Selling Luxury Homes
Become the Preferred Real Estate Agent and Trusted Advisor to High-End Clients in Your Market
John Cotton, Jr.
Copyright 2011 Jack Cotton
All rights reserved
ISBN 978-1-936539-81-9
Smashwords Edition
Acknowledgments
Like many projects or endeavors I have undertaken, the writing of this book turned out to be way more involved then I would have ever dreamed. During the 18 months it took to complete the work, it began at a somewhat leisurely, measured pace. As the work took shape, it became an all-consuming, full-time job.
There are so many people without whom the book could not have been completed. I list them here with my heart-felt gratitude.
Kyle Conners was immensely helpful in editing my first draft. We would get together to discuss his questions on content I had created. Other times he “interviewed” me from one of my outlines to create content. His questions forced me to clarify and explain things that seemed obvious to me but probably would not be to a reader. Thanks Kyle.
If writing 60,000 words wasn’t hard enough, try coming up with 400 impactful words for the front and back cover. I first turned to self-publishing guru Dan Poynter (www.parapublishing.com) who happened to be traveling throughout Southeast Asia during my inquiries. He never failed to send email answers to my queries at untold hours from all over the globe. He was extremely generous with his time. He put me in touch with two great people who made a huge difference in the quality of this book.
Susan Kendrick of Write To Your Market (www.writetoyourmarket.com) was phenomenal in honing my title and subtitle and back cover copy. Dan also suggested Barbara McNichol (www.BarbaraMcNichol.com) as my final draft editor. Her painstaking review of each word, endless questions, and rewrites benefit you, the reader, in ways you’ll never know.
Writing the Internet and social networking chapters especially challenged me as they constantly evolve in their relevance to luxury real estate marketing. Gratitude goes to Dan Kompass (www.webblotter.com), my own webmaster and web guru. Matthew Ferraara (www.MatthewFerrara.com), the undisputed expert on all things dealing with social networking for real estate agents, also generously gave me his time. My chapter on social networking was created largely from talking to Matthew. He honed my manuscript into what I think is an immensely helpful chapter on social networking.
I asked Ed Primeau (www.primeauproductions.com) to supplement my information on social media. In adtiion, Curt Warner (www.platinumsalesystems.com) was enthusiastic about this book from the beginning. He contributed immensely to the section on individual property websites.
As I mentioned, much of the book was dictated into a digital recorder with a voice file emailed to Keith at eWord Solutions (www.eWordSolutions.com). Keith’s team transcribes and turns around near-perfect Word documents, usually by the time the sun rises on the East Coast the following morning.
When this book was nearing completion, I showed the cover art to various experts with whom I was consulting. Without exception, each one raved about the cover design done by Andrew Newman (www.NewmanDesign.com) Working from his low-key Cape Cod office, Andrew has become a true master of design.
Lastly, I need to express my gratitude for the love and support of my family including my four kids, Melissa, Andrew, Maxwell, and Alexa, and most of all my supportive wife, Anne Marie. Aside from being a great proofreader, whenever she hears one of my ideas for a new project, she always says, “You can do that.”
With heartfelt thanks and love, I express gratitude to all these people and especially to my family.
Table of Contents
CHAPTER 1: Luxury Real Estate Defined
CHAPTER 2: Lifestyles of the Rich and Famous
CHAPTER 3: Four Truths Set the Right Mindset
CHAPTER 4: Four Essential Components of Perceived Expertise
CHAPTER 5: The Expertise HNWI’s Crave
CHAPTER 6: Cultivating High Net Worth Clients
CHAPTER 7: The Listing Appointment Two-Step
CHAPTER 8: Seven Steps to the Right Price
CHAPTER 9: Listing Preparation
CHAPTER 10: Marketing the Luxury Estate
CHAPTER 14: Social Networking for the Luxury Agent
CHAPTER 16: “Demonstrating” the Property by Land, Sea, or Air
CHAPTER 18: Million$ in Your Sphere
CHAPTER 19: Three Negotiation Strategies Needed in the High-End Market
CHAPTER 20: Keep the Rich and Famous Coming Back
CHAPTER 21: The End is Just the Beginning
APPENDIX A: Sample Comparable Sales Grid Narrative
APPENDIX B: The Prelisting Book
Introduction
What would it be like to sell a multimillion-dollar property? How would it feel to gain a spectacular listing and meet the accomplished people who either own that property or have the ability to purchase?
For most agents, such wonderment passes as quickly as thoughts of winning the lottery. Although some earn $500,000 or more a year, few earn that much on one transaction. Thoughts like “I could never do that, or “I wasn’t born into that sphere of influence,” or “I don’t travel in the right circles,” or “I don’t know the right people” snatch away the dream. Such self-defeating beliefs can keep agents stuck in the classic story about the outsider looking in.
I confess. I have felt like an outsider. I was able to break out of that “story” and succeed in luxury real estate because when I started this career at age twenty-one, I didn’t know “it couldn’t be done.” I was lucky. No one told me anything was impossible, so I believed I could succeed—and did! The firm I started in my college dorm room grew to become one of the most respected real estate companies on Cape Cod. During more than three decades in this business, I have been involved in nearly every record-breaking residential sale on Cape Cod, either as agent or coach to the agent involved.
Many agents not only have negative perceptions of what they can sell and accomplish, but they take an extra step. They surround themselves with people who only too willingly reinforce the notion that success in high-end real estate won’t work for them.
Understand the Mindset
You’ll find that this book helps you understand the mindset you need to succeed in this stratum of the real estate business. It also provides specific techniques and plans of action to launch you on the path to being a luxury real estate expert.
