Requisite Requirements of A Luxury Property

  In my prior post I discussed the financial criteria, which is deemed necessary to designate a luxury property in most markets, three times that market’s average sale price.  Price however is not the only factor that determines the luxury worthiness of a property especially in the eyes of buyers. 

  The complete formula to establish what constitutes a luxury property is three times the average market price in a given area + requisite qualities.  Requisite qualities includes a variety of criteria most of which pertains to the design, overall features, amenities and the quality of finishes in a luxury home or condo. 

As of this posting, there are 112 homes and condos listed on the MLS® system of the Southern Georgian Bay Association of REALTORS® that meet the financial (value) requirements of being considered a luxury property.  At the current rate of sales, that represents over four and one-half years of available so-called luxury home and condominium inventory.  As outlined in my last post, the luxury property market is very small.  The number of luxury buyers is even smaller.  Among the available four and one-half years of inventory, there are almost certain to be some properties that don’t “cut it” in terms of the requisite qualities required to satisfy discerning buyers.

  To begin with, luxury properties are for the most part one off designs, custom homes designed by an architect for their high net worth clients.  The finishes must be and often are impeccable and typically include custom mill work usually performed by talented craftsman on site.  Custom kitchens with outstanding cabinetry, granite, marble or limestone counters as well as high end appliances such as Wolf ranges and Sub Zero refrigerators and refrigerated drawers are not extras, they are often the normal expectations in this type of property.  The same applies when it comes to bathrooms.  Fixtures such as shower stalls, sinks and toilets from the local big box home improvement retailer just don’t belong in a luxury property priced at  $1.5 or $2 million dollars.  And let's not forget the exterior, it surprising how many of these properties have grounds that are not well landscaped, properly maintained or even the driveway leading into some high-end rural properties is not befitting an expensive home.  

  Technology is becoming an increasingly prevalent and important feature with today’s luxury home buyers.  Recent reports indicate that luxury home buyers are looking more at smaller homes but with the very latest in technology from elaborate home entertainment and security systems to the multi-function ability to control heating and cooling, lighting and other aspects of the home even remotely from afar.

  “Celebrity status” also has a bearing on the luxury home market and while this isn't Hollywood, we do have some television and business personalities with properties in the southern Georgian Bay market. 

    

  Having personally listed and sold a number of higher end properties in recent years, I know first hand that high net worth buyers looking in these price ranges know and demand quality.  Anything that doesn't meet their expectations will result in either (a) “No Sale” or (b) a discounted offer price reflecting the changes and or upgrades the buyer wants and or needs to make in order to bring the property up to their standards.  It's often very disappointing when showing some area properties priced above $1 million to find that quantity of floor space has sometimes taken precedence over quality of finishes and other details.  Some sellers do not understand this and can't understand why their property languishes on the market or draws only low a offer and fails to sell.

  As they say, "beauty is in the eyes of the beholder,"  and while we do have some luxurious properties listed for sale in our market, we also have some where the requisite qualities fall well short of what a luxury home buyer(s) demands.  This in part explains why we have over a four year inventory of homes listed for sale in our market above the luxury price threshold.

  I'll talk more about price in my next post.

What Constitutes Luxury Real Estate?

  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.

Luxury Buyers Want Smaller High Tech Homes

  According to a recent survey conducted by Better Homes and Gardens® Real Estate, today's luxury homeowners and buyers are smarter and more confident about investing in luxury properties than ever.

  High net worth individuals know what they want and have the resources and capabilities to get it, allowing them to transform luxury living spaces into ultra-comfortable, high-tech homes.  Properties consisting of vast amounts of square footage no longer equate to their idea of the ultimate dream home.  Today’s affluent consumer now has a desire for multiple homes to fit their lifestyle needs with an emphasis on high-tech features and amenities.  Having sold several million dollar plus properties in our market, I know from personal experience that many buyers find homes of 6,000 and 7,000 square feet plus, are simply too large. 

  Whether the concern is about the size of their carbon footprint or that a smaller property is easier to maintain especially if they own several homes, less square footage combined with high tech features is the order of the day.  Further findings in the survey also found that 75% of luxury home buyers believe home ownership is a more sound investment than the stock market while 57% percent of employed luxury homeowners believe that luxury home ownership is more indicative of their success than either their job or title.

  The mechanics of buying and selling of luxury real estate does not differ to any significant degree than buying a home, condo or cottage at the mid or lower price range of any given market.  Today’s consumer and relying heavily on the Internet to locate a property and more importantly a REALTOR® they can trust and work with.  However, information gathered as part of the Better Homes and Gardens survey reflected that 96% of luxury home buyers are depending on their REALTOR® more than ever before to provide relevant information such as market trends and neighbourhood data that will help guide them through the purchasing process.  This is ultimately why I am writing this blog on luxury home owenrship.