Cover photo ©istockphoto.com / Evgeny Zhigalov
Of all the changes brought on by the pandemic, what is here to stay?
From a drone’s eye perspective of 50 years, real estate might resemble a Mobius strip, a never-ending roller coaster of ups and downs with each boom-and-bust cycle sparking small changes and adaptations. But none have had an impact comparable to the pandemic, which ushered in an avalanche of innovation, new ways of doing business and a profound shift in consumer values. Some effects are a temporary response, while many reflect a significant transformation.
“The way that real estate as an industry operates has changed, and I believe it is a microcosm that can be applied to 90 percent of the economy out there. No one is going back, and that means the way we live, work and play changes forever,” observes Marci Rossell, former CNBC chief economist and chief economist for Leading RE. “COVID drop-kicked us into 2030.”
Ask agents if any prior cycle compares to the experience of the last year and a half, and they will tell you the pandemic boom is unparalleled. “I don’t think any Realtor in the country has had the experience we’ve had this last year! Yes, there have been good upticks in certain years in certain places, but never anything like this!” shares Trinkie Watson with Chase International in Lake Tahoe.
“We’ve certainly seen periods where you had to pivot skill sets and be really aware of the market and things that would impact clients, but we’ve never seen anything like the last year and a half, (and) that’s been compounded by a lack of availability,” shares Tami Simms, with Coastal Properties Group in St. Petersburg, Florida, who is also trainer for the Institute for Luxury Home Marketing.
“I think that last year was the most significant year of change from a tech perspective,” says David Marine, chief marketing officer at Coldwell Banker Real Estate. The pandemic market accomplished what major brands had been working on for years. “In 90 days,” he says, “every single real estate agent figured out a way to move the transition online. Now it’s commonplace. It’s no longer an issue.”
“Agents basically skyrocketed 10 years into the future, and they did it in a two-month period,” says Rossell. Rather than an abrupt switch, industry experts see real estate’s seemingly overnight embrace of new technology as acceptance of tools already available. Think of it as “escalating trends that were already underway that would have happened, but they are going to happen almost a decade faster than anyone expected,” explains Rossell.
Will it be a virtual world?
Prior to what Simms dubs “the Zoom age,” she says, there wasn’t a widespread understanding or trust or proficiency with virtual apps. “Now,” she says, “we know how to use it. We’re reasonably proficient at it, and there’s a level of trust. So, we’re able to embrace this technology. You know I don’t ever want to go back to having to communicate with out-of-state buyers purely by telephone.”
Virtual Sales are touted as the main advancement sparked by the pandemic, but an even greater benefit has been an industry-wide recognition and adaptation of virtual apps to enhance and expedite the process from initial views of a property to consumer education. “FaceTime is an effective tool, but really more to give a prospect a better idea of the home, not to induce an offer … though it could,” says Watson.
Looking ahead, agents don’t expect virtual sales to disappear, but they will continue to be a rarity. “I don’t think we’ll see many escrows where the buyer hasn’t physically seen the property. Yes, Zoom and similar will continue to be a part of our lives. Also, more defined photography for our listings … the importance of a comprehensive ‘walk through’ so prospects can get a good feeling for how the house flows,” says Watson.
Detailed virtual walk-throughs became more important than ever, with platforms such as Matterport leading the way.
©istockphoto.com / fizkes
“In-person viewings have been very limited. No one wants to go to open houses. No one is walking about a house just for fun. People are looking online. They are viewing the pictures of a listing maybe 10 times before they see a house. So, a showing is more like a fourth showing, and agents need in-depth knowledge of a property,” says Joanne Nemerovski, with Compass in Chicago.
©istockphoto.com / joakimbkk
Dreaming of Home
The ability to work remotely is often cited as the main driver for the surge in sales, but even more fundamental are new consumer values regarding home and lifestyle. Citing millennials, who now comprise a substantial portion of buyers, Nemerovski says many were starting careers and literally were never home, so home basically was a shoebox they visited. “I think that sentiment has changed. Home is where the heart is. It has become the center of people’s lives. People are also more respectful of their homes.”
Everybody wants their dream home,” says Frank Aazami with Russ Lyon Sotheby’s International Realty in Scottsdale, Arizona, “because they just cashed out of another home that maybe they inherited or maybe were there for 20, 30 or 40 years.”
Buyers’ expectations of quality are high and will continue to be so. “People understand the level of finishes better than ever before. We’ve gotten so much better with respecting architects, good architects’ work, good designers’ work,” he says.