Just as important as adjusting your own mindset is understanding the mindsets of those individuals you desire to serve. To assist you, Chapter 2 pinpoints the four categories of wealthy individuals—WANNAs, KINDAs, REALLYs and SUPERs—and how they think. As important as adjusting your own mindset, we must also understand the mindset of the high net worth individuals we desire to serve.
In addition, Chapter 4 explains ways to find high-end buyers and sellers, and how to provide useful information these individuals crave. Becoming a primary source for them builds the perception of you as a market expert in your chosen high-end niche.
Your next step is to become a trusted advisor to the wealthy—one who’s called on time and again for expert advice about the market. You can assist them as they monitor their positions of wealth and make the necessary plans to maintain, preserve, and conserve that wealth. This will put you at the epicenter of the sphere of experts they access for various aspects of their financial lives. Your ultimate goal? Preeminence in the field of luxury real estate.
What’s Your Price Range?
Let’s say luxury real estate is defined as the top 10% of the market. (Look for more on definitions in Chapter 1.) Do luxury real estate specialists exclude listings or sales below a certain price level? Should you pass them on or refer out properties that don’t meet that definition?
My philosophy has always been to treat all potential clients like a million dollars, regardless of the price range of their properties. Throughout my 36-year career, I have never discriminated based on the price of a listing or a particular buyer. The following story illustrates why.
It Started with a Sale under $150,000
A couple on the young side of middle age walked into our office one day. New to the area, they’d heard about our Village and all its amenities. They wanted to look at the available homes. At the time it was possible to find homes in the Village for under $200,000. Soon the couple purchased a home for $131,500—not a luxury transaction by most people’s definition. We soon discovered they were holding out on us in terms of their financial power.
That same year, they decided to buy a condo for one of their parents and closed on their selected choice for $290,000—still not a luxury property but getting better.
After enjoying the ambience and charm of the Village for not even a year, they decided to buy a waterfront home for $859,000 that showed signs of age and disrepair. While this property was approaching the category of “luxury,” the dwelling itself was in such poor condition, they razed it and had a highly regarded architect design a beautiful new home. They began constructing it using the highest standards.
When the home was nearing completion, a disagreement with a neighbor ensued over the refuse company noisily emptying the construction dumpster in predawn hours. The next day, the owners decided this wasn’t the neighborhood for them, and they began looking at other properties.
In short order, they bought a waterfront home that anyone would define as “luxury” at $3,475,000. Even though it was in perfect condition, they made major renovations. About the same time, my agency sold the new house they never moved into for $1,600,000.
After several years living in this home, they decided to buy another in a waterfront town some distance away and sold their latest home for $4,450,000. Before long, the purchaser of that home decided to move on, and our agency sold the home again for $5,198,000.
The new buyers enjoyed the home for several years, then decided the location wasn’t for them. Our agency helped them find and purchase a nearby property for $12,500,000 that required extensive modernization and renovation.
This entire chain of transactions that began with a couple who some assume had modest means, purchasing a non-luxury home for $131,500. Wealthy people don’t always tip their hand right off. See how this purchase multiplied into multimillion-dollar sales?
Many agents would have jumped into this chain of sales at the $3 million mark. In fact, some tried but were unsuccessful. The people came to know and trust us, so they weren’t motivated to change.
They could just as easily have been a couple who could only afford a $200,000 property when they first visited. After all, being able to purchase a $200,000 second home puts you at the top of the income/net worth strata. Many of our clients began as purchasers in the lower end of the price scale and moved up as their financial situation grew.
The Decision is Yours
You can specialize in a certain price range or go with my philosophy to treat everyone like a million dollars regardless of their price range. I prefer to list and sell homes in all ranges so I can “pay the bills,” and when the mega-sales come along, I bank all the fees. If I can be successful doing this, so can you.
Welcome to the world of luxury real estate and learning how to make it yours. Let’s begin.
CHAPTER 1: Luxury Real Estate Defined
If you ask people to define “luxury” real estate, you’ll get many different answers. A number of people may say $1 million and above, but in some markets, $1 million would be the price of a starter home. Others may think “luxury” pricing begins at $10 million. Depending on the market and location, either of these answers could be correct.
In the Hamptons outside of Manhattan, or in Hawaii or parts of California, the definition of luxury could begin at $5 million. On Cape Cod, it starts at $1 million. How perfect; I love round numbers.
In some places, people may believe that only homes over a certain size or in certain locations, such as on the water or a mountainside, qualify as luxury real estate. In other places, homes without wheels might fit that qualification!
Another way to define luxury real estate is to add a zero to the average price of properties you’re currently listing or selling.
My two preferred ways to define luxury real estate for any market are these:
(1) top 20% of listings, or
(2) top 10% in actual sales calculated by price.
Here’s an example of the first way. In my market—Cape Cod, Massachusetts—3,317 homes are listed for sale at the time of this writing. Now, 20% of 3,317 is 664, so the top 20% of listings would mean the top 664 homes listed from lowest to highest price. In this case, any property priced at $1,100,000 would be qualified as luxury.
Alternatively, the top 10% of 2,627 actual sales from the previous 12 months are calculated the same way and result in an approximate cutoff point of $700,000.
In a stronger market where the supply and demand is more equally balanced, these two numbers—$1,100,000 and $700,000—are often closer together. However, for use throughout this book, let’s define “luxury” real estate as the second option—the top 10% of sales in any given market.
Certain publications and web sites that feature “luxury” homes maintain minimum prices for properties they list. These may or may not coincide with your chosen definition, so first establish a standard in your own business. Use a definition that’s appropriate for your markets and can provide you with a cutoff number.
