Greg: Welcome to this edition of the Louisville Luxury Homes podcast series brought to you by Jon Mand with Lenihan Sotheby’s International Realty. I’m Greg, your host, and for today’s episode we will be talking about some items to think about when buying a luxury home. Jon, good to see you. How are you?
Jon: I’m doing great Greg, how are you?
Greg: I am doing well. Thanks for having me on, I appreciate it. You want to talk about luxury homes and a few items to think about when you’re getting ready to purchase one.
Jon: Absolutely, yeah. It’s a little different segment, a little different process than what goes into buying your average house. When you’re talking a million dollar plus homes, there’s a little bit of thought and consideration and expertise that needs to be part of the equation to make sure you have a successful outcome.
Custom pools and water features need to be inspected by qualified contractors.
Greg: Right, so in the Louisville market do you think that’s a pretty fair price point where luxury would start around a million dollars?
Jon: You know for the purposes of our discussion today, yes let’s use a million.
Greg: A nice round number?
Jon: Yes, it’s easy.
Greg: Okay. How would someone start? I’m assuming that’s not a first home for most people.
Jon: It’s not, although sometimes you’d be surprised.
Greg: I would be surprised.
Jon: But yes, no typically not going to be a first home. You’ve got buyer clients that are going to be a little bit more sophisticated. They’ve been through the process. Obviously, if they’re got the wherewithal to purchase a million dollar plus property, they’ve likely also got some business acumen and experience in financial affairs that your average buyer may not.
Greg: Does that make it a little bit more difficult or trickier? I’m not even sure that’s the right word. Are there more things to consider when you’re the agent for that kind of transaction because there’s going to be other advisers that you need to deal with?
Identifying roles and experience for the luxury home buying process
Jon: Yes. There’s certainly a lot more that goes into it, so there’s a lot of informal dialog between the client and myself, to figure out exactly who the key players are going to be involved. Are there going to be advisers, trust advisers, bankers, insurance people, other folks that are going to be in the process? Figuring out what their roles are, and then also trying to get a feel for the client’s level of expertise on real estate matters. We’ve got a lot of very, very sophisticated clients, but their experience, their business experience is often not in real estate, so does it directly translate? There’s some things that we need to work through. We have attorney clients, well depending on what kind of law you practice it can be very different than real estate law, or in terms of financing the derivative world is very different than the home mortgage world. It’s figuring out what where they fall and where we’re going to be able to best assist, and make sure that there’s not a negative transfer of knowledge where what they think and know from one aspect of their professional career, make sure that that doesn’t lead them astray when they bring into the realm of real estate.
Greg: It sounds like there may be a few more people involved in the transaction. Does that mean that sometimes these kinds of luxury real estate transactions take a little bit longer? Do you need to get started a little bit ahead of time to make sure everyone’s on the same page?
Luxury properties can be “incomporable”. It takes expertise and luxury market experience to determine value.
Jon: You know, again it depends on the process or the particular circumstance, but I’d say it’s a similar situation as a regular home buyer in terms of the amount of time that’s going to be invested in it. It’s just making sure to make the process as smooth as possible, that the agent knows exactly who’s going to be involved and has the ability ahead of time to forge those relationships, make those introductions and help coordinate that process, make sure that the communication is flowing the way it should.
Greg: Are you talking about, for instance if you’re doing a trust or estate, who actually can sign contracts? You have to find out who has signing powers and who has …
Jon: That certainly comes into play. You want to make sure the person obviously on the documents is the one that needs to be, and then the person on the documents is not always the person who ultimately makes the decision. The trust is going to be held for a beneficiary, but the trustee is going to be the one that’s making a lot of those calls. There’s going to be again an understanding of the relationships of all the parties. Then as you get into the process, at the point you’ve ironed all that out and you’re out looking and start the process of the home search, it’s just a little bit more complicated as well.
Understanding luxury home components and systems
In a normal home, you find a home, you love it, you contract on it, you send a home inspector over and for $500 or so you’ve got a report on everything about the house. When you get into luxury properties there’s a lot more that goes into it than that. We still bring home inspectors out, they do a wonderful job, but as you read in their contract agreements, there are limits to the scope of services that they provide. As you get into some of these higher value homes there’s a lot of things to consider, pools, salt water pools, chlorinated pools, backup generators. You get into home automation systems, geothermal HVAC systems, residential elevators. All of these subsystems, you want to have a contractor specific to that trade to come out and look at it.
Slate and composite roof products are high-value components requiring analysis by specialized contractors.
Roofs are a big issue. As you get into some of these properties if it’s not a dimensional asphalt shingle roof, if you’ve got a slate or tile roof, those are extremely high value components and you really want to get your arms around the condition of it, what’s going on with it. It’s not something that a typical home inspector is going to look at, so we want to bring in professionals that we trust, that are qualified in each of the subsystems. We don’t just have one inspection, we’ll have a roof inspection and we’ll have the HVAC guy come in and check out the geothermal and we’ll bring an elevator guy to look at that. Each of these kind of components we’ll bring in a professional to evaluate it and then compile all that data and make sure we have a very clear understanding of the condition of the property.
