The residential market in L.A. is as hot as ever as demand for homes at several price points largely outweighs the inventory available. Prices are up, and homes are moving faster than at the same time last year. It’s a great time to be a broker, but buyers looking to score a deal are in for a tough road ahead.
Unsold inventory in Los Angeles County was down to 2.9 months’ supply in November, a decrease of 12.6 percent from the same time in 2016, a report from the California Association of Realtors found.
As a result, homes are getting snapped up quickly. Listings in the city were on the market for an average of 58 days in the third quarter, six days less than in the year-earlier quarter, according to a Douglas Elliman Q3 2017 report.
Even the very high end of the market — homes between $10 and $15 million — is seeing a bit of an inventory crunch. “The wealthy don’t need to sell,” said Westside Estate Agency’s Kurt Rappaport, who placed third in The Real Deal’s spring 2017 ranking of top luxury brokers. “They are living healthy, long lives and staying in their homes.”
Brokers may have to work harder than ever to find the right properties for their buyers, but at least demand won’t be abating any time soon, insiders said.
“It’s a market that can weather any storm because of the weather, because of Hollywood, because of the tech industry,” said Hilton & Hyland broker Rayni Williams, who works as a team with husband Branden. The partners ranked fifth in TRD’s spring 2017 ranking of luxury brokers. “Anyone that is wealthy wants a home here,” she added.
TRD surveyed what’s happening in the three major price segments within the single-family market to see what brokers are contending with on the ground.
Hard-to-find homes: Under $1 million
The median sales price in the City of Los Angeles during the third quarter was $1,439,500, according to Douglas Elliman’s third-quarter report. And while prices outside the city are more affordable, they are creeping upward, too. In Los Angeles County as a whole, November’s median sale price was up 7 percent year over year, to $567,000, according to a report by CoreLogic.
Inventory is tightest in more-affordable areas, given that construction of new homes has largely focused on the luxury market over the last few years, experts said. More than half of all sales in Southern California were over $500,000 in November, while the number of sales over $1 million was up 15 percent from November 2016, CoreLogic’s report found.
Brokers have to get particularly creative in order to find inventory at lower price points. Woodland Hills-based Century 21 broker Scott Pinkerton has a few tricks up his sleeve for that.
“We look at the stuff that didn’t sell and go back to that,” Pinkerton said, explaining that he regularly calls representatives of expired listings.
Canvassing can be a big part of the job, too. If a buyer is interested in a specific area, Pinkerton said, he will knock on doors and hand out flyers to see if anyone is interested in selling. He also talks to agents to see if there are upcoming houses for sale not yet on the MLS.
Elsa Nelson, of Beverly Hills’ Nelson Shelton Real Estate ERA Powered, largely takes the same approach. “That’s where being well-entrenched in the community and knowing the brokers in the community comes in,” Nelson said. “When we are looking for a property, we sit on the phone and call other brokers and see if anything like that is on the market or coming on the market.”
For well-priced homes, bidding wars are not at all uncommon. Pinkerton said that first-time homebuyers often have sticker shock and don’t put in the right bid at first. Sometimes, he said, they have “to lose some” properties to understand the value of homes.
In terms of setting pricing, Pinkerton said he will often list a house at or below market value. “It’s a good strategy that works well for the seller,” he said. “You get multiple offers and get it up to the market value, and you get to pick the buyer with the best terms. It gives you more negotiation room as the seller.”
Pinkerton said low inventory should drive up prices. “There is still demand, which continues to drive the price up,” he said. “The big question now is, where are people going to move to if they sell their house? Can they move up?”
Nelson said she isn’t concerned about the low inventory seen in the third quarter. “A lot of it had to do with new tax laws,” she said. “Nobody knew what was going to happen, so there was a reaction in the market waiting to see what was going to happen. People were holding off to see what it all meant.”
The sweet spot: $1 to $4 million
Houses priced at more than $1 million have become the norm in many neighborhoods in the city.
It’s a bit easier to find homes at that price point, said Steve Frankel, who works out of Coldwell Banker’s Beverly Hills office and specializes in high-end real estate on the Westside.
“There’s more people buying at that price point [compared with ultraluxury],” he said, adding that a number of online tools help to quickly draw interest in a new listing.