Why Determine a Cutoff Number?
But you may be asking this question: Why determine a cutoff number if you adopt my philosophy and treat everyone like a million-dollar buyer regardless of the price point? Because devoting a higher level of marketing to properties that qualify as “luxury” is justified, given the higher expectation of the seller and the fee you stand to earn.
Be aware, of course, that no matter how you define “luxury” real estate, the number of individuals who can buy or sell these properties is limited. Obviously, $1,000,000-dollar-and-up properties aren’t as plentiful as $200,000 homes. The good news? High-end buyers often own two or more homes, making it worth your while to cultivate lasting relationships with them.
Disadvantages of High-End Real Estate
If you specialize in high-end versus low-end real estate, your fees are higher but most likely the number of transactions you complete is smaller. Plus if you list and sell dozens of lesser-priced homes, it’s not as painful when one transaction fails.
On the other hand, if a $5 million sale falls apart, many months of hard work can be lost. To make matters worse, you might not have a significant number of other transactions in the pipeline to make up the shortfall.
If you’re in a seasonal or second-home market such as Cape Cod, it’s important to understand that someone purchasing a property as a second home—even for the lowest price available in your market—is probably in the top 5% of income earners. As with the couple in the Introduction, these buyers tend to upgrade regularly, so keeping them as clients for life is highly desirable. Yet doing so takes focused time and effort.
Seasonality in any location can lead to longer marketing periods. In markets such as Cape Cod or Florida, for example, properties are more likely to sell at certain times of the year. Cape Cod buyers come out in early spring and autumn. In Florida, an uptick of buyers usually occurs during the winter months. Therefore, if a property comes on the market outside the prime season, you can be looking at a longer sales cycle than for lower-priced properties. This fact—combined with the need to produce elaborate brochures, web sites, and advertising—means that high-end real estate can be expensive to list and market. (Refer to the discussion on the need for long listing contracts in Chapter 7.)
Besides the additional marketing expense, luxury properties take a long time to show because they’re bigger and more detailed than non-luxury ones. It can take an entire day to show only two or three high-end properties. And although transactions for luxury homes tend to stay together until closing, they may take months or sometimes years to arrange. When a high-end sale falls through, the time you’ve invested can be impossible to make up.
Benefits of the Luxury Market: Great Houses, High Fees, Cool People
Despite the downsides, the benefits of being a luxury real estate specialist outweigh having many transaction eggs in one basket.
For one, financing can be easier because many times buyers pay cash. Even if they’re obtaining a loan, they typically only make one phone call to their private banker to secure it, giving the transaction every appearance of being a cash deal.
Also, high-end transactions rarely fall apart. Wealthy individuals tend to be more in tune with the buying process because they’re buying their second or third residence. Having been through this many times before, they’re experienced buyers.
Great Houses
I’ve observed that luxury homes have one of two emotional “tugs” buyers use to justify their purchases. For some, buying a luxury home is a just representation of their success and a reward for their achievements. For others, owning a great house in a spectacular location pulls their families together, especially important if family members have drifted apart over the years.
Buyers who can afford a great house are obviously successful. If they didn’t inherit wealth, they got to this point by working hard and sacrificing a good deal of family time—missing their children’s plays and sports games, family dinners, and so on.
Purchasing a great house often enables these buyers to recapture time they’ve lost getting to where they were able to afford it. They might say something like, “I need to pull my family together again, and this property is the magnet to do just that.”
Emotional Rewards for All
While I was at a buyer’s house for which he paid $3 or $4 million, the new owner told me, “You know what? The funniest thing happened. My son came for the weekend and he stayed for six weeks. And he’s talking about getting a job here next summer. This is the best investment I’ve ever made.”
How striking! Caught up in the emotion of his son getting a job and staying the whole summer, this buyer’s heartfelt conclusion was, “Why didn’t we buy a house here sooner?”
And that’s the exciting part of the business for me. I feel rewarded seeing the smile on people’s faces when that occurs. Sometimes, they weren’t aware that could be an outcome when they first looked for a luxury home.
Every
morning, I wake up in my own home situated on five acres with a
distant river view. I look around with pride at my surroundings and
think back to the modest home on a quarter acre that was my childhood
residence.
Later in the day, I go on an appointment at a 12,000- square-foot home that has elevators, 15 baths, tiled garage floors, and electronics that cost more than my entire property. Returning to my home on those days allows me to rediscover the concept of relativity. More often than not, I undertake another expensive project.
I find it a special treat to see many incredible examples of craftsmanship as well as original artwork I once saw through heavy eyelids in slideshows during art history class. More than once, I have come home and wanted to tear my house apart and start over. But then I remember, I’ve created a happy home that I can afford. Although I’m not as rich as my clients, I realize I do have great wealth!
High Fees
What benefit do most agents expect to gain by selling luxury real estate? Obviously, it’s earning higher fees than for non-luxury homes.
I won’t mention specific fees, but I assure you that, as a rule, selling fees for high-end homes tend to be larger—much larger—than most. Although many agents make $500,000 a year selling real estate, few have made $500,000 on one transaction. Holding that half-million-dollar commission check is exciting, I can assure you—if for no other reason than the well-earned extreme sense of accomplishment that far exceeds the dollar amount.
Many luxury real estate professionals agree that it is no harder to sell a $5 million property than it is to sell one valued at one tenth that amount. For all transactions, the trick is to get the listing, find the right buyer, and negotiate the best transaction.
The actual selling part, though, can be easier with high-end real estate. I have found that decisions to buy a high-end home can be made impulsively, and occasionally after only one or two showings. Also, I can assure you I’ve never had to measure closets, investigate the BTU output of the furnace, or chase down the R factor of the bulkhead doors in a multimillion-dollar home.
