Luxury Home Buying Guide

From penthouses with spectacular city views to a prime estate in the country, options for luxury living vary widely by market. Generally, luxury homes start at approximately $1 million in secondary markets and $5 million for top markets like Los Angeles, New York and Chicago.

If you're in the market for a luxury home, here are the steps to guide you through the process:

Step 1: Learn the Search Process

Seek specific amenities and features in a luxury property. The best skyline view, direct water access for the 40-foot yacht or a secluded manor in the woods are all wishes the right property and location can fulfill.

“Buyers in the multimillion range usually have a lot more specifics they want and need and they’re less restricted on price,” says Moe Veissi of Veissi & Associates in Miami.

While the majority of homebuyers start their search on the Internet, many high-end properties aren’t officially listed on MLS or major search engines, so be prepared to expand your search.

Consider these search tips:

• Tap into the network of a recommended Realtor or broker with a specialty in the local, high-end market. Find an agent with the credentials and experience in the local market that can advise on schools, nuances to neighborhoods as well as the property specifics.
• While firms like Christie’s, Sotheby’s and most high-end divisions of the nation’s top realty firms show exclusively listed properties, most agents will be able to show you a property, says Klara Madlin of Klara Madlin Real Estate in New York. “If you have a good broker, they’ll have access to most properties. We all share. Get someone you like and trust as a professional that can steer you through the process.”
• Zero in on your top picks by seeing properties in person because many sellers, protective of their privacy, refrain from putting extensive photos of their homes on the Internet.

Step 2: Evaluate Your Finds

Evaluating a luxury home is more complicated than a typical home. According to Realtors, elements such as the home’s distinctive features and recent remodeling bear a larger weight than lower-end homes.

Consider these tips as you work with your agent:

• Schedule detailed property tours. Expect to take a couple of hours to see a larger home to review things like construction methods, architectural highlights, the neighborhood and how the security works, Veissi says. “It’s a much more detailed process and the Realtor is much more involved in the nuances of the property.”
• Address required disclosures. “Each city and county may have its own special requirements for disclosures. While it’s easy to be an agent today, it’s very important they know the local market,” says Fanny Chu of Prudential California Realty in San Francisco. For instance, some municipalities require disclosure on sewer lines, while others, underground oil tanks.
• Examine comparable properties. Obtain pricing information on comparable properties. Financing and making an appropriate offer on the home can hinge on having good data on comparables. See Step 4 for more information on comparables. 

Step 3: Consider the Financing

Today’s tight lending restrictions haven’t affected the high-end market as greatly as the general market because most luxury buyers aren’t connected to the subprime market.

Large banks such as Wells Fargo, Bank of America and JPMorgan Chase are among large national banks that issue jumbo mortgages and so do regional lenders like Northern Trust. Lenders today require at least 15 to 20 percent down. In many cases, buyers are putting down far more on high-end homes. Realtors say 35 to 50 percent down is common today in the upscale market.

Consider this advice from the pros:

• Be prepared with bank statements, W-2s, tax returns from the last couple of years and other financial statements. “Sellers of luxury homes will typically ask their Realtor to bring them only qualified buyers,” says Virginia Cook of Virginia Cook Realtors in Dallas. “This can be different than the typical mortgage prequalification process and could require showing asset statements and demonstrate which assets will go toward the purchase.”
• Have your mortgage broker, loan officer or personal banker obtain your financing approval early on, says Nancy Suvarnamani, president of Century 21 SGR, Inc. in Chicago. She notes the difference between a prequalify letter and a pre-approval letter, the latter which requires extensive documentation and verification. “With a pre-qualify letter, it just provides general information, whereas a pre-approval letter will say the amount you are already pre-approved for and includes much more rigorous financial information.”
• Some types of properties require more in-depth financial review of buyers than others. Housing cooperatives found in large cities like New York and Chicago require the most scrutiny of your personal finances versus a condominium. “After you put down a hefty deposit, you still want to have liquid assets of at least two years of maintenance and mortgage payments,” Madlin says.
• Expect a longer financial approval process. Realtors say even if your financials are in good order, count on 45 to 60 days. “The loan rate lock usually lasts 60 days too without it costing more,” says Elizabeth Blakeslee of Coldwell Banker Residential Brokerage in Washington, D.C.

Step 4: Make an Offer

Making the appropriate offer isn’t as easy as it looks. In some cases, sellers aren’t highly motivated to sell and have the financial wherewithal to hold on to a property to get the right price. Many hang on over time. Buyer prestige is also a plus: Proving the worth and value of the buyer can put a sale over the edge, says Ronald Phipps of Phipps Realty in Warwick, R.I.

Avoid over-reliance on consumer-based property evaluation sites. Instead, have your agent research similar properties in the form of comparable prices for active, pending and sold properties in the last three months from MLS listings, Chu says. “The comparable pricing data need to be drawn from industry MLS listings for the most accurate picture.” Use these figures as starting points in determining an offer figure.

Step 5: Don't Forget the Details

The complexity and scale of luxury homes raise the stakes. Experts such as tax and financial planners, bankers and attorneys should be consulted up front and often these professionals will take a direct involvement in the transaction.

A few reminders:

• Never skip the inspection process. From the potentially hazardous to the structural, you always want to know what it is you are buying. Make sure inspections and repairs are made in a timely manner.
• While not required in every state or buying circumstance, a good local real estate attorney can save you a lot of headaches. In Manhattan, for example, real estate brokers can’t write purchase agreements so buyer and seller are required to have attorneys.
• Be prepared for closing costs. Who pays for what varies by the customs of the given market. “It’s the Realtor’s job to tell the buyer what they need to cover, expenses at closing like transfer tax, attorney’s fees, title insurance, etc.,” Suvarnamani says.