Luxury Homes: Everything You Need to Know
The definition of a luxury home is subjective and the term is often overused to the point where it becomes almost meaningless. However, we can resolve this ambiguity by diving into the many characteristics of luxury homes (of which price is only one component). Plus, we’ll outline a few things to consider when purchasing a luxury property.
Luxury Home Prices
As a rule of thumb, properties priced in the top 10% of their market are considered luxury homes.
In some markets in the United States, local norms may generously include the top 25% of the market. But that expansive definition is problematic because it creates more exceptions, such as teardowns located in a great location. To keep it simple, let’s stick with the top 10% rule.
We also want to eliminate the notion that luxury is a specific price point. For example, in certain Los Angles neighborhoods it is possible for a home to worth a couple million dollars to not be considered a luxury home. Compare that to a city like Cincinnati, where a residence sold at a fraction of that price is considered extremely luxurious. Clearly, defining a luxury home based solely on price is not feasible.
An Overused Term?
Realtors who market properties often choose a loose definition of the word “luxury,” which muddies the waters even further. This is partly because everyone wants to live in a luxury home, and aspirational marketing is somewhat expected in the real estate industry. Using superlative language in real estate listing descriptions (also called puffery) is not illegal or necessarily unethical behavior for real estate agents. The same goes for how agents talk with others about properties.
The Atlanta-based real estate firm Waypoint Homes queried the Atlanta MLS for real estate listings that mentioned the term “luxury home” in the public remarks section, the part of a listing description written by listing agents. They found that listings from $395 thousand to $2.79 million were described as luxury homes despite the median list price in Atlanta being just over $400,000 at the time the research was conducted. Amazingly, homes that are priced below the market average are still marketed as luxury homes!
Luxury real estate is also defined by other aspects of a home like amenities, location, exclusivity, prestige, and quality.
Luxury Home Quality
A luxury home should not look like a cookie-cutter or mass-produced home on the inside or outside. Luxury home builders understand they are targeting sophisticated and savvy buyers who have extremely high standards. In the Pacific Northwest, most luxury homes are referred to as “custom homes” to connote the difference between undifferentiated mass-produced homes and those that were designed by an architect to be unique and then built by a high-caliber, reputable local builder.
Luxury Home Amenities
Luxury home interiors should be well-appointed with premium furniture from prestigious brands. Owners often hire interior decorators to generate thematic cohesion and complete the look.
Exterior features of a home also play a significant role in determining whether it is considered luxurious.
With amenities, the sky is truly the limit. Here a few, both inside and out:
- Swimming pools, particularly if they’re heated, saltwater, or are infinity swimming pools
- Gourmet kitchens
- Smart homes with integrated technology
- Outdoor kitchens
- Game rooms and movie theaters
- Spa bathrooms
- Exercise rooms
- Walk-in, oversized closets
Luxury condo buildings can offer their own unique amenities, albeit shared with other residents:
- Rooftop decks with skyline views
- 24/7 valet and concierge service
- Spa services
- Yoga studios
- Residents-only restaurants
- Temperature-controlled wine cellars
A home could be considered luxurious solely by being located in a great location. Take, for example, older homes that are adjacent to new shopping centers. For some, it doesn’t matter that the home isn’t decked out on the inside. Instead, it’s the metropolitan “everything is close” lifestyle that’s compelling.
Another example is equestrian properties, which often feature humble ranch homes situated on serene multi-acre lots. Thus, the lifestyle a home promulgates can make it a luxury home.
Famous addresses can also add to the marketability of a home as a luxury property, like 5th Avenue and Central Park South in Manhattan or Kensington Palace Gardens in London. Even zip codes can make a difference. For example, the homes on the Santa Monica Mountains above Beverly Hills are technically within the city limits of Los Angeles, but street addresses bear the 90210 zip code because they are served by the Beverly Hills Post Office. Properties here are always marketed as Beverly Hills homes for sale.
Some buyers consider a home with a view as inherently luxurious. This can be especially true for houses in markets known for their flat topographies, like Dallas and Chicago, where homes with views are much less common than in cities with hilly topographies like Los Angeles and San Francisco.