Many agents eyeing the high-end market ask: “Do I have to cut my fee or charge a lower fee on a multimillion-dollar home sale?” Not necessarily. High-end sellers know that with luxury properties the stakes are higher and expenses greater, and the expertise is more valuable and therefore costly. (Look for a discussion on fee preservation in Chapter 19: The Three Negotiation Strategies You Need in the High End.)
Cool People
Odds are, those who can afford one or more multimillion-dollar homes have an interesting story and are unique individuals. I can think of no other career in which I could have interacted with such high-caliber professionals or corporate chieftains when in my late twenties. It can be both astounding and inspirational to hear their success stories—one never the same as another.
Let me remind you here of the need for both confidentiality and discretion in dealing with high net worth individuals. For that reason, you’ll find my stories about my clients general in nature and their names fictitious except in rare instances.
From the standpoint of learning and personal growth, I’ve found the value of interacting with super successful buyers and sellers of luxury real estate goes beyond measure.
One example involves a man who was among the wealthiest in our small town. Every town has one, and many people may conjure an image of Mr. Potter, the crotchety old businessman in the 1946 movie, It’s a Wonderful Life.
At the time I was beginning my career, this man—patriarch of a huge family—was referred to as Grandpa John, Uncle John, or simply John. I called him Mr. Smith (not his real name) and knew him to possess both the business acumen of Mr. Potter and the heart of the movie’s hero, George Bailey.
I mostly visited Mr. Smith when, in the early days of my career, I felt discouraged and ready to give up my life as a real estate agent. It did, after all, take more than one year for me to sell my first home. And it certainly wasn’t in the luxury category by any definition.
Reportedly, Mr. Smith had no more than an eighth-grade education and had worked in land clearing and landscaping. He was so old, he made his first trip to our town in a horse and carriage and grew up experiencing the hardships of the Great Depression firsthand.
During tough economic times, many of his customers couldn’t afford to pay him, so they gave him house lots in the subdivisions he worked in.
In part because of this arrangement, he became the largest property owner in town over time. His holdings eventually included scores of houses, hotels, mall properties, and more.
The time I spent talking with Mr. Smith proved to be better than any time I could have spent in an MBA program. He taught me the value of one’s word and a handshake; he warned me of the “evils” of overextending with leverage in real estate, and much more.
During my three-plus-decades career, our country has had three major economic downturns, including the current low point starting in 2008. Yet the advice I received from Mr. Smith has stood the test of time.
Among his gems of advice that I’ve followed:
• Don’t get cocky.
• Don’t depend on excessive debt.
• Make a plan to pay off your real estate.
• Live within your means.
In large part, these constitute the basic reasons my real estate career has survived each of the downturns we’ve experienced.
Words from the Wise
In addition to my “schooling” with Mr. Smith, I have had the privilege of interacting with CEOs of Fortune 500 companies as well as other accomplished individuals. Each occasion has been an incredible learning experience.
I have long held the opinion that if executives in major corporations feel confident enough to commit several million dollars to buying a vacation home, their companies might be good ones to invest in. I have rarely gone wrong when I’ve make my investment decisions this way.
That said, I have NEVER received insider information about any company. The surest way to end a relationship with a corporate executive is to ask for some. On the other hand, my theory is that (with minor yet notable exceptions), if executives have limited confidence in their companies’ ability to thrive, they wouldn’t be buying second homes in the luxury market.
CHAPTER 2: Lifestyles of the Rich and Famous
F. Scott Fitzgerald wrote that “the rich are different than you and me.” The more you work with high-end individuals, the more you learn that is an absolute understatement. `
Here’s an example. After a recent showing, I drove a potential buyer back to his own residence. As I pulled into the driveway, I could see exterior painting work in progress: tarps, ladders, and workers sanding and priming the trim preparing it for new paint.
In our conversation, the owner mentioned how he researched the different brands of paint, who manufactures them, and even how they’re manufactured. After settling on what he thought was a perfect brand, he got in touch with the CEO of the selected paint company who assigned a factory rep to advise him on the exterior painting of the house. The factory rep actually visited his house, coached the painters, and oversaw the preparation and the application of the new paint, including application thickness, temperature conditions, and humidity during the time the paint would be applied.
This may seem obsessive, but it indicates how wealthy people have precise expectations and high standards—and expect them to be met. They’re willing to pay the price and expend the effort to make sure fulfillment of their needs reaches that high standard of quality.
I have separated “clients of means” into four categories: WANNAs, KINDAs, REALLYs, and SUPERs. I admit to being general and perhaps even arbitrary as I came up with these four categories, but they encapsulate the types of personalities I’ve encountered during my career. Some of the characteristics noted come from an out-of-print book titled Nine American Lifestyles: Who We Are and Where We’re Going by Arnold Mitchell.
Jack’s Four Categories of the Wealthy
Consider the following descriptions and feel free to develop your own categories—as many as you desire!
WANNAs
Wannas are those people who have reached the point of $1 million in total net worth—that’s $1 million after scraping together values on their homes, cars, jewelry, boats, and high-end stainless steel appliances. These folks spend lots of money because appearing wealthy is important to them. They almost always wear nice jewelry; they drive the newest luxury vehicles that are usually leased. They have an idealistic media-driven view of people who are wealthier than they are. They tend to think rich people don’t care about price and believe “if you have to ask how much something is, you probably can’t afford it.” Often heavily in debt, they’re highly vulnerable to changes in the economic climate.
Because the beautiful homes in which they reside are heavily leveraged, this group is likely to be a source of short sales and high-end foreclosures.
