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[Real Estate Tips]

Home Buying Secrets Of The Rich And Famous

You might think that the more you spend on a home, the more complicated the transaction will be. To a large extent, however, the opposite seems to be true, according to a group of RE/MAX Northern Illinois agents who specialize in luxury properties. "Because the luxury market represents a growing segment of our business, we asked agents who specialize in it to identify some issues, such as contract terms and financing, that can become problematic," said Jim Merrion, regional director of RE/MAX Northern Illinois. "What we found is that most buyers of luxury homes have a combination of substantial financial resources, top quality professional assistance and the experience that comes from having gone through the home purchase or sale process on several occasions. As a result, they avoid many of the bumps in the road that can bedevil the average home buyer."

When it comes to financing, for example, "many of the luxury buyers we serve have the ability to pay all cash for their home. Nonetheless, they usually take mortgages at the recommendation of their financial advisers," says Kathleen Pyle of RE/MAX Showcase, Lake Forest, Ill. "A mortgage gives them more financial flexibility than would be the case if they paid all cash for a $2 million home. Even with their sizable financial resources, luxury buyers want to structure a transaction so that they remain within their comfort level."

Many times wealthy buyers want to find a new home before selling their current residence, so that often sets up a situation where there is some creative financing, such as a bridge loan or a seller holding a second mortgage until buyer sells the old house, she says.

Buying Habits
Still, a small percentage of luxury buyers do pay cash. "About 5 to 10 percent of the luxury home purchases I handle are for all cash," says Bryan Bomba of RE/MAX Elite, Hinsdale. The largest cash transaction he has handled to date was $3.5 million for a newly completed custom home.

"There are many right ways to purchase a home no matter what its price," says Graff. "When deciding how to structure financing, all buyers, not just those in the luxury category, should look at such issues as their own comfort level, current mortgage interest rates, their marginal tax rate and their ability to handle a given monthly housing payment, including mortgage, taxes and utilities," he advises.

Because luxury buyers rarely have trouble securing the home loan they need, they usually don't include a mortgage contingency clause in the offers they make, says Denise D'Amico of RE/MAX Central West in West Dundee, Ill. "That makes their offer more attractive to the seller. Being confident that you can get the loan you need is a plus for buyers in all price categories, and it is one reason we encourage every buyer to get pre-approval from a mortgage lender."

Luxury buyers tend to use the same sorts of traditional lenders as other purchasers though some, especially transferees, may get their loans through a lending institution that has a relationship with the buyer's employer," notes D'Amico.

One difference in the lending process, however, is that luxury homes more often are subject to a detailed appraisal that may include a video of the property, reports Wayne Reuter of RE/MAX Professionals East, St. Charles, Ill.


Buying Habits
Because of their size, mortgage loans for luxury homes often cost more than ordinary loans. Interest rates on jumbo mortgage loans, which start at about $300,000, usually carry an extra quarter point of interest. Super jumbo loans, which start at $650,000, are another quarter point higher. There are even two classes of loans over $1 million, each with slightly higher interest rates.

The higher cost of jumbo and super-jumbo loans is one big reason luxury buyers often decide to put down from 30 to 60 percent of the purchase price. "It allows them to qualify for a lower interest rate and speeds the mortgage approval process. Lenders feel there is less risk when a borrower is putting down that large a percentage of the purchase price," Merrion explains.

A related issue of importance to luxury buyers is what happens to their earnest money, not a small concern when you consider that, given the typical 10 percent earnest money requirement, a $2 million purchase translates into attaching a $200,000 check to the offer.

"With the amount of earnest money and the fact that closings on luxury properties can take a little longer than a typical home, it is not surprising that luxury buyers often want their earnest money earning more than it would in a regular passbook account," says Kathleen Pyle of RE/MAX Showcase, Lake Forest. "So they will specify that it be held in a money market account." Despite the large sums involved, contracts for luxury homes usually are straightforward, with most of the negotiation focused on the closing date, reports Denise D'Amico.

Buying Habits
"Luxury buyers put a high priority on making their move as smooth as possible because they often have demanding schedules," she explains. Purchase contracts for luxury homes also are more likely to include personal property of the seller, such as artwork or custom office furniture that is specifically tailored to the home, observes Wayne Reuter. Luxury buyers also tend to ask for a lot of inspections -- radon, termites, mold.

"That is not really out of the ordinary because many buyers of less expensive homes want them, too. Inspections are time consuming and slow down the process, but they are one more way of making sure there are no hidden surprises after closing," says Kathleen Pyle. Because a significant number of luxury buyers are transferees, a common request in their purchase offers is a clause making the purchase subject to approval of the spouse who may not be in town when the contract is signed.

"In hot markets with multiple offers, we have completed these approvals by having the spouse who isn't in the area view the home via the Internet or videotape," says Bryan Bomba of RE/MAX Elite, Hinsdale. However, luxury buyers don't spend a lot of time worrying about every period and comma in the purchase contract. "At this level of luxury, buyers are quite comfortable signing off on contract even without reading it because of the five-day window for attorney approval. They know they are going to have a very good lawyer review it," Bomba explains. "It's something every buyer should do."

Buying Habits
Jim Merrion of RE/MAX Northern Illinois believes that the most important lesson that all of us can learn from luxury buyers is not to let your attention be consumed by the details of financing and contracts. "Luxury buyers focus on finding a home that offers what they want, and they rely on professionals, a Realtor7, a lender and attorney, with the skills and commitment to help them achieve their goal. That is not to say that financing or contract terms aren't important, but they should never obscure the real object -- finding a great home for your family," he says.



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