The luxury real estate market slowdown continues. Sales are dropping and listings are lingering ever longer in the luxury residential market.
From New York City to Los Angeles to Miami, the luxury home market has been in the grips of a prolonged slowdown, in part due to the recent pullback of foreign buyers – however, stock market uncertainties have also played their part.
The increasing amount of money developers are spending on amenities speaks to the demand of the market: ISG CEO Craig Studnicky reports that developers are offering an array of incentives (from luxury concierges to urban farming) to sell their remaining inventory and move onto new projects.
High-profile owners are losing money reselling their high-end real estate properties, as reported in the Wall Street Journal. Related CEO Jorge Pérez paid $4M for his 3,600-square-foot unit condo in Miami Beach in 2016 and eventually listed it for $20M. Now, the price is being slashed to $10.95M (a 45% discount off the original price). Developers across Miami are also lowering the deposit requirements in newer luxury buildings to fill units in an increasingly saturated market.
There are still buyers out there: even as luxury sales decreased, Amazon’s Jeff Bezos set a New York City record with his $80M triplex purchase at 212 Fifth Avenue. Other longstanding luxury enclaves haven’t been as fortunate as Manhattan – the Hamptons, for instance, have seen an increase in luxury real estate listings resulting in price cuts and lower seller profits in order to move inventory.
In Los Angeles, luxury home sellers are trying a different tactic: offering bigger commissions for agents in order to encourage a sale. Across the country, sellers are offering buyers incentives to choose their property, even going as far as to provide seller financing to close the deal.
In a softening market, the luxury auction® can be an invaluable tool. In many cases, the process of selling a luxury property becomes a Race to the Bottom. Rather than setting list prices competitively at the outset in order to achieve rapid, market-based sales, sellers and brokers will create lofty list prices to “test the market.” Unfortunately, this places them out of the market, and therefore rather than testing it, they end up behind it.
This leads to what is known as Chasing the Market Down, instead of forcing buyers to compete for a property by driving pricing in an upward direction. The result of this downward spiral is often an over-correction in pricing. What’s worse is that these scenarios usually play out over years, an issue which creates huge losses in capital spent servicing the property, not to mention lost opportunity costs and the time value of money.
The luxury auction® process immediately arrests this downward spiral, and forces buyers to compete for the property within an established set of rules and on a defined timeline. Sellers, therefore, stay in front of market uncertainties, avoiding valuation adjustments due to low comparable sales and other, negative market factors that may arise.
Check out The Real Deal’s excellent reporting on the turndown in the luxury residential market HERE.