October 16th, 2013 4:30 PM by Eileen Denhard
High-end sellers have luxuries middle-income and entry level folks don’t. They can afford to hold, stay put and wait for the market to bring their home’s value to a level that works for them, in market climates where others might be forced to short sale or walk away. And high-end sellers can and sometimes choose to rent a home out rather than take a loss on it.
That said, sellers of high-end homes also demonstrate behavioral patterns that others don’t. For instance, they:
don’t like to throw money away on rent
they have scarce personal time and aren’t afraid to say so
they do know how to do the math, and
they have no interest whatsoever in guesstimating what they will net on their homes.
And some of their quirks are counterintuitive. To wit: many high-end sellers recognize that the mortgage interest deduction renders even rising rates a wash, financially speaking. So they might not be as fixated on rates as you might expect.
If one of your 2013 goals is to increase your listing price point, it behooves you to master the nuances of what’s going on inside the minds of high-end home sellers. Here are a few of the market signals this less-predictable-than-you-might think group of home sellers is looking to see before they make moves to list their homes, along with some insights into the underlying thinking.
1. Inventory low enough that they can nearly guarantee a minimum sales price for their home. High-end home sellers have various levels of understanding of real estate and finance, as compared with other sellers. But they tend to have greater-than-average mastery the fundamental dynamics that power every economic market: supply and demand. And what’s more, they really don’t like to lose money, or to take massive economic risks, unnecessarily.
This may fly in the face of popular “rich people” sterotypes, but for every blinged-out spendthrift there’s a wealthy home owner who aims to pattern their money moves after Warren Buffett. The “Oracle of Omaha” has a $60 billion net worth, but lives in a home currently assessed at $700,000.
In the home selling context, these three tendencies collide as follows: high-end sellers look to list their homes when there are few enough neighboring homes on the market that they can expect a fast sale (see number 3, below) at whatever price they need to meet their target net proceeds with reasonable certainty.
2. Inventory high enough that they can nearly guarantee they will find a suitable home without having to rent. High-end sellers are not folks who look favorably on the prospect of renting, nor do they like the idea of forgoing the tax advantages of ownership. Now, remember, this is about the signals they look for to list their homes. Some high-end would-be sellers will buy homes when the market bottoms out and inventory is abundant, but they tend to be hesitant to sell unless and until they’re pretty well-assured they can replace their home with something that is an upgrade from the status quo without too terribly much drama.
3. DOM < 30 days. High-end sellers don’t like people in and out of their homes – they see it as a waste of their personal time and energy, as well as an intrusion on the little downtime they do have and (some even say) a security risk. (This is why high-end sellers are much more likely than others to request buyers be pre-screened before allowed to view their homes, even with an agent.) Of course, no seller is delighted at the prospect of folks traipsing in and out of their homes. But many high-end sellers are very used to placing tight boundaries on their time and asking their professional service providers to cater to their needs in customized ways.
To boot, high-end sellers know this essential truth: that a home that lags is a target for lowball offers. So, one of the market signals that has the power to inspire them to list is when they see homes come on and off the market very quickly, e.g., less than 30 days from listing to contract.
4. LP:SP ratio > 90%. High-end sellers are highly frugal, contrary to popular belief. Stanley and Danko’s now-classic book The Millionaire Next Door: The Surprising Secrets of America’s Wealthy (Taylor Trade Publishing, 2d ed. 1998) shed lots of surprising light on the habits of the average well-off American, illuminating their tendencies to:
read trade journals instead of Worth Magazine
wear Seikos, vs. Rolexes, and
drink $13 bottles of wine, rather than collecting high-priced fine vintages.
The way most wealthy people get – and stay – wealthy is by being good stewards of their financial assets: including their homes. When you understand that high end sellers are extraordinarily frugal, and you understand that even the average home owner is highly averse to losing money on their home, you can see why high-end sellers seek signals that they can get nearly every dollar of their list price when they list their home for sale. Even more than a mid- or entry-level seller, high-end sellers dislike offering discounts, feeling like they have inferior bargaining power to the party on the other side of the closing table or cutting their list prices.
These factors, combined, cause many high-end sellers to curb their enthusiasm about selling until they start to see very high list price-to-sale price ratios.
5. Signals of incoming population growth or neighborhood changes. Many high-end sellers are seriously dialed in to local and national business trends and their macro-turned-micro implications. They read about where Google is going to construct its next big data center ((new employer coming to the area, etc.)
How can you send out these signals? You have to be a credible source of this information, and broadcast it via vehicles that reach these sellers right where they are. That can mean:
farming (yes – they do check their mail and read market updates)
co-marketing with local wealth managers and CPAs
placing Trulia Local and Mobile ads, and
ensuring your Trulia Profile is stocked with links to your blog posts delivering market updates specific to the tony neighborhoods you serve.