RISMEDIA, February 26, 2011—Recent increases in significant sales for the high-end real estate market underscore the need for brokers and agents in this segment to think outside the box when it comes to providing financial options that can help close a sale. Here, Philip White, President and Chief Operating Officer at Sotheby’s International Realty Affiliates LLC discusses how real estate professionals can take advantage of the unique value the high-end real estate market holds.
Buyers are recognizing the unique value that high-end real estate presents as part of a long-term strategy for building wealth. Often, potential buyers move from the sidelines into action based on the different ways that a deal can be structured financially.
Below are some tips for making that happen. As a standard practice, all tax-related questions should be referred to a tax advisor.
Financial Structure: For large pieces of real estate, subdividing the property into separate parcels can allow a buyer to structure the financing more creatively.
In some cases, the seller can take back a first mortgage on the undeveloped parcels instead of a second, which is more common. This provides greater protection for the seller, making this concept more enticing for a buyer. The buyer can then sell those adjacent parcels and pay down the overall debt on the property.
Incentives: Sometimes closing a transaction can require unique financial incentives. For example, a property exchange allows a buyer to transfer a current real estate holding as part of the purchase price and defer the capital gains tax under certain conditions.
In 2010, Peaks Real Estate Sotheby’s International Realty in Telluride, Colorado, sold Bootjack Ranch for approximately $46.5 million, a price point that at the time was the highest known for a residential sale within the United States in the previous 12 months. By incorporating this type of exchange, the broker handling the sale overcame the buyer’s objection that he had another property to sell.
Tax Benefits: Buyers with a high income should be aware of the tax benefits available to them through conservation easements. Transferring the development rights of a tract of land to a nonprofit easement group provides the buyer with a way to take certain tax deductions based on the appraised value of the donation.
This is common in places like Aspen, Colorado, which have larger tracts of land and higher values. Atlanta Fine Homes Sotheby’s International Realty recently closed the sale of Dean Gardens, which was offered at $13.9 million, utilizing a conservation easement, which helped conclude a sale.
As more and more people look to the high-end real estate market to invest, it will be necessary for agents to remain competitive by taking a comprehensive view of the many ways that a deal may be structured to most benefit the seller, based on their needs and what they can bring to the table. In the end, that may be the difference between those who close a sale and those who do not.