Tips for Buying a Luxury Home

There is not one design, style or size that embodies a luxury home. It could be a sprawling 15,000-square-foot French manor set on several rolling acres, or it could be a 4,000-square-foot contemporary home nestled into the side of a mountain. Although it’s difficult to quantify exactly what luxury means, most buyers think they know it when they see it.

Across the United States, sales of luxury homes have been hitting records. The number of California homes selling for $2 million or more, for example, reached an all-time high in 2022. The U.S. is not the only place seeing big sales of luxury homes. Vancouver, Canada’s priciest real estate market, saw a record 36% increase over the previous year on sales of homes priced over $2 million.

Prices for luxury real estate have also seen significant increases over the last couple of years. According to Knight Frank’s Prime Global Cities Index, which tracks luxury real estate in 30 metropolitan markets around the world, the hottest luxury market now is Jakarta, which saw price increases of nearly 38% over the previous year. Knight Frank defines luxury real estate as homes that were sold in the top five percentile in terms of value. Other double-digit price increases in the last quarter of 2022 over the same quarter 2021 include Dublin (17.5%), Beijing (17.1%), Dubai (17%), Los Angeles (14%), Tel Aviv (12.7%), Bangkok (12.3%), San Francisco (10.4%) and New York (10.4%).

Why the Growth?

Like the financial markets, the real estate market operates under the law of supply and demand. And by nature, there are a limited number of luxury homes for sale at any given time in a particular market. That limited inventory alone can help drive up prices as multiple buyers bid on a single luxury property.

Strong Job Market

In many metropolitan markets, such as Denver, low unemployment rates coupled with well-paying jobs have fueled the luxury real estate market. 

International Buyers

In the U.S., international buyers represent a growing percentage of the real estate market, including the luxury market. Florida, California, Texas and Arizona were the leading destinations during that period, with the majority of international buyers coming from Canada, China, India, Mexico and the U.K. 

U.S. Relatively Inexpensive

The U.S. is home to only one of the top 10 most expensive cities in the world, making the U.S. a relatively inexpensive and attractive destination, both in terms of cost of living and housing. According to Bloomberg, the top 10 most expensive cities in the world (as of June 2023) are:

1. Singapore
2. Shanghai
3. Hong Kong
4. London
5. New York
6. Monaco
7. Dubai
8. Taipai
9. Sao Paulo
10. Miami

Buying a Luxury Home

Nine out of 10 buyers used the Internet at some point when looking for a home, and 43% of recent buyers first found the home they purchased online.

While the vast majority of homebuyers rely on the Internet at some point during their home searches, luxury homebuyers can be at a disadvantage when it comes to finding properties online. Many high-end properties aren’t listed on MLS or search engines. And, in order to protect their privacy, many sellers avoid putting information and photos of the property on the internet.

Find a Qualified Real Estate Agent

If you are in the market for a luxury home, a qualified real estate agent who knows the luxury market may be your best bet for finding properties that are for sale but that are not necessarily easy to find because of privacy concerns. An agent familiar with the luxury market may have inside information about listings before they hit the open market. And, an experienced agent will be able to help you determine the market value of a luxury property. Most residential real estate is valued using comparables – similar properties in the area that have recently sold. Valuing luxury properties can be a challenge since often there are no similar properties in the area.

Financing

The loan process for luxury homes typically takes longer than for smaller mortgages. Even if your financials are in good order, it may take 45 to 60 days to secure a loan. Since it can take extra time, and because the seller of a luxury home is often interested in showing only to qualified buyers, many real estate agents recommend having your mortgage broker, loan officer or personal banker obtain your financing approval early on in the process.

Due Diligence

As with any real estate purchase, it is important to take the time to properly inspect a luxury home prior to purchase. In many cases, luxury homes are larger and have amenities that may require specialized home inspectors, such as:

• Pools and spas
• Fountains and ponds
• Lawn irrigation systems
• Exterior fireplaces
• Automatic screen and awning systems
• Central vacuum systems
• Heated floors/driveways
• Sophisticated security/surveillance systems
• Landscape lighting

The Bottom Line

The luxury home market has experienced record growth in the last several years. Much of the growth in the U.S. and Canada is the result of international buyers who want to take advantage of favorable exchange rates, are relocating for work, are using real estate as an investment, or who may be affluent parents purchasing a home or condo for their children who attend North American universities.