“All of a sudden, consumers are finding that now it’s not all about a commute. It’s about ‘does the place that I live offer me the things that I want to do when I have a little extra time, both inside and outside.’ Outside spaces have always been a luxury item, but more so now than ever,” says Simms. Topping wish lists are beautiful recreational facilities, inside and out. Also becoming more desirable is access to nearby outdoor venues such as parks and trails. Before COVID-19, outdoor living was a growing trend; now a connection with nature has become almost an essential for homes, particularly new construction.
Skills Put to the Test
With properties selling days or hours after going on the market and multiple platforms broadcasting new listings, it would seem agents’ skills are not essential. However, the pandemic market has proved the opposite. “It’s been a really intense time for real estate professionals in terms of making sure that their communication skills are absolutely the most important thing that they have, setting expectations, both on the seller side and the buyer side,” says Simms.
“There’s more attention to vetting prospective buyers, making sure they are qualified to buy before showing them property,” adds Watson.
Price is only part of an offer’s appeal to sellers, and crafting a winning offer has been an important skill for agents and buyers in the current market. Even when multiple offers become less of the norm, this aspect of buying will continue to be important.
An intense market tempts buyers to forgo contingencies. “It has been definitely challenging to counsel people on strategies to be successful in acquiring properties, but also in making sure that they truly understand the ramifications of releasing contingencies and know the risks they are taking on,” shares Simms.
“A downside of the intensity has been buyer’s remorse, cancellations before closing, some attempted lawsuits … a result of no inspections, jumping too fast without thorough exploration, et cetera. This would be a small percentage of the purchasers, but certainly a reflection of ‘herd mentality’ going the wrong way!” says Watson, referring to the pressure buyers felt to make a decision.
With days on market hovering just over 14 in July, prices rising in 99 percent of all metro areas, and double-digit price increases in 94 percent of metros (according to NAR), the current pace might seem no less fevered. Still, indications of a transition are beginning to filter out from a number of locations. Days on market are increasing ever so slightly, and overblown prices are being reduced. Or, as Katie Treem at Keller Williams Realty in Portland, Maine, explains, it might be that a property receives 20 offers instead of 40. “We’re still seeing people moving from New York, Boston, Connecticut and D.C.,” she says.
Also, agents like Treem are just beginning to see a few who bought in 2020 reselling. Sometimes they improved the property, but in others, decided the lifestyle was not what they desire or the commute, even for occasional days in the office, was too difficult.
In Tahoe, Watson says, “I believe the intensity has certainly calmed down, and I suspect very few listing agents will accept an offer from a buyer who hasn’t physically viewed the property. That goes for waived inspections … I’d be surprised if many are doing that any longer.”
No Bubbles Here
Bubble talk has become almost a perennial for real estate, but experts such as Rossell do not subscribe to this characterization of the market. Rossell says, “It’s not a bubble. It’s simply real demand bumping up against severe supply constraints. But this doesn’t mean house prices continue to go up. But what it does mean is you’re very unlikely to see the bottom fall out of the market, the way that you did in 2007, 2008.
“September 11 forever changed the way that we thought about terrorism. And I think in the same way, the first round of COVID in March of 2020 forever changed the way that we thought about public health, and pandemics. I think we’re all going to be living with the reality that at any given time something like this could happen, just like terrorism.”
Days on market are increasing, and overblown prices are being reduced. It might be a property receives 20 offers instead of 40, says Katie Treem at Keller Williams Realty in Portland, Maine.
©istockphoto.com / sara_winter
Appearing in UH Summer 2018, “Ten Years Later: Our year-long look at what’s changed in U.S. luxury real estate since the 2008 recession.”
Consumer sentiments toward owning and buying real estate continue to evolve, along with the definition of luxury.
By Camilla McLaughlin
Ten years ago, there were few signposts for the journey out of the recession. Real estate’s perfect storm got a lot worse in the summer and fall of 2008 as a combination of job losses, high energy costs, an ongoing tide of foreclosures, a pending presidential election and the near collapse of the credit markets rocked the economy. Many, but not all, upscale consumers put real estate plans on hold and shifted into a watch-and-wait mode. “Consumers’ confidence gets shaken, and the rich are not immune,” observes John Brian Losh, publisher of Luxuryrealestate.com and owner of Seattle brokerage Ewing & Clark.
Following that low point, luxury real estate embarked on a remarkable journey of recovery with luxury properties selling and prices escalating in many locations, boosted in part by the exponential growth of wealth worldwide. Just in the last year, the combined net worth of the world’s billionaires increased by 18 percent. Residential real estate remains a favored investment with prime property sales worldwide up by 11 percent in 2017.
