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Building a luxury business in a shifting market

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Jumping over hurdles to get to the closing table is nothing new for real estate professionals selling luxury properties; it’s practically in the job description.

They don’t let obstacles undermine their determination to complete a transaction, whether it’s the federal tax overhaul, which has turned luxury buyers into bargain shoppers looking for reduced prices to make up for higher taxes; or Chicago’s constant bids to increase the real estate transfer tax, which Realtor associations have managed to shut down for now; or buyers’ uncertainty about whether or not the market has bottomed out; or younger buyers’ preference for smaller spaces and the sharing economy.

Although market conditions and the political climate are making it tougher to move luxury properties quickly, these sales are still happening. The agents and brokers we spoke with for this article have all recently sold properties priced at at least $1 million in a matter of days. And they do it by knowing what today’s buyers want and presenting it to them in the right way.

Understanding — and explaining — the changing market

It’s important to set clients up for success by establishing expectations up front, according to Tommy Choi, president of the Chicago Association of Realtors and co-founder of Weinberg Choi Realty Keller Williams Chicago Lincoln Park. He gives buyers and sellers an “under the hood look at the market,” letting sellers know they need to be patient as luxury properties can take from nine months to a year to sell and explaining how similar properties are faring in the current market. For buyers, Choi said he takes time to explain what the valuation picture looks like in particular neighborhoods now and how property taxes can increase in this climate.

“Chicago is a world-class city, filled with opportunities for everyone,” Choi said. “The luxury market in each neighborhood provides its own definition of value. It’s not just the inside walls of a home. On a micro-level, each neighborhood brings its own amenities and history.”

In the experience of Joanne Nemerovski, a broker-associate with Compass Chicago, Lincoln Park, the Gold Coast, DePaul and Streeterville are all regions of the city that have always sold better than others. “But now the West and South Loop, Bucktown and Wicker Park are all thriving,” she said.

Still, the luxury market is struggling. Choi said the non-luxury market in the city has been outperforming the luxury market for the past couple of years, in terms of closed transactions and median sales. He attributes the situation to the federal tax overhaul, an increase in local property taxes and sluggishness in the new-construction sector. Due to increased costs of land, labor and materials, new construction is priced at a premium and taking longer to sell. This has resulted in shadow inventory — resale homes that should be on the market but aren’t — because sellers are afraid their properties will suffer the same fate.

Part of making deals happen in shifting markets is understanding what buyers want. Knowing that an appropriately priced home with updated finishes sells quickly today, Kim Alden, broker and luxury specialist with Baird & Warner in Barrington, begins by asking sellers what’s more important to them: selling their home for the most money or selling it in the quickest amount of time? The goal, of course, is to do both but, sometimes they have to choose, she said.

Fulfilling wish lists

Overall, luxury buyers are not as interested in the size of a house as much as they are in finishes; they want a turn-key experience, said Joey Gault. The senior broker of The Wexler Gault Group at @properties in Highland Park noted that social media plays a role in buyers’ must-have lists as well. “They are so focused on everything they see online at Houzz or Pinterest. The good homes that are updated and fill buyers’ needs are selling.”

Gault’s team put two homes on the market in early March and both sold for top dollar — $1.15 million and $1.35 million — within the first couple of days. She credited the fact that each listing contained the most sought-after finishes for the quick sales. “It’s a formula: white kitchens, dark floors, quartz countertops and gray walls,” Gault said. “If you have it, your house sells.”

From the city to the suburbs, one commonality is that traditional buyers don’t want to handle home improvement projects. “It’s more of the investors who want to do renovations … but they are staying away from luxury properties, because the market time is greater and the investment is larger and riskier,” Alden said. She added that, in general, the luxury market has been slow but momentum seems to be accelerating into spring. “It was pretty non-existent last fall and picked up since the end of December and beginning of January, when interest rates went back down into the 4 percent range and people saw that as a buying opportunity.”

