent and your agent don’t come with the home. Keep personalities out of the transaction and out of the negotiation.
33. Think green. “Luxury buyers are making decisions today about wise living choices,” says Li Read, with Sea to Sky Premier Properties Realty, outside Vancouver. “Ecologically conscious buyers expect seriously green features to be in place.”
34. Bone up on ratings. LEED gets a lot of attention but there are more than 100 other green certifications. Check out Energy Star for homes, NAHB Green as well as any local and statewide rating systems that might apply to your purchase or purchase location.
35. Look for proof. Another effective gauge for a home’s green quotient is an energy audit, which will rate the home using the Department of Energy’s Home Energy Rating System (HERS) index.
36. Don’t overlook the basics. The foundation of energy efficiency begins with the basics – sealing and insulation, an orienntation for optimal efficiency, adequate ventilation, an HVAC system correctly sized for the house and Energy Star-rated appliances (or better)! The green issue looming on the horizon is water usage. Consider any feature that conserves water or collects water to be a plus.
37. Buying outside the U.S. requires even more due diligence than a purchase in the country. Learn about the process ahead of time. Find out requirements for foreign buyers, how the property will be held, which type of legal title you will acquire. Also, know how much of a down payment will be required and how the buyers are represented.
38. The allure of a private island, a flat in Paris or Tahitian hideaway is powerful but be sure to take off the rose-colored glasses before you buy. Don’t get caught up in the romanticism of a place.
39. Find a real estate broker to work as your advocate, one who works with international buyers and who also is an expert in the local market.
40. Hire a local real estate attorney or have your attorney coordinate with one.
By Camilla McLaughlin – Unique Homes