When you think of a hot housing market, you probably think of a sellers’ market. In this scenario, sellers sit in the catbird seat. Eager buyers make their highest and best offers as quickly as they can, in hopes of snagging a property.
This describes much of the Bay Area in California quite well, but not so much the ultra-luxury market of properties selling for over $30 million.
About 200 estates in the area have sold for more than $30 million, and the $10-million+ category is also relatively exclusive. In some ways, this insulates these markets from both buyers’ and sellers’ market conventional definitions.
“At those high price points, it’s a different market,” explained Zillow Senior Economist Aaron Terrazas. “Not only is the mansion more unique, so is the buyer.”
Why is “Ultra-Luxury” Attractive?
Of course, there are obvious reasons: hand-worked copper fireplace accents, custom chandeliers, and hidden spa facilities in the basement. But ultra-luxury buildings are also attractive to developers. The buildings enable developers to optimize properties that otherwise could not be realistically developed in a profitable way.
For example, developer David Dossetter purchased a ranch house in 2014. The property was on a high hillside just three miles south of Stanford University. Dossetter demolished the physical structure and installed a $20 million mansion in its place. The mansion was complete with the latest tech, custom artisan touches, a wine cellar, spa facilities, and of course, a movie theater.
When the developer and his partners first purchased the property, the value of the land alone made it impossible to make the numbers work on building three or four more “affordable” houses on the property. “We could use smaller houses, but it just doesn’t work out for builders,” explained Golden Gate Sotheby’s agent Michael Dreyfus.
Instead, the developers went the ultra-luxury route, even though they will have to wait much longer to find a buyer. In fact, in some markets, this type of property will stay listed more than a year, while lower-priced properties ($1-$3 million in the Bay Area) may sell in a matter of weeks. However, when the issue is not whether or not the buyer needs the property, but instead how much they want it, the payoff usually comes eventually.
“No one needs a $20 million house,” pointed out Dreyfus. But someone with a net worth of $30 million or so will eventually want one. When that tech entrepreneur, foreign executive, or Powerball winner is ready, the mansion will be waiting.