Attitudes toward buying, selling and luxury overall have followed an equally transformative path. “The lesson from the recession is to buy smart. Impulse buying, overextending to get the home of your dreams, and buying without doing your homework have all gone the way of the fax machine,” says Jason Haber, a broker at Warburg Realty in Manhattan.
Value is most important. Greenwich saw two record sales in 2017, but only after list prices were reduced. In their luxury white paper, Christie’s International Real Estate reported strong sales “where buyers and sellers showed a willingness to adjust pricing expectation to new market realities.”
“Price was the name of the game,” said Michael Saunders of Michael Saunders & Company, noting that luxury homes in Sarasota sold in record numbers after homeowners adjusted prices.
Affluent individuals also have a new perspective on the investment potential of properties, locations for both primary and second homes, expectations regarding the agent’s role in the transaction and what constitutes luxury.
What Is Luxury?
Few other terms have been hyped more than the word “luxury” in recent years. Most industry experts would agree with Mike Leipart, managing partner of The Agency Development Group in Beverly Hills, who says, “It’s used so often that it’s become virtually meaningless.”
Even wealthy consumers struggle to find a suitable alternative phrase, yet they have a clear understanding of what luxury means today. “I think people can’t describe it, but when you walk into it, when you are standing in it, you respond to it,” says Craig Hogan, vice president of luxury, Coldwell Banker Real Estate. “People can tell quality; they can tell beautiful design. Service is critical.”
“Ten years ago, the luxury industry was able to dictate to consumers what luxury was and almost define it for them. We are not able to do that today,” explains Kevin Thompson, CMO of Sotheby’s International Realty Affiliates LLC. “Luxury is being viewed from an experiential perspective. People are choosing to live different ways and somehow have what they value. It is a very individual approach.”
“The meaning of luxury has changed a lot. I think luxury has become personal. It’s become a feeling. It’s become an emotional part of a real estate experience,” says Christina Huffstickler, owner of Engel & Völkers in Atlanta.
“You can’t pin it to price level or finish levels. It’s very complex. It’s very much what people are willing to pay extra for,” says Leipart using the example of how a desirable view — prized by today’s buyers — amps up a per square foot price. “I think the basic thing of luxury is that it is everything that has not been commodity priced,” he explains.
Value & Inventories
“By and large, people value home ownership,” shares Hogan. “I just keep watching this trend toward smaller and more wonderful. Just beautiful in every way. Great finishes, smart home technology, all the things you’d expect except beyond those expectations.”
“I think that people, wealthy people, have always found real estate to be an attractive investment. It’s an asset that usually appreciates that they can enjoy,” says Losh.
Coming out of recession, the Bay Area led the recovery, and the region continues to rack up amazing stats with May’s median sold price exceeding $3 million in both San Francisco and Silicon Valley, according to The Institute for Luxury Home Marketing. Inventories remain barebones with homes selling in weeks. In fact, the median time it takes for both attached and single-family homes to sell in Silicon Valley is about nine days. Here, as in many other upscale locations, the biggest issue is too few listings to satisfy demand.
“Even with interest rates rising because of the moves the Feds have been making the last 18 months, there is no slowdown in the appetite for wealthy consumers purchasing homes,” says Jim Walberg with Pacific Union, noting, he has never seen more all cash purchases in 35 years. “Buyers and sellers still view Bay Area real estate as a great place to put their resources. And, remember, these are wealthy people, so it’s not as if they are not diversified in many other investment categories.“ Many of these purchasers are looking at long-term ownership. The homes have a dual purpose: a fun community and place to raise their kids, and a home they plan to live in after their children are grown.
“The primary residence purchase remains largely emotionally driven based on finding the right property to suit the purchaser’s desire for location, space, finishes, et cetera,” rather than a cold calculation of investment dollars,” says Leslie Hirsch, an advisor with Engel & Völkers in New York City.
Second Homes & Investments
Second homes and resort properties are in demand. More than half of the world’s high- and ultra-high-net-worth individuals own two or more residences, and many sought out at least one luxury property acquisition in 2017 and 2018, say experts at Christie’s International Real Estate in their annual industry report.
Among the U.S. population with a net worth of $500 million and up, 2,700 own on average 10 or more homes each, shares Hogan.
“An interesting trend we have noticed is that more wealthy clientele are electing to purchase properties as investment pieces instead of purchasing a third or fourth home to use as a personal residence. Or in some cases they are using a single property as both a vacation home and income property,” shares Anthony Hitt, CEO of Engel & Völkers Americas.
