How to sell a high priced house in a bad market

How to sell a high priced house in a bad market


all houses sell quickly in a hot real estate market.  Its during the bad real estate markets that you have to get creative when selling a house.

The high end housing market is always a bit different than the general housing market. The reason for this is that the wealthy, who buy luxury homes, are largely insulated from the ebb and flow of the real estate market.  It is the first generation of wealth that is less likely to survive market collapses than those who inherit wealth.   The reasons for this are irrelevant for our purposes.  We are concerned with how to sell a high end property.

The first thing that we need to do is to define the term “high end real estate”.  For this discussion the term generally indicates a house which is well above the price point of the average home buyer.  I live in Pittsburgh Pennsylvania.  At the time of this writing the median home price in Pittsburgh is $124,000.  In other cities this median home could be priced at 5 times that amount, so there is no set number where a house becomes luxury real estate.   These houses are more defined by size and amenities than a set price number.  In general once you get over 10,000 square feet and eight times the median house price you are in a luxury property.  Again, going back to my hometown Pittsburgh rea estate market, I would declare anything north of one million dollars to be in the luxury housing market.  I know this market fairly well; I work with people who can’t sell their high end house almost as often as I work with people who can’t sell other types of property.

In many cases I act as a consultant to identify and correct the problems associated with a property that won’t sell on the open market.   Many of these properties have been on the MLS for a year or more and they were unable to find a buyer.  Assuming that there is nothing wrong with the property and that the property has a genuine wow factor generally associated with high end real estate; it is usually the barrier to purchase that is the problem.    Notice that I did not say price.  I am hinting about price but it’s not really the price but the way that the price is structured in the normal real estate market place that is the problem.  The normal way of selling a house is that you attach a price to it and people either come with a lump of cash or they go to a bank and finance the purchase.  Once you get above a certain price point the number of cash buyers drops off significantly.  In a slow real estate market there can be a glut of houses in the high end market because the buyers are fewer, so the seller has more competition and fewer buyers.  So what can we do to rectify this situation?  The answer is simple; we expand the pool of potential buyers. So how do we expand the pool of potential buyers for a high end property?  The owner agrees to take payments for his equity for a period of time.  This is generally referred to as owner financing but can also be called a lease option, lease purchase, agreement for deed, or land contract in its various forms.  What matters is not what you call it but how it expands the market.  Done correctly, the technique allows the prospective buyer to make monthly payments to the seller for a set term.  This technique can also be done to create a long term income stream for a seller.

In taking payments, the seller has now expanded the market beyond people who can afford to pay in one lump and people who can get bank financing.  Banks are really reluctant to lend to the high end market.  One of the problems that the bank has is that they don’t want to get stuck with a house that they can’t sell.  The second is a problem of determining comparable values of comps.   Many high end houses are unique custom constructions which have no true comp.   As I am writing this article, I am helping a family in Fox Chapel School District to sell a unique property, priced at $2.6 million.  This property is unique because it is a custom build home sitting on 11 acres, with a gas well on it.  There is no property within three miles of it that is even close.  A bank would find it impossible to evaluate the price of this house, and consequently they would not be willing to loan money for the purchase of this house.

There are three groups of buyers who really flock to high end owner financed homes.  The first group is entrepreneurs.   Many of these small business owners use a variety of accounting tricks to hide their wealth from IRS.  The problem is that they declare so little income that they don’t qualify for any sort of mortgage.  The second group of individuals who flock to high end homes, and need a little assistance in buying them is foreign buyers.  Many immigrants come to America with no credit score at all.  Even high income types like heart surgeons don’t arrive with any sort of credit in the American banking system.   The last groups of luxury buyers that flock to owner financed homes are the recently wealthy.   Sometimes a business will explode overnight making the owner affluent.   This sudden affluence doesn’t allow for buying with all cash, and the recentness of the cash may not allow for bank financing.  These people can only buy their dream home with some portion of owner financing.  As the saying goes, “if you want to sell a house quickly, then you need to make it easier to buy”.

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