As Boomers head into retirement, this market promises growth for brokers
By Eugene L. Meyer
RISMEDIA, Feb. 26, 2007-Disposable income and significant assets, including access to lots of cash, characterize high-end and second-home buyers, who are generally unfazed by the ups and downs of interest rates or real estate prices.
In 2005, second home purchases accounted for 40% of all sales, according to the National Association of Realtors, a number that was expected to dip last year as investor-flippers backed off. But as Baby Boomers continue their inexorable march towards retirement, there remains enough wealth to keep the high-end, second home industry perking rather than peaking.
Strategies for reaching these asset-rich buyers vary widely, from heavy use of the Internet-with sophisticated Web sites providing virtual tours of luxury properties-to word-of-mouth referrals arising from a broker's personal sphere of influence.
Location is also a key factor in how properties are marketed, and to whom. Resort and vacation areas tend to attract second home buyers who don't need to be near jobs and schools, key concerns for younger homeowners. Those buying second or soon-to-be retirement homes like to be within driving range of children and grandchildren, but not too close to them.
"The bottom line is that the high-end, second-home buyer is looking for a gathering place for the extended family and a central location, because all the kids are grown up and scattered around," says Debra Savage, who relies largely on referrals to sell homes at Deep Creek Lake, Maryland, a four-season mountain lake resort area within a three-hour drive of 23 million people.
At the other end of the high-end, second-home market, Baird & Warner sells condos in downtown Chicago to suburbanites who also want a pied a terre. "They want the best of both, the ease and convenience of living in the city, and they also want the escape of the suburbs," says Rick Druker, the Chicago real estate firm's managing broker. Those whose primary residence is "a little bit further out," say 20 to 50 miles, "look at downtown as a vacation spot."
When these Baby Boomers reach retirement, they sometimes sell their house in the ‘burbs and move up to a larger condo in town, according to Druker. Typically, these buyers are doctors, lawyers and financial company executives.
But not all the firm's in-town, second-home clients come from nearby suburbs. One apartment unit on fashionable Michigan Avenue sold recently for more than $8 million as a second home to a downstate business owner. How do you reach such buyers? Druker says most start their property search on the Internet, where Baird & Warner displays eight photos with every listing.
Michael Saunders & Company, based in Sarasota, Florida, also places a high premium on Internet marketing. In an average week, according to Alexa.com, traffic to the high-end firm's Web site was 15 times higher than to Coldwell Banker's Florida site, 65 times higher than Prudential Palms, 142 times higher than Premier Properties and 900 times higher than RE/MAX Properties Sarasota.
"It's our biggest focus," says Tom Heatherman, a company spokesman. "As your income goes up, the likelihood you'll use the Internet also goes up. When you go to our Web site and you are a high-end buyer, you can click on videos we've purchased and take a virtual tour of some of our priciest listings."
Viewers who click on Saunders' "video magazine" are treated to more than a virtual tour. Here are Dick and Dawn Duques, owners of a Casey Key property listed for $20 million showing their house, and talking about their home and their lives. "We moved right as the kids went off to college," she says. "We wanted to have a place where they would still want to be with us."
Saunders does print advertising as well, in the Wall Street Journal, and with such high-end outlets as Christie's Great Estates, Luxury Portfolio, Veranda Magazine, and Leading Real Estate Companies of the World, of which Saunders is board chairman. "We have a lot of give and take referral-wise between those marketing partners," Heatherman says.
Many of Saunders' buyers are looking not just for second but for third homes. "You've probably heard about the bubble bursting in Florida, but it's the high-end, $3 million and above, that's really held up," says Heatherman.
"There's a lot of overlap between the luxury market and second homes," he adds. "As boomers retire, they are coming down and buying a luxury residence, in many cases the primary residence. A lot buy a second home and love it so much they use it more and more. The next you know, it's no longer a second home, it's the primary home, and very often they sell off the primary home or keep both and spend most of their time here."
