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Real estate brokers say high-end buyers have returned, but what’s being listed?

Posted On: 10-16-2010

By Darrell Hofheinz  

Posted: 6:11 p.m. Saturday, Oct. 16, 2010

Daily News Staff Writer

 

As the stock market climbs amid indications the economy is finally recovering, real estate firms are hoping those who have put off buying a home in Palm Beach over the past few years will finally do it this season, encouraged by more realistic prices set by sellers.

“After two years of sitting on the sidelines, buyers have now re-calibrated their finances and are saying, ‘I’m going to get on with my life and buy a Palm Beach house,’” said island broker Christian J. Angle of Christian Angle Real Estate.

Noting a “heightened interest in the market” over the past few months, Angle describes himself as “cautiously optimistic” about the coming season.

That could describe any number of real estate agents in town who are breathing a little easier as home prices have begun to stabilize. That comes as a relief after they watched prices tumble during the past two years — particularly in the island’s South End condominium market — as sellers sought to attract reticent and occasionally cash-strapped buyers. Even the Town Council this summer made unprecedented cuts to the municipal budget in response to lower property-tax-appraisals — and correspondingly lowered municipal-revenue expectations — to avoid hiking the island’s tax rate.

Things have nowhere to go but up, price-wise, said senior vice president Bill Yahn, who heads Corcoran Group’s Palm Beach brokerage. “I happen to think we’re at the bottom in Palm Beach,” said Yahn, echoing other real estate agents and brokers interviewed for this story.

Broker Linda Olsson of Linda R. Olsson Inc. Realtor, expects a “fabulous” sales season. “Palm Beach prices have never been lower, and interest rates have never been lower,” she said.

And at the Palm Beach office of Sotheby’s International Realty, broker Reginald Fairchild said his office is “really gung-ho” about the season, adding that sales are up nationwide in Sotheby’s markets that serve high-end clients. “We expect to end the year up 50 percent over last year,” Fairchild said about his Palm Beach office. “We’re fortunate that the high-end buyer is back and that the average sales price here is increasing.”

Inventory issues

Yet even as prices regain their footing, many real estate pros are asking whether would-be buyers this season will find the types of homes on the market they’re looking for — houses and condos in good condition that won’t need a large infusion of time and cash for renovations to make them move-in ready. And if those homes already meet building codes for hurricane resistance and are on the water, so much the better.

“There’s ample inventory, but there’s not as much inventory of really good product,” Yahn said. “This is the first time we’re seeing prices that have deteriorated and buyers who aren’t looking to take on (renovation or tear-down) projects.”

Palm Beach broker Linda A. Gary — whose agents at her namesake firm “were busier than ever this summer and especially the last six weeks” — agreed with Yahn.

“Every client I’m working with is trying to buy a high-end home that doesn’t need work,” said Gary, who notes a resurgence of European clients in the market for homes priced at $12 million and up. “They don’t mind redecorating, but they don’t want to do construction.”

But many of the island’s better-quality houses and apartments simply aren’t for sale. That’s because their owners suspect the price they would fetch today wouldn’t be enough to recoup the cost of previous renovations, so would-be sellers have chosen to wait out the market until prices begin to rise again. The same goes for homes bought at the height of the boom for prices that might seem in retrospect stratospheric.

Even if exchanging one home for another is a traditional Palm Beach pastime, most homeowners simply aren’t feeling any financial squeeze to sell right now, said real estate attorney and Palm Beach property owner Leslie Evans. “In Palm Beach, 80 percent of homes are bought for all cash,” Evans noted. “Most owners are not feeling pressure to sell, because they are not overleveraged in their homes with large mortgages. So we’re not seeing as many problems with sellers as in other areas.”

But at the Palm Beach brokerage of Brown Harris Stevens, broker Ava Van de Water cautions homeowners who have put off selling to take a realistic look at their home’s value in today’s market. “People who are wanting to wait should know that they really aren’t going to see the dramatic rise in prices that we saw in the good old days,” she said. “Go ahead and list it. We have sold many a property by people driving by a home and seeing our sign.”

New construction

Compounding the inventory problem, the economic downturn of the past two years has meant that builders and developers have constructed fewer new, state-of-the-art “spec” homes on the island for general sale — and not just in the lower price ranges.

