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Luxury Real Estate: Back to the Basics

While much of real estate has been pummeled over the past few years, the high-end real estate market has been relatively immune to some of the most egregious drags on prices. In fact, luxury homes and condominiums have seen a resurgence in sales activity this year, bringing this previously dormant segment of the market roaring back to life. Buyers are coming in, homes are getting sold, and prices look to either stabilize or increase based upon revitalized demand. That’s not to say, however, that higher-end real estate isn’t without its deals—it merely takes some research and guidance to root out the dynamics that are at play in today’s luxury home and condo markets. For buyers and sellers alike, the mantra is this: get back to the basics!

Number one way the luxury market is seeking out the basics? Cash purchases. All-cash purchases have been on the rise in luxury real estate markets across the country, as prospective homeowners attempt to obviate the complications associated with securing approval for jumbo-loan mortgages. In some markets—particularly those popular with out-of-state and international investment or vacation buyers—more than half of local luxury real estate deals are being made based upon cash purchase, thanks to the difficulty experienced by those buyers in trying to obtain financing. By obviating the higher rates and more intense scrutiny associated with jumbo home financing, these cash buyers are often able to leverage their cash purchasing power, securing lower sales prices because of their promise of quicker closing times and fewer contingency hurdles.

While cash may be a primary actuator, price is actually one of the less important aspects of luxury properties, as far as today’s buyers are concerned. With inventories relatively unaffected by foreclosure or short sales, higher-end listings have not seen the drastic price reductions so common in the lower-end and middle-road markets, so buyers are not approaching these listings looking for “hot bargains.” Instead, these buyers are focusing more upon a property’s adherence to the traditional basics of real estate: size, architectural quality, and location location location. High-end buyers, as impacted as everyone else by high fuel costs, wearying commutes and uncertain economic conditions, are searching out properties that give them easy access to the places they want and need to be, while still catering to their aesthetic sensibilities and choice of lifestyle.

This reversion to core principles in the upper-end of the real estate market can be construed as a hopeful sign, suggesting that home buyers are beginning to realign themselves with what is essential in a home purchase: purchasing within (and not beyond) affordability, and choosing homes that offer the kind of style, comfort and location necessary for a household’s happiness and success. And while the upper-tier of real estate has been isolated, in many ways, from the greater market distress, it does seem that it has been informed by the lessons of the past few years; buyers and sellers looking to manage a sale in this environment need only consider the property in question against the basics of financing, location, size and style in order to assess the deal and make the most of today’s market realities.

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