Greg: If an average priced home sells and the inspection period is maybe 10 days or 14 days from date of contract, for a luxury home does that get pushed out because there are so many people involved and there are so many inspections? Does the time table of luxury sales change from an average time table?
Jon: It certainly can. Again it depends on the property. If it’s brand-new construction and it’s $2 million, we can get that done very quickly, the typical 10 to 14 day inspection period. We can do all of that. But if we’re talking about a historic home with older systems and a slate roof, or a home that’s on a lot of acreage where we’re worrying about getting surveys done, or there’s a lot of secondary structures where you’ve got pool houses and guest houses and those sorts of things. Depending on the scope of it it certainly can slip. It is possible if it’s a very clean well maintained home to get it done in a typical time frame, but often we’re seeing 21 days up to maybe 30 days depending on what it is and what systems particularly we’re concerned about.
Greg: Okay. Then on financing, does some of the same requirements come into play when you’re dealing with some of the high value clients in some of the luxury properties? You know, 20% down or some of the loan vehicles going to be a little bit different just because of the profession and the assets that…
Jon: They’re going to be a lot different.
Greg: A lot different?
Custom financing for custom homes
Acreage and secondary structures can cause underwriting issues with traditional lenders. Make sure you start with a lender appropriate for the property.
Jon: That’s again an area where I feel we can add a lot of value; you can obviously get online and get a mortgage quote in 5 seconds by punching in some basic information. But what we really end up doing on most of these is working with our banking partners that basically tailor-make loan products for the particular situation of the borrower. If they’ve got a lot of assets but maybe not a lot of income, we’ll work with a banking partner that can put together some asset dissipation loans where they impute income based on the portfolio. We have situations, similar circumstances where somebody wants to pledge the investment account as the collateral and then use that margin loan from their investments to purchase a piece of real property. There’s a lot of things that go into that. All of these would obviously fall in our jumbo mortgage category, but then there’s a lot of things that even in the jumbo market you need to work through.
If you’ve excess acreage, if you’ve got a wonderful home but it’s on 50 acres there’s not a lot of lenders that get excited about that. They’ll take the same value home if it’s on a 5 acre lot all day long, but at the point you say, “It’s on 50 acres and there’s a couple barns, and all of that sort of pasture areas and paddocks and everything,” they get a little bit squeamish so we want to make sure on the front end that we’ve identified the lender going into it because I’ve certainly seen cases where the buyer brought their lender that they had a banking relationship with forever, and then we get 30 days in and the bank says, “Oh, wait a second, this is on 95 acres. We can’t do this loan.” It would have been good to know that 30 days ago, right? Again that’s where we try to identify the situation that’s going to fit for the borrower, the buyer, as well as that’s going to match up with the type of property we’re selling.
Greg: Again, I know that when we have conversations in the past a lot of them come back to experience and it’s good to talk to a professional. It sounds like you’ve been in this field for quite a while. You’ve done quite a few high end transactions.
Jon: Just a couple, right?
Greg: But it comes back, you have to have the experience and the knowledge to really help a client through this kind of transaction.
Does your insurance carrier allow adequate coverage for the components of your house? This solarium is a high-value custom product.
Jon: Yeah, absolutely. If they don’t have the advisers, if they’re just stepping up into this level of home or if they’re coming from another market and they don’t have the local banking relationships or insurance. For high value homes it’s not your typical insurance products, there’s insurance underwriters that specifically focus on this segment. You want to make sure you get them with a quality carrier that’s going to allow the type of home that they are purchasing as an acceptable risk. There’s also things that go in as simple as how do you value a house when there’s no comparables? This isn’t cookie cutter homes at this level, everything is custom-built, each of these property is going to be different.
How do you appropriately value what should you offer? That requires a lot of experience on the part of the agent to be able to inform the client of that. There’s a lot of moving pieces on these particularly at the high end where you get into furnishings. The home’s been professionally decorated, all the pieces were bought specifically for that room or for that house and those things are going to get negotiated into the contracts often, so there’s going to be a lot more moving pieces than you’d have in a traditional home purchase.
Greg: It sounds like this is where professional knowledge really helps out. If someone is listening and they want to bend your ear a little bit or get some advice on luxury homes, what’s the best way to reach you?
Jon: My cellphone is 502-417-2837. My email address is just firstname.lastname@example.org. Either of those ways are great, texting, everything. I’m very responsive as you have to be. I think that’s a big part of the value add as well, is that our clients are busy professional and they want a trusted adviser that they can turn this process over to and know it’s going to be handled and know it’s going to be handled well.
Greg: That’s awesome. I appreciate you bringing me in today.
Jon: Absolutely. Thank you, Greg.