Are Some Luxury Buyers Blowing Their Budget?
March 5, 2021
Luxury home buyers may be flocking to supersized homes with plentiful upgrades and amenities, but—just like any other buyer—they’re at risk of going over their budget.
“Even people who are very wealthy will buy real estate without understanding what it’s going to cost them,” Mari Adam, a certified financial planner with Mercer Advisors in Boca Raton, Fla., told The Wall Street Journal. “It’s very emotional.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.”
Luxury buyers still need to do their due diligence and learn everything about the home and the cost of maintenance before completing a sale. James Harris, a real estate professional and principal with The Agency in Beverly Hills, Calif., recalled to the Journal a buyer who backed out of a $100 million transaction last year after learning the monthly cost to maintain the house was $200,000.
Home buyers may just focus on the price of purchasing the home, but monthly upkeep can add up quickly, particularly in a home worth $1 million or more.
Luxury buyers should factor in the additional costs of homeownership, such as property taxes, insurance, and maintenance. There may be extra costs that are more specific to a home, too, such as pool maintenance, landscaping, or upkeep of tennis courts on the property. Oftentimes, luxury homeowners will hire a full-time estate manager to oversee their property, which can run up to $150,000 per year, the Journal notes. There also may be added expenses for security, employees, and any amenities or country club fees tied to the luxury home. Insurance is a big expense, too.
Also, homes that are near water or areas prone to natural disasters, such as earthquakes or hurricanes, will cost more to insure. “Luxury homes are usually built by a custom builder, using finishes of a higher quality,” Ken Sidlowski, practice group leader of the Private Client Group at Horton, a Chicago-based insurance firm, told the Journal. “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.”
“Buying a Luxury Home? It’ll Cost You More Than That Million-Dollar Price Tag,” The Wall Street Journal (March 3, 2021)[Log-in required.]
Updated: April 09, 2021