Nelson said that videos showing the property and its floor plan, as well as high-quality photos, are the most important part of finding a buyer. “Videos are very useful in markets like Los Angeles, where we get a lot of international buyers,” Nelson said. “This helps them locate the properties before they come. They come ready to see certain houses.”
To get the word out about his properties, Pinkerton uses print and online advertising but also increasingly turns to social media. “We also do sponsored Facebook ads — people are getting really good response on those and a return on their investment,” Pinkerton said. “The newspaper ads are going to the wayside. People aren’t getting the paper anymore.”
Sometimes those sponsored Facebook ads “look like an ad” and aren’t effective, said Rayni Williams. But she clarified that having a large social media presence does help people see your product.
Exclusive dwellings: More than $4 million
The market for ultraluxury homes has been sluggish for the last several quarters, and pricing has remained stagnant. Luxury single-family homes spent 123 days on the market in Q3 2017 — that’s 41 more days than in the year-earlier quarter, according to the Douglas Elliman Q3 report. The luxury single-family home market’s median sale price was unchanged from the year-earlier quarter, at $9,300,000, the report found.
“The higher end is still trading, but it’s trading a little bit slower,” Rayni Williams said. “There’s a really sweet spot between $10 and $15 million. We got a little bit saturated in the higher end, so it’s still moving, but moving slower.”
The profiles of the buyers in the luxury market are also changing, the broker said, adding that many foreign buyers are buying anywhere from second to fifth homes — especially buyers from the U.K.
“Most of the Chinese have taken their money out,” Williams said. “We haven’t seen a lot of Russian sales, and the Saudis haven’t bought anything [in 2017]. Most of the $20 million sales are American.”
She added that a lot of people from New York and “Texas oil money” are coming to L.A. for the weather and growing tech hubs.
Westside Estate Agency’s Rappaport said he is also seeing a lot of New York transplants as well as foreign investors coming to L.A., citing draws that include the sunny skies and new technology that increasingly allows people to work remotely.
And when it comes to marketing these high-priced homes, agents agree: Expensive homes call for a personalized touch.
Frankel will tout ultraluxury homes on social media before they are even listed. He teased a property by famed architect Richard Neutra for six weeks before listing it on the MLS. The $5.63 million property overlooks the Hollywood Hills. “It has a pedigree architect, and there’s a huge buying pool for this in Los Angeles,” he said.
Rappaport, on the other hand, does not use social media for promotion as much as some other agents. “Many people in the ultra-high-end market want discretion and privacy and things handled under the radar,” he said. “It’s the 1 percent of the 1 percent who can afford these properties. When you market to the masses, that can devalue it and make it seem less exclusive.”
He uses technology in a different way: to track people who have bought high-end properties in the past. The luxury broker has a list of around 1,000 high-end clients in a private database. The information is not public record, he said.
When he has an exclusive property for sale, he targets these people directly.
And while cinematic and pricey lifestyle property videos have been de rigueur for a while, Williams said the trend is waning. “Some people want these salacious videos with models, and it just didn’t feel right,” Williams said. “The person buying the house has to be able to see themselves in the house, and sometimes these videos, in particular if they are over the top, can hurt this. We’ve found that going back to basics and adding in social media works.”
And a strong real-life social network certainly helps. Frankel said he also contacts agents he thinks might be interested and prescreens buyers for the super-high-end properties.
Some brokers are fully prepared for a continuing slowdown in ultra-luxury sales in the immediate future.
“We’re heading for a little correction,” Williams said. “One of our biggest years ever was 2008 because everything that went on sale was immediately bought up, and that drove the market back up. There’s a lot of wealth in this city, and the wealthy are getting wealthier. They will always place that wealth in the market.”
Pinkerton said it’s too soon to predict the market impact of the new tax law, which imposes a $10,000 cap on the property tax deduction and eliminates the home-equity debt deduction.
Rappaport does not anticipate it affecting the ultraluxury market, given that other provisions in the new law largely favor the superwealthy.
“The hope is it’s balanced by the lower corporate tax rate,” he said. “On the high end, it doesn’t matter. It’s more of a concern in the market that is under $1 million. In the multimillion-dollar market, its not stopping someone from doing what they want.”