“Second, third and fourth homes are now being scrutinized more carefully to make sure there is an upside in the investment should the purchase decide to sell in the future,” says Hirsch. Investors are diversifying portfolios, she says, “choosing to buy property in several countries as a hedge against a drastic change in one country’s economy.”
Affluent consumers continue to be bullish on real estate, an attitude enhanced by recent volatility in equity markets. Losh believes security and safety are more important to consumers. “People are also looking for a safe harbor. They want to feel safe, and they want their investment to be secure,” he says.
What Buyers Want
Ten years ago, the luxury echeleon was defined as homes priced in the top 10 percent of any market, and that benchmark still stands. But for consumers, dollar signs do not necessarily determine luxury. “Money sometimes doesn’t even become part of the search parameters. They just want to find the right property,” and these buyers today are willing to take their time, says Katie Hauser, a broker associate with Baird & Warner in Winnetka, Illinois.
Like many agents today, Hauser sees several different buyer profiles in the market. Some, particularly empty nesters, “want to ditch their suburban house for something unique. They want value, but they want to find the right place,” she says.
“There is a search for the unique. The emerging luxury consumer isn’t interested in cookie-cutter anything. They want personal and outside the norm and are willing to pay more for that,” adds Thompson.
On the other hand, other upscale buyers want a platinum location and are extremely discerning regarding every facet of the property.
“Luxury buyers in Omaha want what they want, and if they cannot find it they build,” says Judy Smith with RE/MAX Real Estate Group in Omaha. High on wish lists are rooms large enough for grand pianos, buffets and sideboards. “They still love walk-out basements for entertaining and as a separate living area for family members extended visits. The view from the deck is always important.”
Millennials are beginning to make their play in real estate. Because they delayed buying a home, many of their first purchases fall into the luxury niche, giving new meaning to “starter home.”
According to research from Luxury Portfolio International, most buyers seeking $1 million-plus homes are 25 to 49 years old and have inherited or plan to inherit significant wealth. This consumer has begun powering the $1 million-plus real estate market, more so than their older counterparts.
Millennials overall, says Lindsay Bacigalupo, an Engel & Völkers licensed partner in Minneapolis, “waited to buy and are now in their late 20s and early 30s. They are buying starter homes that are $400,000 to $1 million.
Millennials expected to be as transformative for real estate as the baby boomer cohort was. “Millennials are the next generation who are redefining luxury. Their attitudes toward homes are shaping what is publically seen as ‘good real estate,’ influencing what others look for in a home,” says John Dean, license partner with Engel & Völkers Vancouver. “Millennials are rejigging real estate wish lists, which differ from past generations. They place a big focus on the shared economies. They prioritize modern design. They see real estate differently than predecessors as big traditional homes are too expensive for them to afford, at least right now.”
“Bigger is a little yesterday,” says Hogan, who characterizes current preferences among all consumers as “smaller and finer.”
The drive for a safe harbor along with quality of life, changing demographics, government tax policies and technology are all reshaping the geography of luxury. Denver, Nashville and Atlanta are new luxury players. Victoria, British Columbia topped Christie’s annual report as the primary luxury market. Santa Fe was the hottest second home market; Sun Valley and the Bahamas were in the top five.
More consumers are also opting to make places such as Charleston, South Carolina; Austin or Orlando home. A number are also trading their primary home for a resort home in locations such as Jackson Hole or Bluffton, South Carolina, and many are doing so with kids in tow.
“The definition of luxury means something different to millennials than previous generations. As we know, they value the experience of material wealth. They may choose to settle in traditionally second-home markets to be close to the beach or mountains. They are not as tied to a specific geographic area as many have the option to work remotely,” explains Hitt.
Technology & the Agent’s Role
Probably nothing has changed more, as well as stayed the same, as the way homes are sold and how real estate agents work with buyers and sellers. “Technology has played a huge role in changing everything we do now as agents,” says Dean.
Buyers are more knowledgable; the mechanics of the transaction are more streamlined. Artificial intelligence and virtual reality are starting to kick off the next tech evolution.
The agent’s role continues to shift from provider of information to trusted advisor. “Today’s buyer comes armed with data, comps, neighborhood analysis, and newspaper articles. In some cases they know more about pricing than the listing agent,” says Haber.
What agents need to understand, Leipart says, is, “you don’t sell anything” to the wealthy. “If your approach is to get them to buy, you are going to strike out every time. The best you can hope for is to be a trusted advisor, and you can’t have that role if you are trying to sell.”