Privacy is another important consideration for man luxury home buyers; some place huge premiums on it. This could be celebrities scouring for their own sanctuary in the Hollywood Hills or folks who just psychologically prefer as much seclusion as possible while still living in a big city. Privacy is typically achieved by buying in a gated community or finding a home with lush, dense landscaping that conceals the house from the street.
Sometimes, a home’s association with status is enough for it to be deemed luxurious. For example, homes in country clubs and gated communities connote a certain prestige that is synonymous with luxury. In other cases, a celebrity or otherwise noteworthy individual may live in the neighborhood or a condo building like Sierra Towers.
A luxury home connotes exclusivity, and that is especially true with historic or one-of-a-kind homes. For example, consider the famous 20th-century architect Frank Lloyd Wright and his contributions to Los Angeles neighborhoods like Los Feliz and Hollywood Heights. Architecturally noteworthy homes built by well-known architects are in a league of their own and exude exclusivity.
Some buyers find specific types of real estate as luxurious. A great example is those who love authentic (or converted) lofts. Authentic lofts have been converted from their prior use as warehouses or office buildings and typically feature exposed brick and ductwork.
Lastly, some architectural styles are viewed as more luxurious. Current examples include Contemporary and Mid-Century Modern homes.
Luxury homes come in many sizes. While many believe a luxury home must be a sprawling mega-mansion, this just isn’t the case. For example, a condo building like the St. Regis Bal Harbour near Miami has one-bedroom condo listings priced above $2000 a square foot!
Luxury properties can be more challenging to find and typically take longer to sell than typical properties. This is because high-end homes represent a smaller percentage of total listings and there are far fewer buyers in the luxury market. Additionally, some luxury buyers are picky and willing to wait a while until the property that matches their specific criteria hits the market.
Some of the most discerning luxury buyers will purchase properties off-market. This might be because they have particular tastes or because they want to keep the price they paid hidden from public record.
Financial & Regulatory Considerations
Luxury Homes as Investments
Luxury properties can be excellent investment vehicles. Choosing to purchase a property in strong market with ample tourism can generate seasonal income and rapid appreciation. Some U.S. cities and countries have no property taxes, making them particularly investor-friendly.
Luxury condo buildings located in high-density, pedestrian-friendly areas are also a great bet. They also require less ongoing maintenance when compared to single-family homes.
In some cities, the political tides are turning against luxury property investors and buyers. Certain markets are making ownership of luxury homes subject to extra regulation and taxes.
An example is in British Columbia, where a 2016 law created new taxes for foreign home buyers and enacted vacancy taxes. Measures like these are designed to impede foreign buyers from snapping up luxury properties and creating housing affordability issues for locals.
Other luxury buyers have been impacted by laws regulating vacation rentals. Many purchase properties in tourist destinations so that they can rent them out for most of the year and then use it for their own vacations. Local municipalities, like Santa Monica, saw this behavior as undesirable and enacted regulations designed to limit vacation rentals.
Luxury Realtors and Service Standards
Buying and selling luxury homes require a higher level of service than a typical transaction. Make sure the real estate agent is up to the task. Luxury real estate deals require savvy real estate agents -- on both sides -- who can identify the value of a home, set realistic expectations, and successfully negotiate a home’s purchase based on the available market facts (with a touch of diplomacy).
The first step, on either side of the deal, is to collect data from multiple sources to understand the true value of a home. A widely used tactic in Los Angeles is to set the initial asking price of a home much higher than market value, hoping for a buyer who will ignore the facts available to them, base their purchase decision purely on emotion, and wildly overspend. That’s why many luxury homes in Los Angeles sit on the market for a very long time.
Once a luxury homes goes under contract, the escrow period requires more attentiveness. Luxury homes feature specific amenities that may require extra due diligence and specialized inspections. For example, our real estate agency frequently encounters with hillside luxury homes that require additional inspections related to foundations and slope stability. Older homes may have unstable chimneys or mature shade trees on the property where roots have intruded into sewer lines. An agent familiar with luxury properties will know what to look for and which independent contractors to recommend.