Often living in wealthy areas and providing services for those in the next three categories, they see all the “fine things” and want them, too. Who can blame them? Beware, though, of their need to play the impossible game of keeping up with the folks in the higher three categories.
What can be discouraging to the WANNAs is reflected in a recent study by the Spectrem Group, a firm that specializes in the study of high net worth individuals (HNWIs). The study noted that only 22% of respondents believe that $1 million makes a person rich. 1
KINDAs
The next category, the KINDAs, have a net worth greater than $1 million but less than $25 million.
Typically executives, highly skilled professionals, or business owners, they tend to be self-made, trusting individuals who aren’t wild about change. This resistance to change especially manifests in their interactions with banks, advisors, and financial institutions. They like dealing with the same people on a long-term basis; they see themselves as unique; they detest being part of a pack. And they love owning things that say “limited edition.”
REALLYs
These folks are worth $25 million to $100 million. In most cases, they have made or inherited so much money they have the time and inclination for political activism, most commonly in the form of “getting green.” REALLYs are the folks driving hybrid cars.
They tend to be self-absorbed and hate being manipulated or taken advantage of. Usually highly skilled professionals, business owners, or executives, they tend to be well educated. Most important, they are smart and want everyone to know it. Typical high-pressure sales techniques are guaranteed to backfire when applied to REALLYs.
SUPERs
Worth $100 million and more, SUPERs may or may not be self-made. They tend to be more politically active than the REALLYs. Usually, a single issue such as political campaigns or, these days, going green consumes much of their free time.
While SUPERs don’t necessarily need outward signs of wealth or status, they often have them. They might drive a hybrid car to the private airfield where they keep their jet.
Characteristics in Common
Certain traits run through of all four categories, plus those in each group possess many of the characteristics of the group below them. At the same time, each can have a difficult time identifying with the group above. This is especially true for the WANNAs who have a naive, media-driven view of the KINDAs.
People in each group tend to think that to be rich, you have to make the grade in the group above. Yet as rich as they may be, they often don’t think of themselves as rich. For one thing, they have as much stress as anyone about getting ahead.
Talk to self-made HNWIs and they’ll tell a similar story: “I thought that if I could get to one million in net worth, I would have it made. When I arrived at this point, I thought that if I could only build this to five million, I would be all set.”
Of course, once that milestone is met, the new level to strive for becomes $10 million. And no doubt people worth $100 million might think having $250 million is needed to be rich.
Texans have a cute way of defining rich. They define a “unit” as $10 million, with the goal of being worth a certain number of “units.” Note the use of plural; one unit just does not cut it.
HNWIs in all categories tend to spend like crazy on one or two things and can actually be cheap in other areas. On Cape Cod, for example, the car one owns isn’t viewed the same as in other locations of the country. If I were to have my dream real estate car, a Bentley, I would be looked at with suspicion: “What is he trying to prove?” or “Who does he think he is?” In this area, a Realtor® driving a Bentley is perceived as trying too hard. At the same time, in my market, I can spend the equivalent of three Bentleys on a boat and no one would give it a second thought. Boats simply are not perceived as flashy in New England. This relationship could be reversed in your market.
According to the World Wealth Report for 2009, a yearly study by Capgemini and Merrill Lynch, “…the recent economic turmoil has taken a heavy toll on high net worth individuals.”2 In fact, according to this same study, at the end of 2008, the world’s high net worth population was down 19.9% while their cumulative wealth was down 19.5%.
Put into context, less than 5% of the United States population has a net worth of $1 million or above. When many of these millionaires—especially the WANNAs—are calculating their net worth, they throw everything into the pot: jewelry, homes, cars, artwork, and boats to scrape together their million-dollar net worth.
A stricter definition of a HNWI is used in the World Wealth Report 3 and mentioned by Dr. Thomas Stanley in The Millionaire Next Door. 4 These authorities define high net worth as $1 million of investable assets excluding primary residence, collectibles, consumables, and consumer durables. Given that definition, less than 1% of the U.S. population could be classified as “millionaires.”5
As mentioned earlier, another common characteristic running through the four categories is that “people with means” are smart. I don’t know why business people in general—and real estate practitioners specifically—think that because people have lots of money, they are carefree and often overpay for what they want—that they are not so smart in that way.
Far from it, given how well they negotiate.
I can assure you that the higher the client is on the net worth scale, the more challenging the sales negotiations are likely to be. SUPERs are tougher negotiators than REALLYs, who are tougher than KINDAs, who are tougher than WANNAs.
If you spend time dealing with SUPERs, you’ll quickly conclude that their negotiation skills helped get them to where they are.
Clothing and Cars the Rich are Accustomed To
Many agents who contemplate working in the high-price range worry about their clothes, their jewelry, their cars, and the homes they live in. How much do they need to emulate the lifestyle of their wealthy prospects and clients?
Many years of experience have convinced me to never try to match the lifestyles of my high-end clients—good advice for you, too. If you think about the last time you had your house painted and compare it to a wealthy homeowner’s approach, you’ll realize what I mean.
Nevertheless, it’s always within your power to keep up appearances by dressing neatly and professionally. I live in a resort market where people wear shorts and polo shirts in the summer and similar casual but warm clothes in the winter. It has always been my practice to wear jackets, ties, and dress pants no matter what the season is. Why? I’m not the one on vacation; my clients are. I want to stress the importance of having a high level of professionalism that your attire denotes. Further, I’m here to serve my clients, meet their needs, and exceed their expectations. In this regard, I am not their equal.