While special financing programs may attract first-time home buyers-and brokers marketing to them may promote their firm's subsidiary financial services, obtaining a mortgage at a good rate is often not an issue for high-end and second-home buyers.
There are, however, other services that high-end buyers have come to expect. Sellers of such properties "get specific higher-end expanded advertising," says Lynn Kosner, who manages Baird & Warner's North Suburban office. "The property gets on two or three extra Web sites," such as luxuryportfolio.com and Baird & Warner's special luxury home site, which also links to properties in other "luxury destinations."
"We make sure that every one of our agents understands our luxury portfolio program, so they can distinguish which property goes where," says Kosner. In 2006, her office sold eight properties at prices ranging from $5 million to $17.6 million, and 108 properties between $2 million and $5 million. "Most of these homes were purchased as land value for" tear-downs, "or by end users maintaining the homes. Occasionally, some are purchased as second homes for city dwellers, which we find remarkable."
The method of payment also distinguishes the high-end market. "They are what we mostly consider cash buyers," Kosner says. "They very rarely add a mortgage contingency to their offers. They usually don't need to qualify for a mortgage."
Resort communities tend to generate their own markets, as families first rent vacation homes and then decide they like the area enough to buy. These "duty desk" buyers typically go directly to a broker's office to begin searching in earnest.
"We have so many visitors to Myrtle Beach, 13 million a year, we have a new audience every week," says Don Smith, president of Coldwell Banker Chicora, a prominent South Carolina brokerage. "Most of our marketing is targeted to those in town. We do some direct mail to those who've visited before. We use the Internet for our [broader] market presence."
Many visitors pick up the home guides distributed for free, take them home, and then look up properties on the Internet. Web searchers from the firm's "feeder market" to the north who are interested in the 60-mile coastal "Grand Strand" can click on the Coldwell Banker web site and, Smith says, "directly pass through to our web site, which is very functional and user-friendly."
Smith says his second-home market benefits from the older buyer's wish to be within easier driving range of their primary residence. "For a lot of folks who used to retire to Florida it's such a long drive down, while Myrtle Beach is centrally located, including almost even to New York. Twelve hours going north gets you a long way up the road, whereas Florida is two full days with an overnight stay."
Smith's firm trains its agents in the care and handling of high-end buyers since, he says, "the upper end buyer expects a higher level of service," when they buy a Mercedes or Lexus or a house. "They expect a greater level of attention. Communication is mainly the key. The preview-trained agent knows every single community failing into their price point."
Back at Deep Creek in the mountains of western Maryland, the owners of the Wisp ski resort last spring sold 60 "ski-in, ski-out" home sites for $25 million in one day, during what was billed as a "launch weekend." The owners worked with a Denver, Colorado marketing firm, which sent out 220,000 invitations to persons whose names appeared on various mailing lists.
The 120 people who showed up for these North Camp lots had purchased a "reservation" in the form of a $1,000 refundable deposit. They were treated to a Friday night party, a free hotel room and breakfast. The buyers were primarily boomers, many of whom had visited the area before, and most were from the Washington metropolitan area.
"They expect a .3 percent response rate, which is about what we got," said Karen Myers, managing partner of DC Development, which owns the Wisp resort. "It was good. However, it was really about six months of effort, mailings, talking to prospects." She is planning another launch weekend later this year for golf course home sites.
"What it boils down to," she says, "is families realize at some point that they need to be able to settle down from all the daily hustle and bustle and do some fun things together. It's primarily a second home market, but retirement is becoming a bigger and bigger facet of our business."
And then there's that cash access. "An average of 25 to 40 percent pay cash for properties they purchase here on any given year," says Myers. "That gives us a wonderful stability in our market. For the percent of home owners without any debt service, there is no incentive to sell at a loss. They just wait it out. There was no bidding on our ski-in ski-out sites. We just had a plat and a price list. Thirty-eight percent of our North Camp closings were cash."
For buyers and sellers alike, it's good to be rich.