High-tier real estate’s foothold in California

High-end real estate offices are demonstrating resilience to this Lesser Depression, as evidenced by the new firms opening in posh California neighborhoods such as Beverly Hills. The sale of high-tier properties earns brokers and agents a sustainable living with only a few annual sales.

These home sales are more easily closed than low-tier property sales since high-end buyers are less likely to have difficulty acquiring any purchase-assist financing. Lately, increased high-tier strategic defaults and foreclosures have forced properties onto the market and artificially increased sales, albeit real estate owned (REO) in nature.  Shortsales are close to non-existent in this realm.

Luxury real estate firms are also setting their sights on the international markets, drumming up business in Canada, Mexico, Brazil, Asia and Germany by exposing expensive American properties to foreign investors. These highly advertised “boutique” firms prefer to employ only a handful of top-selling agents in a few exclusive locations. Finding those agents has become easier for celebrity brokers as the lack of business weeds out the “hit-and-run” agents of the Millennium Boom.

first tuesday take: Real estate is a local game. Enclaves of high-income, seemingly recession-proof neighborhoods exist in California’s most affluent metropolitan areas. Brokers who already live and work in those high-end communities are cashing in on their niche market.

Others who can are relocating and moving into this market, instantly claiming to be neighborhood experts. Percentage fees at the same 6% rate as charged on a $100,000 sale for the same or less work entice mid- and low-tier agents to try listing million-dollar homes. [For more information regarding high-tier property owners, see the March 2011 first tuesday article, Million-dollar home sales misrepresent housing market.]

Most luxury brokerage firms are taking advantage of the interest foreign real estate investors are showing in American property. Foreign investors spent $82 billion on residential real estate in the U.S. in 2010, up 24% from 2009. Personal wealth remains excessively abundant in other countries (read: China and India) and affluent investors across the globe are interested in high-tier American homes through which they can exchange strong currency (like the Yen/Real/Canadian dollar) for what appears to be underpriced assets that will produce a profit on a resale over a short period of time. [For more information about foreign real estate investment, see the November 2011 first tuesday articles, Foreign investors have money, want real estate and Wealth from other nations: foreign investments in California real estate.]

Low- and mid-tier agents: don’t expect a warm welcome to the foreign luxury market from top-tier firms or their high-profile clientele. The high-tier market has become an exclusive club for a handful of agents with pre-existing exclusive access to high-end listings — often listed and quietly maintained outside of the multiple listing service (MLS) as vest pocket listings. Those who list and locate such property don’t often look for protégés, much less ones outside their sphere of affluence. Here, teams have the very different meaning of captive runners.  [For more information about pocket listings, see the October 2010 first tuesday article, New pocket listing search engine and the diminished role of listing agents.]

For most licensees across the state, the Lesser Depression has dried up the local market, a vernal spring awaiting the next season of sales. Brokers and agents licensed during the Millennium Boom are realizing current low- and mid-tier market conditions don’t make for easy money like they expected. For this reason, about 60% of sales agents who were issued licenses from 2005 to 2007 have or will let their licenses expire at the end of their first four-year license period. [For more information about real estate licensing, see the November 2011 first tuesday Market Charts, Newly-licensed sales agent and broker population and The rise and fall of real estate brokers and agents.]

There is no need for agents to wait for breadcrumbs to drop from the table of the high-tier club. Anyone who’s not in the 1% club can beat the real estate crisis and prepare for future business by:

• using real estate knowledge to find property management opportunities;
• participating in local government by lobbying councilmen to provide business incentives to commercial enterprises (which create jobs);
• gaining long-term wealth and financial stability by acquiring trust deed notes; and
• investing in future earning opportunities by becoming a broker. [For more tips on how to survive the Lesser Depression, see the October 2011 first tuesday article, 10 ways to beat the real estate crisis.]

Re: “New high-end realty offices opening despite real estate downturn” from the LA Times