And while I shared with you that my ultimate dream real estate sales vehicle would be a Bentley four-door, it’s not a practical choice in this market. They do have all-wheel drive, but I can’t see myself driving one in a snow storm or down an unpaved road leading to an ocean-side mansion.
All you need is a clean, neat four-door car. As with your car, make sure your office looks professional, neat, and clean. (This is especially true for the restrooms, which should be modern and spotless.)
So never make the mistake of judging others by the cars they drive or the clothes they wear. In my market, people drive Bentleys and Aston Martins; they also drive 30-year-old Ford pickup trucks. Believe it or not, it’s not that expensive to lease a Bentley if they choose. And in many cases, fancy clothes, nice cars, and expensive jewelry simply mean the proprietor of these items is deep in debt.
The Kind of Car You Drive Matters
I remember accompanying an agent from my office to a listing appointment for a beautiful seaside residence in a neighboring village. Because it was an estate situation, we knew we’d be meeting with the children of the deceased and their families.
Their forward-thinking parents had purchased the property decades earlier and it had increased in value dramatically. The children and the families who were now the owners of the property did not have the means to maintain the dwelling nor pay the taxes, so they had to sell. Located on one of the most expensive streets in town, this home would fall in the $3 million to $4 million range.
As we pulled up the winding driveway in my real estate vehicle—a four-door high-performance SUV— I noticed the other cars parked there: A Toyota Prius, a Subaru, and a Hyundai. I was in trouble. My car probably used more gas coming up the driveway than those three cars combined used arriving on Cape Cod from their faraway residences.
Although I made my presentation and a compelling argument for why they should hire our firm to list the property, we did not prevail in the selection process. We had given a price opinion in the mid-$3 million and the heirs listed with another firm that had estimated in the upper $4 million range. I suspect if I were driving a Bentley, they would have thrown me out even before I got to say hello.
This experience provided these additional insights to ponder: First, I actually wondered if I would be forced to get a smaller car or a hybrid for appointments like this, just in case it made a difference. (The trouble is I don’t always know until it is too late.) Not only that, I’m likely to run into this type of buyer or seller around town.
Then the perfect solution came to me and has worked like a charm. I keep my bike rack on the back of my SUV. At least I now look green.
Indeed, just this week I was driving to an oceanfront estate down a long, narrow, muddy dirt road. A family of cyclists pulled to the side of the narrow road so I could roll past. Their looks of disapproval at the sight of my SUV interrupting their ride were evident. After I passed, I could see the change in facial expressions in my rearview mirror as they spotted my bike rack.
I don’t need to buy a hybrid after all. However, I am careful to never carry my bike on the rack to an appointment. That could signal I had someplace to go afterward and thus lead to questioning if my full attention was on the appointment at hand.
What happened to that property, you may be curious to know? It sold 18 months later for about 5% less than our original suggested price.
I’ve noticed most well-off individuals have relatives who are less well off than they are. Wealthy individuals tend to take care of others, picking up checks at restaurants, giving loans, buying cars, helping with tuition; inevitably, they’re being hit up by somebody for something.
Make sure your attitude of service—being there to serve them and not ask favors—provides a refreshing change from their normal interactions of everybody wanting something from them.
High-End Real Estate NOT A Commodity, so You Can’t Be a Commodity Either
Challenging the real estate industry today is the public perception that real estate brokers and agents have become a commodity. That implies all practitioners offer the same services: a sign in the yard, an ad in the paper, a listing in the MLS and on various web sites, a pat on the back, and a prayer that the property will sell. Price competition and commission erosion stems from this misperception. The more that real estate agents are perceived as commodities, the more they are forced to compete on price.
Nowhere is it more important to fight the idea of commoditization than in the practice of high-end real estate. You’ve already learned that high-end buyers and sellers detest ordinary, run-of-the-mill anything. They crave highly customized service and one-of-a-kind experiences. That’s why it’s critical to identify and develop Unique Selling Propositions (USPs) with this clientele. Your USPs need to be unique but not just for the sake of being unique; they must bring exceptional value to your clients.
Take a moment to identify the USPs you and your company present to your prospective clients. Perhaps they include your national affiliation, your established, well-known brand, your negotiating skills, your staging expertise, your sphere of influence. Identify as many USPs as you can; without them, you’re like every other “me too” agent in the marketplace. Rather, you’re a luxury specialist—and your prospects need to recognize you as such.
Just like a doctor consults and diagnoses before he or she prescribes, the luxury specialist follows the same template in all interactions with high-wealth individuals. I suggest moving away from the idea of delivering presentations. Instead, consult, diagnose, and prescribe solutions with confidence. HNWIs know you care about them when you take time to ask questions and qualify them. They want you to understand their wants, needs, desires, and goals. They want you to prescribe solutions with confidence.
How do you gain confidence? Through competence. And how do you gain competence? By applying the principles in this book.
Always Apply WIIFM
Once you have achieved the required level of professionalism, you can build strong relationships with the HNWIs in your marketplace. Remember, they do not particularly like change; they want to deal with the same people continually—as long as you can meet their expectations.
Remember WIIFM, the acronym for “what’s in it for me.” That’s what HNWIs care about. It may be fun to talk about your own hobbies and sports, especially when they align with theirs. Trust me, though. They may show interest for a brief polite moment, but never neglect to frame every interaction, every conversation, every statement, and every sentence in WIIFM terms—what’s in it for them.
That requires adhering to principles and practices that exude honesty, ethics, and discretion while maintaining their right and expectation to privacy.
Remember this question and ask it often throughout the day: “Is the action I am about to take right now in the best long-term interest of my client(s)?”
