In my inaugural
posting of this luxury property blog one of the questions I posed was
constitutes or designates a luxury property? For years, the general rule-of-thumb has been
anything that is in the top 10% of a given market from a value perspective
which in the case of the southern Georgian Bay market would be $750,000 plus. But is this simple definition enough? In my opinion the answer is no, and this is
shared by some of the top REALTORS® elsewhere that are actively engaged in the luxury
property market.
Housing data accumulated
in a U.S. Census some years back indicated that there were approximately
314,000 owner occupied homes in the U.S. valued at over $1 million. A secondary study by the U.S. Federal Reserve
came up with a higher number which illustrates the difficulty in trying to
obtain accurate data in this regard. Taking into account the conflicting results,
it is very safe to say that the $1 million plus housing market is less than 1%
of the total number of homes in the U.S.
and there is no reason to think Canada would be much different.
The issue here is the fact that markets differ widely from
one are of the country to another. In
some locales such as Toronto or Vancouver for example, $1 million will buy you
nothing more than a lot or a home that gets torn down in order for the buyer to
build their luxury dream home. In others,
$1 million may allow you to buy the ultimate home on the water or on a large
acreage.
In 2011, I attended
the National Association of REALTORS® conference in the U.S. and met two of the
leading luxury property REALTORS® in the U.S. whom I have kept in contact with.
Based on his years of experience listing
and selling luxury properties, David Michonski has developed his own definition
of what constitutes a “luxury property” which is reflected in the following
formula:
Luxury Real Estate =
two to three times the average price in a market+ requisite qualities.
As of the end of
August, the current 12-month average price for single family homes sold through
the MLS® system of the Georgian Triangle Association of REALTORS® is $332,512. Using a multiple of 3 times this average price
would define luxury homes in our market as having an approximate value of
$997,500 or greater which is about as close to $1 million as you can get provided
they also have the requisite qualities or features that further contribute to
the definition of what constitutes as luxury home.
In my next posting I
will explain the concept of “requisite qualities” as it relates to the value
equation when defining luxury real estate.
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