With 19.45% of existing home sales in North America now in the $500,000 range and above, the luxury real estate market has seen rapid, unprecedented growth over the last year. To add to that increase, ultra-low inventory is creating a booming seller’s market where competition is fierce.
So what does all of this mean for luxury real estate professionals and their clientele? And, how do new luxury real estate professionals break into selling in such a strong seller’s market?
To gain a deeper understanding of this phenomenon, the Institute spoke with instructor and real estate adviser Tami Simms to explore how the upturn in the luxury market came about, and how this shift affects the way luxury real estate professionals approach networking, advising, and real estate marketing strategy overall.
After an Uncertain Year, Why Is the Luxury Market So Hot?
First, it’s important to understand the luxury market regularly outperforms lower price points. At the upper tier, buyers and sellers are less impacted by financial obstacles and tend to have more mobility. Naturally, when the pandemic became part of the equation, wealthier clients gained even more mobility with remote work and retained their spending power.
According to Simms, “Those folks who are wealthier have been less impacted by job loss, furloughs, and reduced hours. I work in all price points, and when the pandemic happened, I lost buyers who were no longer qualified for mortgages because their hours had been cut.”
In contrast, she added that affluent clients who had the liquidity or ability to purchase a new home did so, whether it was a new primary residence or a secondary home to ride out the shutdown since they were no longer tied to a location-dependent job.
How Is Ultra-Low Inventory Influencing the Buying and Selling Process?
As one would expect, the significant drop in inventory is causing buyers to pounce on available properties, often with cash offers above listing price. While this may sound great for sellers and their listing agents, the quality of buyers is becoming less reliable — especially those from out of town.
Simms tells the Institute, “There’s a new dynamic that’s happening here… People are jumping on properties to get them under contract because there’s such competition, but they’re not necessarily sticking with them. So we’re starting to see seller pushback, which isn’t favorable for out of town buyers.”
In addition, she says, “Sellers are being burned by people from out of town who are making beautiful, all cash, very little contingency, over list price offers that sellers are taking — and then buyers fly down and decide they don’t really like the property, and walk away.”
Regardless, Simms predicts the seller’s market could keep going strong through the rest of the year. However, she believes there will be some nuances that shift as it relates to what kinds of offers sellers will take.
She estimates that in the coming months, the “best offer” won’t necessarily be the highest-price offer or the one that looks the nicest on paper from the beginning like it is in most seller’s markets. Instead, sellers and their listing agents will learn to lean more towards the offer with the highest likelihood of closing, while still netting a favorable profit for the seller.
What opportunities are there for new luxury real estate professionals in this seller’s market?
Given the rapid change of pace and strong seller’s market, Simms says new luxury real estate professionals are up against some significant challenges — as well as some big opportunities.
She says, “A new luxury real estate professional is going to have a hard time in one respect, and has a great opportunity in the other. On the one hand, anybody can stick a sign in a yard and get it sold. But it’s madness... So the hard thing is there are very few listings to sell, so all the things like farming, building your sphere of influence, and all those techniques we know that will help people build their portfolio and their business, those are all still going to be true but it’s not going to be about getting listings in the short-term, it’s going to be about getting that business when it’s right.”
To get that business, she adds, “Building relationships is going to be huge. Also following the data. Because everybody is reading the headlines saying that things are on fire and that people are getting twice the asking price... but being aware of when a neighborhood shifts or a particular price band shifts is what’s really going to help your seller.”
Overall, Simms predicts that new luxury real estate professionals who can adapt quickly and position themselves as capable of handling the market as it is now — rather than what it has been for decades — can thrive in this environment.
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