Marketing differently

In a two-week timeframe, Nemerovski sold three homes priced between $1.595 million and $2.595 million in the heart of Lincoln Park. “One sold within a day or two,” she said. “One had been on the market for a short time last year and we just reintroduced it and it sold in a day; and one I had on the market for quite a long time. We did a price reduction and that sold.”

The key to her success is targeted marketing. She considers whom the potential buyer of a property could be and aims postcards, flyers and social media ads at them. “For example, there’s a large home we’re trying to sell now,” she said. “I’ll try to find clients in townhouses in the immediate neighborhood and hope those people are ready to make a move up.”
However, Nemerovski never tries to convince anyone to make a move. “I want to help my clients compare the options and give them a real education so they can decide what works best for them in the real estate world,” she said. “An educated client never has buyer’s or seller’s remorse.”

Lately, Alden has been hosting open houses, something she has never done before at the luxury level. “I actually got a couple under contract through a luxury open house,” she said. “Buyers right now are searching online for basically everything and they feel very comfortable walking into an open house, whereas they might not be as comfortable calling an agent and setting an official appointment.”

Making listings sparkle online

At every sales meeting, Gault and her business partner, Beth Wexler, are reminded by Thad Wong, co-founder of @properties, that the first showing is always online. Only after the buyer has seen and expressed interest in the online listing can the second, physical showing happen.

That’s why they only post pictures online that show the home in a positive light. This can require effort on the sellers’ part when there’s a need to make their home look more current, especially in the crucial bathroom and kitchen areas.

While it may seem that wealthy sellers would be more willing to spend money on getting a home ready for sale, that’s not necessarily the case. “We want our clients to spend the least amount of money to get the best price,” Wexler said, noting inexpensive updates such as spray-painting cabinets white, painting walls gray and virtual staging can make a difference.
Originally a technique for unoccupied listings, virtual staging has become a way to empty out rooms of outdated furnishings and photoshop in on-point pieces to create a look that drives buyers to showings. “If we can get people in the door, we can sell,” Wexler said. “It’s not deceiving because it’s not the bones of the house, it’s just pictures.”

Creative deals and emphasizing value

The market is shifting and everyone is looking for a deal, according to Alden. “In my past recent sales, all of the purchase prices were well below the construction price or the last sold price. Buyers are trying to make up for the tax ratio by going in lower with price and attempting to get their taxes reassessed at the new purchase price,” she said.
Oddly enough, on more than one occasion, Alden has had potential buyers refuse to make an offer unless she could lower their property taxes; something she does not have the authority to do. “When you’re looking at a $2.5 million house and taxes are $60,000, it’s a lot to swallow,” she said. “In some cases, we have done reverse offers, offering a year of tax credits to help entice buyers to make that offer.”

Part of making luxury deals pencil out is determining whether or not financing will be necessary or beneficial. Recently, Alden had three luxury sales in Barrington Hills within five weeks, and also sold a luxury property in Highland Park that had been on the market for a long time. But the prices were all lower than the sellers wanted, and two of the three buyers paid in cash.

Looking back on all of her luxury transactions, Alden said about 80 percent were cash deals. “Maybe they think it’s a better investment to not be paying interest on it,” she said, noting the interest on a jumbo loan product, 15 to 30 years down the road, could cost more than the home itself.

In contrast, on the North Shore and in the city, Gault, Wexler and Nemerovski all said many clients are taking mortgages, even when they don’t need to, for the tax write-off. But as consumers settle in to the new realities of the tax reform bill passed in 2017, that may be less enticing than it has been in the past.

A barrier Nemerovski has come across is clients wanting to wait before taking the leap, because they are uncertain whether the market has bottomed out or not. “The only way to gauge it is based on experience,” Nemerovski said. If they really want the house and they’re making a long-term purchase, she tells them, “You can always resell or rent the home. You have to do what makes your family happy.”

In spite of all the obstacles, Nemerovski still believes people will always want to live in their own home and enjoy their creature comforts. “It will still be the American Dream,” she said.


by Melanie Kalmar