As Seen in....INVESTOR'S BUSINESS DAILYGLIMMERS OF INTEREST IN LUXURY HOMEBUYING START TO REAPPEARBy Kathleen Doler
Published October 16, 2009
Luxury homebuyers who've sat on the sidelines for much of the real estate meltdown are starting to open their wallets, real estate agents say. Everyone loves a sale, including the moneyed. They're drawn to house-hunt, now that the moribund pace of high-end home sales has yielded dramatic price declines.
It's happening waterfront in the Hamptons, and in select spots around the U.S. "We've seen a significant upturn in activity in the last four to six weeks," said Barbara Feldman, vice president with Saunders & Associates in the Long Island community of Bridgehampton, N.Y.
Buyers are now "making investments in beach homes," said Charleston, S.C., agent Pat Broghamer, at ReMax Advanced Realty.
In Santa Barbara, Calif., "we've started to see a fair amount more pending and closed sales here in just the last two to three months," said agent Kevin Schmidtchen, at Sotheby's International Realty. He says home prices in the $2 million to $3 million range "are off 20% to 30% from their peak" and those $5 million and up are off 25%-35%.
The pickup in high-end sales that agents are seeing is new, and still anecdotal. Data don't yet confirm a nationwide trend.Homes priced above $750,000 comprise just 2.3% of sales nationwide this year through June, according to estimates by the National Association of Realtors. That's down from 3.7% in 2008 and 4.4% in 2007.
High End Fell HardThe group says the sales pace for homes in the $2 million and above price band fell a whopping 39.1% across the country in August, year over year. In the $750,000 to $1 million range it fell 22.5%. These big drops contrast with a less-than-10% decline for homes priced $250,000- $500,000, and with the low end of the market where sales rose.
Both investors and those seeking a place to live or vacation are shopping for discounted high-end digs. They're on a hunt for value, real estate agents say. "Buyers are now looking at the great deals, rather than even the (particular) house," said Rita Burke, of Kenna Real Estate, in Denver.
Speculators and buy-and-hold investors are both back in the game, real estate agents say. Some are confident enough in a future return to even let a newly purchased home sit empty rather than bother to rent it out in a tough market. Their plan is "buy it, sit on it, wait for it to go up and then sell it," Broghamer said.
But in their quest for value, Feldman says, buyers seeking a luxury residence have downsized from 10,000-square-foot homes to 5,000-7,000 square feet. "They're willing to make do, just suffering," Feldman said, laughing. They're not after the "huge McMansions that they were looking for before, because it's in bad taste with the economy being what it is."
High-end shoppers demand especially rich detail about a property before they buy, Broghamer says. Does it have a deep-water dock? How deep? What are the site boundaries? What was last year's hurricane insurance premium? What remodeling restrictions might be encountered? Broghamer says no matter how deluxe properties might appear, many high-end buyers will want to customize and "make them their own."
Many luxury buyers also heavily use technology in their home search."You need to be everywhere online these days and pay for premium exposure on several top real estate Web sites," Schmidtchen said. He also blogs and puts high-end homes in top print publications. He says online listings need 18 or more great photos, including aerial shots. Burke uses tons of market data on her blog to attract sophisticated Denver-area buyers.
"If you don't have a presence on the Internet, and a good one, you're toast," Feldman said. And all the real estate agents in this story use social networking - Facebook, Twitter and other sites - to reach potential clients. To increase referral business, Feldman says, Saunders & Associates forms alliances with other real estate agencies selling luxury homes in NYC, Aspen and LA.
Art To Making OfferDespite price decreases, and everything else sellers and agents do to market luxury homes now, buyers shouldn't think lowball offers will win the day. High-end sellers can often afford to wait for an acceptable offer, Schmidtchen says. He adds that unique properties, particularly in tony Montecito in the Santa Barbara area, are still seeing full-price offers.
"We're not seeing big discounts off sales prices now," Feldman said. "If buyers make lowball offers, sellers aren't even countering." Also, Wall Streeters are expecting year-end bonuses due to a recovery in the stock market. So Feldman says real estate agents in her area are expecting an influx of buyers after the end of the year.
Some investors have been using self-directed IRAs to invest in waterfront real estate, Broghamer says. Others are forming buying pools to purchase high-end homes.Broghamer says some properties will just sit empty until the market turns and the investors can flip them for a tidy profit.
Others will enter the rental pool. Landlords of luxury can still make a tidy sum in desirable vacation spots."Some of the rents are huge," Feldman said of the Hamptons. "One house went for $900,000 for the season this year, and there were a significant number of rentals priced at $400,000 to $500,000 for the season."
