Five Surprising Facts About Luxury Homes

by Steve CookJune 29, 2018

Do you like to surf Homes.com to check out the most expensive homes to see how the “two percent” lives? Do you daydream about owning a luxury home yourself one day? Or have you earned enough to afford the very best and you want to see what’s available?

Luxury homes are different in more ways than just price. The luxury market is a distinctly different marketplace from the rest of residential real estate. Here are five notable facts concerning buying and selling luxury real estate that might surprise you.

luxury real estate

1. There are Several Different Definitions of a “Luxury” Home

For many years, the Institute for Luxury Home Marketing set a $1 million value as the dividing line between luxury properties and less expensive homes. As property values have risen, so has the dividing line. The institute now updates its “luxury home threshold” annually to adjust to any changes.

Luxury real estate professionals also realized that, since property values vary from market to market, the definition of “luxury” should reflect local market values. A million-dollar home would certainly qualify in Chicago, but not in Beverly Hills. Today, the most widely accepted definition of luxury real estate is the “top 5 percent of the local market.” Some agents also recognize an “ultra luxury” market which includes only the top 1 percent of the market.

Still, defining “luxury” differently in every market causes problems for calculating luxury data at the national and international levels. Christie’s Real Estate, which operates around the globe, sets the bar for luxury properties at $2 million. Other national and international organizations do the same. If you are searching for a specific market, it’s a good idea to find out how “luxury” is defined.

2. Luxury Homes Take Three Times Longer Than Average to Sell

Luxury properties spent an average of 116 days on the market in 2017, compared to three weeks for the median home sold in America last year. The primary reason for the difference is that luxury buyers and sellers have different priorities. “Luxury-home sellers have the psychology that they can afford to wait and see,” Tomer Fridman, an agent at Compass Real Estate, told the LA Times. “I try to explain: Every day that goes by, you don’t gain leverage — you lose it.”

Luxury Kitchen

3. Luxury Sellers are More Likely Than Average Sellers to Cut Their List Prices

Another reason that luxury sales take longer to sell is that their owners often purposely list their homes above market value and are willing to wait months for sale. After months have passed, they may lower the price. More luxury sellers than average sellers end up accepting a price lower than their list price. The list-price-to-sale-price ratio for all sellers last year was 99 percent while the list-price-to-sale-price ratio for luxury sellers was 97 percent. Two percentage points may not seem like much, but in May 2018, the average difference between median list and sale prices for luxury homes amounted $245,000 (97.62 percent LP/SP).

4. The Inventory Shortage That is Affecting Most Markets Today Does Not Exist at the Luxury Level

The causes for the current inventory shortage — strong demand from millennials, the conversion of millions of affordable homes into rentals and lack of new construction — do do not exist at the luxury level. Luxury homes are more profitable for builders, so many markets are flush with higher-end developments. Full inventories in most luxury markets result in market dynamics that are different than lower-priced homes. In May 2018, total existing home inventories were 6.1 percent lower than the previous year. The Institute for Luxury Home Marketing reported that 25 of the top 52 North American luxury markets were buyers’ markets, and only 16 were sellers’ markets. Despite the difference in supplies, year-over-year prices for both luxury homes and all existing homes appreciated at the same rate, 4.3 percent.

5. Luxury Listings Can be Difficult to Find

Many luxury sellers, especially celebrities and wealthy owners with children, don’t want interior photos, addresses and other information about their homes available to the public. They are concerned about compromising their security and privacy. Instead of listing their homes on the MLS, they use brokers who specialize in “pocket,” or off-market listings. These brokers may show exterior photos, prices, and general locations of their pocket listings on their websites, but they will not include interior shorts or addresses. Instead of marketing prospective buyers, these brokers may hold open houses and invite a select list of agents who specialize in wealthy customers.

These five facts are just the beginning of the differences between luxury and lower-priced real estate. If you are in the market now, make one of your first steps to hire a real estate agent who specializes in luxury properties where you want to live. If you’re not quite there yet, but you want to be ready for winning the lottery, Homes.com has many homes to see.

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About The Author
Steve Cook
Steve Cook is editor and co-publisher of Real Estate Economy Watch. He is a member of the board of the National Association of Real Estate Editors and writes for several leading Web sites, including Inman News. From 1999 to 2007 he was vice president for public affairs at the National Association of Realtors.