According to agent Jorge Uribe, senior vice president of One Sotheby’s International Realty, in Miami, “In the days of the boom when everything was guaranteed to go up 20%, buyers were less choosy.” With home values guaranteed to increase, upscale buyers weren’t picky about location or features. “In 2005 and 2006, they were less discriminating about what they bought because they wanted to get into a neighborhood or building,” Uribe says. Now upscale buyers are analyzing every aspect of a property and making offers based on recent sales in the best areas, disqualifying sales in less desirable areas.
Roger Ewing says the wealthy recognize that now is a good time to buy. “The people who have cash are looking for the best value and are not afraid to invest, particularly if they plan to keep it long-term,” says the president and managing broker of Ewing and Associates, a Sotheby’s Real Estate franchise in Calabasas, Calif.
Ewing says his clients are nervous about over-investing in a property, so they’re researching property values, something that Ewing anticipates will continue “until they are comfortable they will not go down 25% and eat up the investment.” A strong California influence is that property taxes are 1.2% of a property’s sale price. “We went through a time when prices were so high that people didn’t want to move up because it would significantly affect their taxes,” Ewing says. “Now prices have dropped and property taxes are lower.”
Remodeler Brandon LeRoy, co-owner of Jackson & LeRoy Remodeling, in Salt Lake City, says that although return on investment in upscale projects is lower than on modest projects, there are some exceptions, specifically in desirable neighborhoods of Salt Lake City where house values have held steady. “Wealthy people are financially savvy,” he says. “They’re doing projects now because cost is down. They see it as the best place to put their money.” LeRoy fears the recovery more than the recession, predicting that with recovery inflation, the wealthy may stop spending.
Value, Value, Value
Wealthy buyers require a lot more hand-holding and are analyzing all the features of a house before buying. “It’s normal to see a fifth or sixth showing of a property when before it was one or two,” Uribe says. If a buyer expresses reservations about architectural merit, Uribe will bring an architect to the next meeting to help analyze the home’s potential.
Realtors are asking remodeler Derek Reijnen of The Reijnen Co., in Bainbridge Island, Wash., to inspect homes for short sale and foreclosed property buyers. He says those buyers “get such a great deal, they will spend money fine-tuning the house to their needs.”
Foreclosure home buyers are not the only ones remodeling. When the recession hit, “It created a sense of prudence, even among those who have never had to worry about money,” Reijnen says. “But when you have plenty of money, you grow impatient to have what you want. In the last year we’ve seen well-heeled clients making decisions similar to the ones they were making before the recession.”
These clients expect more value from remodelers. “I’ve done a bunch of things to lower our internal costs,” Reijnen says. “I express that to my prospective clients. If they have some sense of satisfaction that I am offering a good deal, they will spend money like they used to.” He also expanded his handyman work beyond his existing clients, offering maintenance services through Realtors to help buyers and sellers prepare properties.
LeRoy spends more time negotiating prices with vendors, suppliers, and subcontractors. His high-end clients are not scaling back projects, but they are more involved in shopping and planning. His challenge is to refocus their attention on service, not price. “Otherwise we are not competitive because a lot of people out there can do it for less,” LeRoy says.
For his vacation home projects, John Gradle, president of Milestone Construction, in Syracuse, Ind., is being more aggressive and creative with pricing, allowing owners to pay directly for cabinetry, flooring, and other major trades, which saves his markup. “It gets them to a comfort level,” he says, “and they feel, ‘This guy is really trying to work with us.’”
—Nina Patel, senior editor, REMODELING.