Working with affluent buyers can be incredibly rewarding but comes with its own set of challenges. Higher net worth individuals don’t always have the same set of motivations as traditional buyers. Not just that, but luxury markets require their own set of research.
Whether you are new to working in more affluent markets or a seasoned professional, it’s critical to continually shift your mindset to understand and adapt to the market conditions and the requirements of these higher net worth individuals.
Here’s what you should remember when it comes to wealthy clients.
Who are the affluent?
In today’s market there are more affluent buyers than ever before. Wealth-X states that globally in 2015 there were 212,615 ultra high net worth individuals and predicts that by 2020 this number will have increased to 318,000; forecasting total wealth assets rising from $31 trillion in 2018 to $46.2 trillion by 2020. In the US, personal wealth of high net worth individuals grew by $8.5 trillion, 197 cities have a median home value of $1 million (up from 164 in 2017) and the number of sales above $1 million rose 6% in the last year.
The most common affluent buyers can be grouped in three categories.
- The mass affluent: These high net worth individuals have at least $1 million in net worth and household earnings of about $125,000 or more annually.
- High net worth individuals: These buyers have between $1 million and $30 million in investable assets and 2.5 million people have assets of $5 million plus.
- Ultra high net worth individuals: Buyers who have at least $30 million in investable assets and their combined wealth in 2018 is approx. $31 trillion.
There are three additional categories that a minority of affluent buyers fall in: centi-millionaires, demi-billionaires and billionaires.
What characteristics define wealthy buyers?
Affluent buyers might not necessarily stand out to you right away. Here are some characteristics of certain high net worth clients in the “mass affluent” and “high net worth” categories from above:
- Save 15% to 20% of gross incomes.
- Don’t lead luxurious lifestyles.
- 76% are married.
- 41% have children under 18 years old.
- 24% are in top management.
Since some purchasers may be stretching to break into the luxury market, sometimes it’s a good idea to qualify buyers before you get deep into negotiations for a property. You can do this by tactfully suggesting they prepare a verification of assets from a financial institution in order to negotiate more effectively. Introducing qualified individuals to an appropriate lender can also help you get all your bases covered before you get too involved in any particular negotiation.
3 Concepts to remember when working with affluent buyers
Avoid beginner’s mistakes by keeping these core concepts about luxury clients in mind.
1. The traditional market and luxury aren’t always in sync
If you’ve been a real estate agent for a while, you probably have some knowledge on the traditional market. While this is certainly helpful, don’t assume the luxury market is reacting to economic changes in the same way. Here are some ways to evaluate the luxury market:
- Inventory levels: If they’re low, it could be difficult for clients on the lower end of this demographic to purchase, but when inventory’s high that’s a good time for new buyers to break in.
- Watch for catalysts: Just like the traditional market, macro and micro events could influence pricing in the luxury market. These events might not necessarily be the same in each market, so don’t assume one catalyst will spell the same outcome for clients at every price point.
- Divide your upper-tier marketing into price ranges: The upper tier of the marketplace isn’t homogenous. Within it there are several different price ranges for luxury homes that you’ll want to understand in your market. We recommend doing a price brand analysis that includes factors such as a listing’s average days-on-market, percentage of list price for which the property sold, the level of inventory within each price range and the number of sales by price range.
2. Keep an eye on cities that are seeing growth
It can be challenging to find new clients when breaking into the luxury market as an agent. That’s why it’s advantageous to keep an eye on cities that are seeing new luxury growth beyond the major, well-established luxury markets in the U.S.
Since new markets are always emerging, you’ll need to do your research about nationwide markets. Once you’ve identified some that you feel you might be able to break into as an agent, brainstorm how you can find clients in those markets. Perhaps clients in your location who are looking for a second property might find an emerging luxury market fits their strategy and you can help them purchase. Maybe you reach out to potential clients in emerging luxury markets with some expertise they want to take advantage of. The key is finding a strategy and putting it to work.
3. Always be researching
Many affluent buyers are leaders in their industries and well accustomed to staying attuned to changes in their own markets. They’ll want you to do the same if you’re going to work with them and expect to have intelligent conversations backed by industry data. If you’re not doing quality research you could find it harder to connect and retain affluent buyers. The Institute for Luxury Home Marketing provides members with insights on up to 60 luxury markets from across North America to help you stay on top of the game.
Educate yourself on the luxury market
Succeeding with affluent buyers means understanding their motivations and how their specific luxury market is reacting to changes in the current political and economic landscape. Educating yourself on both these elements can help you prepare for success as a real estate agent to the wealthy.
To learn more best practices in dealing with luxury clients, sign up for a training course with The Institute today!
These are all good tips.