Real Estate Marketing & Beyond
Luxury home buyers are racing to snap up supersized homes with extra upgrades and tons of amenities, but many are at risk of going over their budgets as they do, experts say.
The danger, according to Mari Adam, a certified financial planner with Mercer Advisors in Boca Raton, Fla., is that people can buy real estate without really understanding what it will ultimately cost them in the long run.
“It’s very emotional,” Adam told the Wall Street Journal of the home buying process. “You see a house that’s gorgeous, and the logical part of your brain, the part that goes through the numbers, doesn’t kick in until it’s too late.”
It’s an issue that affects even the wealthiest of buyers. James Harris, a real estate professional with The Agency in Beverly Hills, Calif., told the Journal that last year he had one client that backed out of a $100 million transaction at the last minute after realizing that the maintenance costs of the home would come to around $200,000 a month.
Buyers of luxury homes as well as private country club properties need to make themselves aware of everything it offers, and also the cost of maintaining all of those features and amenities, experts say. Those costs can quickly add up on any home that’s worth $1 million or more.
Besides maintenance, buyers must also be aware of additional costs such as property taxes and insurance, which can be very expensive on luxury properties. Some of the specific costs relating to luxury homes might include pool maintenance, landscaping and the upkeep of a tennis court on the property, for example.
In addition, many luxury homeowners will hire a full-time manager to oversee the property, and that can cost as much as $150,000 a year in some parts of the U.S. They may also have to pay wages for security guards and household staff, as well as country club fees tied to the home.
Insurance can be a big consideration too, depending on where the home is located. For example, a home that is near water or in an area prone to natural disasters such as earthquakes, hurricanes and wildfires will inevitable cost more to insure.
“Luxury homes are usually built by a custom builder, using finishes of a higher quality,” said Ken Sidlowski, practice group leader of the Private Client Group at Horton, a Chicago-based insurance firm. “A high-net-worth insurance carrier will, in most cases, guarantee the replacement cost of that home, even if that’s higher than the market value.”