CHAPTER 3: Four Truths Set the Right Mindset
To begin your odyssey into this business, four truths are critical to developing the right mindset for understanding. You may consider some of the four obvious, others counterintuitive. But you’ll find they are true with regard to being successful in luxury real estate.
Truth #1: It’s easier, but not necessary, to have been born rich and connected.
No question. Your success in luxury real estate sales would be easier if you already had money and lots of connections with high-wealth individuals. It also helps if you’re a reasonably good athlete on the golf course. Many high-end buyers and sellers put high value on connections, club membership, and even golf handicaps. I can think of many times I did a spectacular listing presentation with PowerPoint, charts, and graphs—including a well-documented Competitive Market Analysis (CMA)—and lost the listing to the seller’s golf buddy.
If you have none of these connections or no prowess on the fairways, don’t give up. Know that the process just takes longer than it would for “connected” agents. While I do play a little golf now, my skills on the links will never get me a listing or a sale. And even though I play more than ever, I’ve spent more time on the course as a caddy than a player.
The good news is that while well-connected and wealthy people have a presence in the real estate business, they’re not always your strongest competitors. Sure, they tend to be well-schooled, well-networked people from the second and third generations of affluent families. They deem selling real estate a dignified way to make a living once the trust funds have thinned out. And you thought your status was on a par with used car salespeople!
These well-heeled agents are easy to recognize. Those who hope to break into high-end real estate note their demeanor and become discouraged. “I can’t get the Thurston Howell elocution down and can’t match the connections,” they convince themselves.
If that doesn’t discourage you, wait until you see the typical business plan of these rich, well-connected agents. Through massive and painstaking research, careful surveillance, and countless interviews, we have pieced together a “day in the life” of one such agent, “Biff.” Lead after hot lead comes his way as the day unfolds. Let’s follow.
Early Breakfast
Biff is up earlier than you might imagine, eating a light but satisfying breakfast at the local power breakfast hotspot (likely a corner table at a local restaurant or club). His friends and acquaintances saunter in and out. Some linger only long enough for a quick hello; others stop to refer a friend who wants to buy or sell a mega-property.
Late Breakfast
Biff’s second breakfast of the day could be at his Club or at a power breakfast spot where the well-connected wealthy gather or merely pass as ships in the night—dropping another hot lead to Biff on their way to their favorite table.
Nine Holes of Golf
The cool thing about golf is that if you show up mid-morning like Biff does, the starter sets you up with one or three players soon after your arrival. Biff may or may not know these golf companions initially, but he will by the end of the round. Well before lunch, he has picked up several more hot leads from his new golf buddies who are likely to be Fortune 500 CEOs.
Lunch at the Club
In a scene similar to breakfast, people pass by Biff’s table to talk with him or his tablemates. Introductions are made. If the new acquaintances don’t know that Biff sells high-end real estate, they soon will. Two more easy leads come his way at lunch. After all, they want Biff to like them.
Nine More Holes
After lunch, it’s time to head back to the course. Due to all that eating, all that greeting, perhaps even a drink or two—whatever the reason—Biff’s mates for the afternoon round will deliver at least one or two hot leads for him before completing the eighteenth hole. I don’t know if you are keeping track but I’ve lost count of the leads. And Biff’s day isn’t over yet.
By the way, Biff keeps track: he discretely jots a few brief notes in a pocket diary after the visitors leave his presence. Alternatively, he calls the “introducer” later in the day to obtain the details. It’s not considered good form to appear to be conducting business at a private club. Pulling out a large diary or laptop would put Biff swiftly out of business.
Drinks at the Club
Before heading home, Biff stops by the bar with one or more of his fellow players from the day. Again, more “people of means” come and go, some stopping to say hello, others telling him they know someone who just has to have a large home on the water. Add more hot leads.
Evening Cocktails
Biff heads home for cocktail hour. With his feet up on the comfortable water-view porch, he scans the news in The Wall Street Journal. Biff recognizes several names of wheelers and dealers mentioned. He thinks, “Surely I’ll run into people who know them and they’ll help with an introduction later in the evening.” A long shower, quick snack, and he’s off to one of the several cocktail parties on for the evening. On a good night, he’ll have several to attend. And, you guessed it, more leads at each event.
By the way, you’ll meet female Biffs (I call them Buffys), too. Their typical day is similar; they just skip one or two of the meals and substitute tennis for golf.
Even as I write this, I get depressed. Of course, my description of Biff’s day is a bit tongue in cheek. But though it may seem improbable, it’s not that far off. I know agents who operate this way, and it creates a successful lifestyle for them.
This form of “prospecting” has never been an option for me—or likely for you, either! Poor golf skills, limited connections, and social skills from a modest background rule out such a typical day for me.
Instead, I focus on how to compete with the Biffs of the world—and share my secrets with you. Perhaps you can guess the main secret: Outwork those for whom real estate sales is an avocation, not a vocation.
Truth #2: It’s all in your head.
Any limitations you perceive as holding you back from being a successful luxury real estate agent are all in your head. Get over the fact that your days won’t unfold like those of Biff or Buffy. Having the right mindset as the game changer, there are no exceptions to this truth, especially in high-end real estate.
In fact, having the right mindset may be even more important for success in dealing with high net worth individuals than others. Just like a horse can sense a nervous rider, wealthy people often have honed “BS detectors” and will sense intimidation, insecurity, and insincerity.
The antidote? Be yourself. Be confident and good at what you do.
To out-compete these “born connected” agents as well as other well-established luxury practitioners, be sure to:
• develop a concrete plan to establish yourself as a market expert,
• let the right people know, and
• serve them diligently and professionally until they buy, sell, or refer someone who will do one or the other.