As the season begins, for instance, only two new oceanfront “spec” mega-mansions are on the market, both in the Estate Section on South Ocean Boulevard. One is a 21,263-square-foot house by builder Dan Swanson with a price tag of $47.5 million at 101 El Bravo Way, represented by the Corcoran Group. The other is a nearly finished 12,000-square-foot house on South Ocean Boulevard at Banyan Road built by Wittmann Building Corp. That house will be priced “above $25 million” and listed by Fite Shavell & Associates in Palm Beach, builder Paul Wittmann said.

“We have a unique piece of property,” Wittmann said, adding that he has in the last month received a variety of calls about the British Colonial-style home. “There isn’t another house on the ocean that’s going to compare with this house.”

With so few new homes for sale, what’s largely left on the market is older homes and condominiums — many in need of renovation — that might have sold more easily a few years ago during the boom but have stagnated in today’s economy. And largely gone, too, are investors who once bought and renovated properties with the goal of making a quick flip.

Although many buyers once thought nothing of tearing down older houses and replacing them with new ones, that market took a beating over the past two years. But Wittmann noted that he will break ground this season on three new custom homes of between 4,000 and 5,000 square feet for clients on Nightingale Trail on the North End, demolishing two existing homes in the process. “The properties all sold within a month this summer,” Wittmann said, a positive sign that interest in new homes may be building in more moderate price ranges.

Improvements seen

There’s no question the Palm Beach housing market has improved over the past year. Just take a look at the latest Evans Report, a real estate analysis compiled by attorney Les Evans. During the first half of this year — the time period covered in the latest version of the report — 17 single-family homes in Palm Beach sold for $5 million or more, vs. just five in the same period of 2009. And fewer less-expensive homes sold from January to June of this year than in the first two quarters last year. Condominium sales, however, have been notably bleaker, as prices have fallen and older units have glutted the market.

Broker Angle noted that a few recent sales in Palm Beach have even approached or exceeded $1,000 per square foot, the gold standard during the boom years. He mentioned two such properties: a 4,608-square foot home, built in 2005 at 430 Brazilian Ave. and sold by his agency in May for $3.975 million; and a new 4,859-square foot spec home at 218 Seabreeze Ave. built by Leeds Construction that was sold in September for $5.1 million by Fite Shavell & Associates.

Evans, who is finalizing his third-quarter sales report, said he isn’t convinced some buyers won’t purchase homes this season just because the inventory of high-quality properties is tight.

“There’s only so long that you’ll have pent-up demand, especially now that homes have come down in value,” Evans said. “Buyers are wanting to buy into the market, to have a piece of it, even if the house they buy isn’t their dream home. They can move up to a second home of their dreams here later,” he said, adding that buying a home today might serve as a hedge against the “hyper-inflation” some economists are predicting over the next couple of years.

Van de Water of Brown Harris Stevens said she’s seen plenty of buyers in the market for a new home in her office over the past weeks. “Some of the buyers who were on the fence for so long have come back and closed deals,” she said. “We’ve found a nice surprise in the $5 million to $10 million range, which had been the softest part of the market. It has come back.”

At Fite Shavell & Associates, co-owner Wade Shavell is also seeing more buyers — and they’ve often done their homework about Palm Beach prices, he said. “People are beginning to understand what the values are. They’re saying, ‘Show us houses where the seller understands the market,’” Shavell said. “The activity is where the properties are priced correctly.”

Tax incentives

Broker Shirley Wyner of Barclays International Realty in Palm Beach mentions another incentive for would-be homebuyers from other parts of the country whose federal tax obligations will increase if proposed changes targeting the wealthy take effect next year. Florida, with its tax advantages for homeowners, would become even more attractive to these buyers, Wyner noted.

Broker Olsson agrees, mentioning in particular Florida’s lack of a state income tax and estate tax. “Especially in California, New York and New Jersey, where taxes are through the roof, people want the tax advantages of being domiciled in Florida,” said Olsson, who said she doesn’t think a lack of updated homes on the market will pose a major issue for her clients.

“I think people fall in love with a house and a location — and they’ll make it happen, if that’s where they want to live,” Olsson said, even if it means remodeling. “But I think they do want an address quickly.”

Yahn, of the Corcoran Group, said that even in a challenging real estate market, housing on Palm Beach will always be at a premium: “It’s an island with finite inventory. There’s very little of it, and it’s precious,” he said.

Source: Augustus Mayhew, October 16, 2010, Palm Beach Daily News

http://www.palmbeachdailynews.com/business/real-estate-brokers-say-high-end-buyers-have-975815.html?page=3

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