All month long in July, we’ll survey the changing luxury real estate market, talk to top producers and offer advice on how to level up — all leading to the gathering of the year, Inman Luxury Connect, Aug. 2-3 at the Aria in Las Vegas. Make plans now to join us there.
Although many agents sell estates, very few do business with clients who are Fortune 100 company executives, top celebrities or self-made billionaires. The skillsets required to succeed in this market far exceed what is required in a typical real estate transaction.
If you represent the top 10 percent of the most expensive properties in your market area, you’re considered to be a “luxury” agent. That’s not the case, however, when it comes to the rarified world of ultra-luxury properties.
According to Rocket Mortgage at the end of 2021, the median price per square foot in the U.S. was $144 per square foot. In contrast, median price per square foot in Manhattan was $1,400, almost 10 times higher.
On an 8,000-square-foot property, that’s a median price of $1,152,000 versus $11.2 million. Also, note that 50 percent of the properties are priced at or above the median.
Hard facts about what the ultra-luxury market requires
If you’re interested in what it takes to represent real estate’s wealthiest clientele and properties, here’s an overview of this niche and of the key skill sets required.
Two fundamentally different types of ultra-luxury clients
“Millionaires Next Door” don’t display their wealth. They live in relatively modest houses, drive their luxury vehicle for 10 to 15 years, and are primarily focused on their families and giving back to their communities. Warren Buffett is the best example of this type.
In contrast, “Richistanis” have a hedge fund mentality and are always in competition for who has the biggest and the best. They are also opportunistic when it comes to what and when they purchase. “Conspicuous consumption” best describes their mindset. Donald Trump is the best example of this type.
Local inventory knowledge is not enough
An ultra-luxury agent whose client wants to purchase their fourth multimillion-dollar home at a major ski resort must be able to articulate the differences between purchasing in Aspen versus Breckenridge, Deer Valley, Lake Tahoe, Park City, Sun Valley or Vail.
They may even need to know how these destinations compare to ski resorts in the Alps, Canada or elsewhere in the world.
Furthermore, they must be prepared to answer the following types of questions regarding these various locations:
- What advantages does each location offer as compared to purchasing in a different area?
- What types of amenities are available at what price points?
- How do the lifestyles differ?
- Will the house be fully furnished and in turnkey condition so that I can move in right away when we close?
- Can I purchase with crypto, or do I have to liquidate it first?
- If I must liquidate my crypto first, do you have an escrow/title company/attorney who can handle that transaction for me?
- What facilities does the local airport provide for private jets?
- How crowded is the mountain during ski season, and how busy are the golf courses during the summer?
- How accessible is the property when there are heavy rains or snows?
- Where can I get my dogs groomed?
- Who can I hire to maintain my property when I’m not in town?
These issues go far beyond just knowing the comparable sales in a single area.
Ultra-luxury clients are often paranoid and for good reason
According to Robert Frank, “Billionaires are all germaphobes.” Frank McKinney, the world’s most luxurious custom builder, also described his ultra-wealthy clients as being, “paranoid about germs.”
Ultra-luxury clients are paranoid about quite a few other things, and justifiably so. When a billionaire or celebrity buys or sells a home, they have legitimate concerns about kidnapping, theft and mentally disturbed stalkers.
As a result, many of these homes never appear on the MLS. Instead, they are marketed through a private network of high-net-worth individuals or their money managers.
The quickest way to kill your ultra-luxury business
Violating confidentiality is the kiss of death in the ultra-luxury market. When it comes to personal information about their clients, their lifestyle and any details, including the price paid, these agents never violate confidentiality.
This is especially true when it comes to questions from family members. If the person inquiring doesn’t know, the ultra-luxury agent will advise that person to ask the family member making the purchase or talk to the attorney or business manager handling the deal.
Never make another ‘referral’ again
Donna Lee Laue who created the first global website for million-dollar-plus homes in the early 2000s, shared the philosophy behind her site:
I never make “referrals” — I make introductions. I like to think of our company as the Match.com for the top 5 percent of the wealth of the world. When I introduce an agent to one of our buyers or sellers, we have a relationship. I know the intent, financial capacity, and the needs of the clients. I want to introduce the wealth of the world to their new best friend.
“Being referred to another agent” is an entirely different experience from being introduced to the ultra-luxury agent who will be “your new best friend.”
The dragon in the deal
Most ultra-luxury clients have a business manager, tax lawyer or another financial adviser who handles their investments. The client decides what they want, but their attorney, CPA or business manager will handle the negotiating and closing the transaction. In some cases, this person may even have power of attorney to close the deal.
The “dragons” are usually very tough negotiators who demand a detailed price-per-square-foot analysis, information on whether values are increasing or decreasing, as well as any other detailed documentation relevant to the purchase. The more data the agent can provide, the easier it will be for the agent to close the deal.
It pays to be seen in the right places
When it comes to marketing to the ultra-wealthy, the type of advertising you will use is based upon whether you are prospecting for “Richistanis” or for “Millionaires Next Door.” Both groups are commonly involved with charitable fundraising.
For example, an excellent way to market an ultra-high-end listing to the Richistani market is by holding a charitable fundraiser coupled with an art show, car show, fashion show or private concert.
In contrast, “Millionaires Next Door” are likely to be active at their place of worship, at local schools or volunteering in the community. They typically do their work with little or no fanfare.
Some other unusual places to market to the ultra-wealthy include advertising in magazines that are available in private plane terminals plus publications devoted to cruising, yacht ownership, exotic destinations and magazines like WSJ’s Mansion.
The 4 pillars of luxury
According to Clotaire Rapaille, the four primary pillars for all types of luxe brands and products include:
- Consistent, superior quality.
- Exclusivity, uniqueness.
- Admired and respected.
- Worthy of significant price and premium.
What the $20M-plus market is looking for
Frank McKinney, who specializes in building homes priced at $20 million or more, notes that his clients are looking for many of the same features that Rapaille discusses.
- Unique: They don’t want to see their marble countertops, fixtures or other unique features in any other house.
- The house must ‘tell a story:’ Because McKinney’s properties are new construction, the story may include information about local historical events near the property, where the woods were sourced (such as a 300-year-old church in England) or unusual features such as a shark aquarium or James Bond room.
- Green, sustainable features: This includes energy-saving appliances, renewable woods, water reclamation and cooling, and other features that minimize consumption and support sustainability.
The investment conversation
The “Richistanis” have a hedge fund mindset. Agents who represent these clients must tread extremely carefully whenever they are asked any of the following questions:
- What kind of appreciation can I anticipate? Any discussion of future appreciation or depreciation is ill-advised, especially in today’s environment where prices may have already started to decline in value.
- How does this investment compare to a comparable property in a different city? When clients want information from multiple areas, the various automated valuation models (AVMs), such as CoreLogic, Realtor.com and Redfin are available online and can be used to show how a specific property has changed in value in the past.
- How easily will I be able to liquidate this property if I want to live elsewhere? Again, this question must be approached very carefully. Although the agent can certainly share the current average market time for properties in various price ranges, these numbers vary as market conditions shift. They also vary based on numerous other factors including improvements made to the property, overall economic conditions, as well as how realistic the seller is about the listing price at the time of sale.
The ultra-luxury real estate game is infinitely more complex than doing a typical transaction. Couple this with client expectations that include professional videos, drone photography and the highly targeted, lavish marketing events required to get these properties sold, and it’s easy to see why representing the ultra-wealthy is not for the weak of heart or for the “weak of pocketbook.”