The following chapters tell you about how I outworked established agents in the high-end market to gain my share of the action. Was I nervous when I got my first waterfront listing appointment? You bet. Nervous but prepared—like you will be when you apply the principles in this book.
$600 in Seed Money
When I began in 1974, I had only $600 of seed money to start my business—money that actually came from a rear-end collision. My 1967 Ford Maverick (green with black racing stripes down the hood and three-speed shift on the column) got rear-ended in a snowstorm. I didn’t fix the car, and with the insurance money I received, I started my business. I even showed property driving around in my damaged Maverick.
I set up my first “office” in the corner of my father’s plumbing supply warehouse. Picture my gun-metal gray desk surrounded by stacks of toilet seats. In that space, I even made my own real estate signs. I look back and shake my head. But if I can succeed starting that way, you can succeed, too.
To differentiate myself from the established agents, I consistently produced a 20-plus page narrative appraisal complete with floor plans and comparable adjustments to win a listing. (Chapter 8 on pricing discusses “CMAs by the pound.”)
Each evening, I hand-typed 100 personal letters to property owners in my market area. Back then, we had no computers or word processors—not even correction tape. All my letters were individually typed on a Remington fabric ribbon typewriter. To save money, I purchased an old used typewriter that typed in italics rather than a typical font. I guess no one else wanted a machine that created such distinctive pages of text. What an impression these letters must have made!
Truth #3: You must be perceived as an expert.
It makes sense if you think about it: Wealthy people are used to dealing with experts in all aspects of their lives. Whether they have medical, legal, or tax needs, they have the ability to obtain and therefore expect the best guidance available. Many times, this is a point of honor for them.
In addition, they are used to working with the most experienced practitioners in any field and will accept nothing else. They want to tell their friends that the physician they go to is tops in a particular field, or they hired the same attorney who represented O.J.
Clearly, their circle of experts serve as status symbols, people most certainly worthy of someone like themselves.
This, my friends, provides the golden opportunity for those who want to become luxury real estate agents. Expertise can be acquired, honed, improved, and built upon. You can then use it to provide services that the wealthy will value.
As you will learn in the following chapters, you need to gain expertise in these five critical areas:
Market and Values (Chapter 4)
Listing Preparation and Positioning (Chapter 9)
Pricing (Chapter 8)
Marketing (Chapters 9 through 20)
Negotiating (Chapter 22)
Truth #4: Competence and trust lead to lasting relationships.
What’s your ultimate goal as a luxury real estate specialist? To become the trusted advisor to a group of high-end individuals who call you for your opinion on all real estate matters.
People of means like consistency and discretion. They don’t want to share their personal business with countless experts. They do want a small circle of trusted advisors they can turn to as situations arise. Once you achieve this level of expertise and trust, the referrals will come.
Commit this to memory: Confidence comes from competence. And competence comes through education, practice, and outworking your competition.
CHAPTER 4: Four Essential Components of Perceived Expertise
As mentioned earlier, wealthy people respect knowledge and those who possess it. This chapter features four components that reveal exactly what knowledge they value and then helps you obtain it. It can also teach you how to let “people of means” in your market know you have the kind of expertise they want.
Component #1: Become a genuine expert on markets and value.
To become a perceived expert on markets and value in the areas you serve, first target the luxury market in which you want to work. This is easily done by familiarizing yourself with the town or county in which you want to specialize, and identifying the exact areas that have homes in your target value range.
Get your hands on a large-scale map from the appropriate department of your town hall (could be the tax assessor’s office or the engineering department). One benefit of using an assessor’s map is that it shows individual parcels in the selected area.
Print this map as large as you can, place it on your office wall, and begin to construct a two-year history of your market area.
Pull up all sales history and current offering information in your chosen market. Once you have gathered all this information and placed it graphically on your wall map, then study it, digest it, and internalize it. Indeed, become “one” with it so you’re a walking, talking expert on everything that has occurred in your marketplace during the past two years.
On the map, locate all current listings and note their prices, square footage, land area, and how long each one has been on the market. Of course, you can do this on your computer using Google maps or the equivalent, but I think you’ll realize a huge benefit in seeing things blown up and taped to the wall in your office.
Plot all the sold properties that feature similar information: land area, dwelling space, and so on. Then for the whole market area of interest, note the days on market, average sales price, average list to sales price ratio, and tax assessment ratios. You’ll be able to see this data at a glance.
Location Adjustment Matrix
When you are doing price opinions or CMAs in your marketplace, it’s imperative that you remain consistent in your assumptions about comparative values throughout the different locations in your area. To do this, create a Location Adjustment Matrix similar to the one shown here.
Here’s how to set up a Location Adjustment Matrix. Down the left side of the page, list all the high-end areas in which you plan to specialize. Repeat the locations in the same order across the top of the spreadsheet. You can go to http://www.jackcotton.com/, click on downloads, and get a copy of my location matrix. When you add locations down the left column, they auto fill across the top.
As you study your target markets, you begin to form opinions regarding the comparative value of similar properties in the different locations. For example, you may determine an estate on Egg Island is worth 20% more than a similar estate on North Bay. That’s how you keep track of this difference in market value based on locations.
Understand, this is not an exact science. These adjustment percentages are based on your opinion that, in turn, is based on your study and knowledge of the market. The most important thing is to be consistent. Therefore, you can’t say that Egg Island is worth 20% more than a similar estate on North Bay in one CMA, then use 10% in another.
A major benefit of using a Location Matrix is that you are held accountable by the form to be consistent and to give a least a little thought to the reasons for differences in value between and among different locations within your market.
Again, the Location Matrix I use clearly states it is my opinion as of a specified date.
Assessment Ratios