All of which means that luxury buyers searching in popular markets may find themselves in the rare position of having to compromise, opting for a condo or a fixer-upper rather than the turnkey compound they might have envisioned.
“The inventory has shrunk so much in every price category, people are grabbing whatever they can to get a foothold, to get a residence down here,” said Chris Leavitt, an agent with Douglas Elliman in Palm Beach, Florida, where activity has exploded in the wake of the health crisis.
Rather than an act of pandemic-driven desperation, though, snapping up a property now as a kind of placeholder can serve as a canny bit of market strategy, leaving buyers well-positioned to eventually upgrade within a hyper-competitive market.
“Even two years ago, buyers would look at prices and I’d say, ‘Buy something now, get a toehold in the market,’” said Ryan Dickey, an agent with Windermere Real Estate, an affiliate of Luxury Portfolio International in Park City, Utah. “They invariably spend way more time here than they thought, and are going to come back and want to buy something bigger.”
Whether buyers end up using smaller properties as a residence or a source of rental income, having a physical presence in a market means owning a property that’s keeping up with local price appreciation, and potentially ending up in a stronger position as a buyer once something larger becomes available.
“I have a ranch buyer who’s looking at up to $25 million or $30 million for a significant ranch in Old Snowmass, and there’s no inventory,” said Riley Warwick, co-founder of the Saslove & Warwick team at Douglas Elliman in Aspen, Colorado. “Now we’re looking in Snowmass Village at condo units, maybe up to $3 million or $4 million.
“Some of these buyers say, ‘This is a great place to put money and there’s going to be demand long term, I’ll just rent [the home] and capture cash flow and appreciation, and be able to use it as well,’” Mr. Warwick added. “And others say, ‘I want to have a place and I’ll be ready to pounce [on a larger property] when something comes up.’”
Either way, for buyers, the message is clear: Make a move now, before prices rise higher and inventory drops lower, and you’ll be better positioned to eventually trade up to the larger property you may have had in mind, whether the market settles down or not.
Condos offer more options, at a (relative) bargain
Single-family housing has seen a stratospheric rise over the past year, with buyers suddenly prioritizing square footage, extra rooms, outdoor space and privacy above all else.
At the same time, many condo markets hit a temporary pause, and are now headed out of the pandemic with more available inventory—and slightly more reasonable pricing.
“Psychologically, [buyers] didn’t want to be around anyone else. Now Covid is getting better and people aren’t so afraid, so condos are selling more,” said Ashley Copeland, an agent with Brown Harris Stevens in Palm Beach. “But they’re still at last year’s prices. I’m definitely telling people to look for a condo as a starter home.”
With condo sales already picking back up and prices rebounding to catch up with the rest of the market, buyers who pick up condos now may find themselves in a particularly strong position.
“Besides just getting in and finding a place for the time being until more homes come on the market, you’ve bought a condo which is inevitably going to go up in value by next year,” Ms. Copeland said. “So you’ve effectively lived here for free and will make a nice profit on the condo when you sell it in a year or two to buy a home.”
Mr. Dickey added, “Generally, [prices for] condos and single-family [homes] rise at the same rate over time, so you’re almost hedging against Park City market volatility.”
Ultimately, buyers may even decide to hang onto a condo as an investment even after moving into a larger local property.
“I had clients who ended up moving into a rental condo last year in Salt Lake City, and the owner of the condo had bought it as an investment, lived in it during Covid, then found a house,” said Page Juliano of Summit Sotheby’s International Realty in Salt Lake City and Park City, Utah. “He had the advantage of feet on the ground looking for a house, and now he’s kept the condo as an investment property.”
In spite of the early, immediate nature of demand created by the pandemic, most buyers in booming markets appear to be purchasing with the long term in mind, indicating continued market strength over the next few years.
“At La Clara, a new condo building [under construction] in West Palm Beach, people are buying two years out, they want to secure their place now,” Mr. Leavitt said. “You’re seeing people plan for the future, and that’s a good sign that it’s not an immediate temporary move.”
Playing the home field advantage
Aside from price appreciation, having an existing residence in a competitive market offers buyers a significant advantage over out-of-towners when it comes to potential future deals.
While the pandemic has generated countless stories of wealthy buyers purchasing remotely, for sellers sorting through an abundance of offers, a buyer who has seen the property in person and is able to move quickly will almost always be more appealing.
“What you’re seeing is people making offers and securing properties sight unseen, but they’re then terminating their offers,” said Jana Birdwell, an agent with Compass in Austin, Texas. A backup offer rarely secured a transaction in the past, but with so many pending sales falling through, agents like Ms. Birdwell are encouraging clients to make them.
Some sellers are even eschewing sight-unseen offers because they have a higher chance of going awry.
“It’s really tough, especially with things selling so fast and with multiple offers,” Mr. Dickey added. “If you’re making an offer sight unseen, we’re just not seeing those offers get accepted because those contracts have such a huge fallout rate.”
Owning property and residing in a given area also offers buyers two priceless assets in their search: time and proximity.
“The out-of-state buyers are really at a terrible disadvantage right now in Park City and Salt Lake City,” Ms. Juliano said, compared to buyers who “have feet on the ground to look at options and are able to see things first hand, on the first day.”
A local home base can also make it easier to find off-market deals and home in on details before splashing out on a larger property.
“When there’s an area where you ultimately want to be, you have to be patient,” Mr. Warwick said. “We’re seeing those buyers [who already own in Aspen] are much more focused and more prepared when something does become available. We’re actively in communication with off-market properties that may become available.”
Even in the era of Zoom, few things put a buyer in a stronger position than the ability to make an offer in person, and immediately.
“Especially to find a single-family home, you need to be here, because it won’t be on the market more than a few days,” Ms. Copeland said. “You have to be ready to pull the trigger and be there to see it.”