Donna Iwamoto, associate broker with the New Buffalo, Mich., office of Prudential Rubloff Properties, has sold second homes to Chicagoans and others hoping to escape to the lakefront areas of Harbor Country, Mich., for 13 years.
But she’s never seen a real estate market quite like this one.
Even resort areas such as the slice of Southwest Michigan that Iwamoto serves are experiencing the negative impact of the down economy. This has resulted in higher inventory and lower prices.
But, like most talented agents in the evolving second home market, Iwamoto has adjusted. Business may be down in the second home world, but it’s far from gone.
“There is so much here to bring in the buyers,” Iwamoto said. “Our country settings are spectacular. There are farms here where you can buy organically grown fruits and vegetables. There’s a beautiful marina that draws people, there are wonderful golf courses, and it’s not far at all from Chicago. That’s what makes this such a booming second home market.”
Iwamoto, like all good agents, accentuates the positives in her market. But the truth is, the second home market does have certain advantages in a down economy.
Yes, second homes are luxury homes. When economic times get bad, consumers can ditch their second homes to save money. But this works two ways: most of the consumers who own second homes do so not because they have to, but because they want to. They can also afford to make what others would consider a luxury purchase. Second home buyers, then, are not necessarily as impacted by the negative economy as are the buyers of primary residences.
To tap this market, though, real estate agents must bring special skills to the table. Second home buyers, after all, have different needs than those buying full-time residences. Agents who don’t meet these needs will find it impossible to succeed in this specialized market.
A Bank of Knowledge
Bob Satawake, co-chair of the luxury home division at Keller Williams Gold Coast in Chicago, says that agents hoping to specialize in the second home market need one trait to succeed: they need to know a lot about multiple markets.
That’s because today’s second home clients aren’t just buying summer homes on the shores of Lake Michigan; many own multiple homes across the globe.
“In the truly upper bracket division for Chicago, my clients have multiple homes,” Satawake said. “They are very mobile people. They don’t have a vacation home at a resort that they go to once a year. The age of the timeshare has long since passed in the luxury market. Most of my clients have three or more homes. They spend some time in New York at one point of the year, Los Angeles another time, or the Caribbean or Europe, wherever it may be.”
This poses a challenge for agents. To serve their second home buyers properly, they need to possess an in-depth knowledge of the different markets in which their buyers are purchasing. Agents also need to set up relationships with brokers and fellow agents in markets across the country, and even the world. This way, when one of their clients wants to purchase a condominium in Los Angeles, agents will have a trusted partner in that city who knows the positives and negatives of specific neighborhoods.
Satawake, though, warns against relying entirely on a partner to close second home sales. It’s important for agents to remember that their clients chose them for their knowledge and experience; they won’t be happy if they feel that their agents have handed them off to a real estate professional across the country whom the buyers or sellers don’t even know.
Satawake’s clients always deal directly with him. When they have questions, they call him. When they are negotiating a deal, they work with him. Satawake’s partners across the country share their expertise with him, but they never become the point person for his clients.
“I am present in every deal. I am my clients’ point person. They are never handed off to someone else,” Satawake said. “That’s not the way we do business in the upper-bracket luxury market. My clients would never stand for that. The reason they are working with you is your knowledge.”
This market knowledge is important, even for clients who are looking to buy a second residence close to home. Iwamoto, for instance, works closely with the residents of Chicago and its suburbs who want to purchase second homes just 40 miles or so away in Southwest Michigan.
But even though Harbor Country, Mich., isn’t far from Chicago, it’s still a different world. Iwamoto knows the differences between the lakes in Southwest Michigan. She knows how septic systems work and how many trendy restaurants are located within a short drive of each beachfront community.
Second home buyers want to know these nuances. Agents who can’t provide them with this information won’t last long in the second home market.
“In the city, you have condo after condo where everything is comparable,” Iwamoto said. “Out in the beach area, there is so much more to understand. People aren’t familiar with septic systems. All the beaches have their own differences. Some are nice and wide, others are rockier. All of the beach communities have different personalities. The people I work with rely on me to fill them in on these details.”
Not a Booming Market
Providing clients with expertise is more important than ever in the second home market. While this market is holding steady as a percentage of total home sales, this doesn’t mean that it’s booming. Far from it, actually.
According to the 2011 Investment and Vacation Home Buyers Survey from the National Association of Realtors, vacation home sales accounted for 10 percent of real estate transactions in 2010. Investment-sale homes accounted for 17 percent of the number of 2010 sales.
“I don’t think there’s a huge market for traditional second homes today. But it’s still a great market for people who buy and sell multiple homes. Typically, they trade one in every three years, just like how someone will get a new car every three years or so.”
– Bob Satawake
Neither of these numbers changed from 2009. However, the total number of second home sales did fall, along with the rest of housing sales across the country.
According to the association’s report, the number of vacation homes sold in 2010 fell 1.8 percent from the previous year to 543,000. The number of investment properties sold dropped even more, 7.8 percent, to 867,000 in 2010.
These drops are in line with the overall slump in the housing industry. The number of primary residences sold in 2010 fell 5.6 percent from 2009, a drop of 4.04 million primary residences sold to 3.81 million.
“Like in all parts of the country, the economy has affected our real estate sales,” Iwamoto said. “We haven’t experienced as many foreclosures or short sales as some of the primary markets in Michigan have. The people who come here do so because they can afford often to pay cash for their vacation homes. Having said that, we have experienced a slowdown over the past several years. Prices have adjusted downward. Even lakefront prices have adjusted.”
Satawake has seen much of the same. He represents a resort property located in the Dominican Republic. Sales there were strong until about 18 months ago, when sales started to drop. Today, Satawake says, closing deals at this resort is no longer an easy task.
“It’s become painfully difficult to sell properties there now,” Satawake said. “That part of the second home market is slow today.”
Not All Markets Are the Same
Not all second home markets, though, are seeing a slowdown. Just ask Diane Taillon, a real estate agent with Hunter’s Fairway Sotheby’s International Realty.
Taillon works out of the brokerage’s Ephraim, Wis., office, in the heart of Wisconsin’s Door County. This county, home of fish fries, shorelines and wooded natural areas, is a prime second home spot for Chicago residents. And, unlike other second home markets, Door County has actually seen sales rise in 2011.
As of June, Door County second home sales rose 21.8 percent from the same period last year. There are many reasons for this increase, Taillon said.
“A lot of the people looking to buy here are looking forward to retirement,” Taillon said. “They are not ready to retire now, but they are buying a home that they’ll use as their retirement home later. Until they’re ready to retire, they’ll rent it out for cash-flow purposes. This is a market that’s fairly resistant to real estate slowdowns.”
At the same time, changes in the popular resort area of Lake Geneva, Wis., are having a positive impact on Door County sales. Lake Geneva no longer allows homeowners to rent out their residences on a short-term basis. This has caused potential buyers to investigate Door County as a second home option.
Satawake, too, sees differing second home markets. In fact, Satawake does most of his second home business with luxury buyers who aren’t purchasing vacation condos or lakefront homes, but rather who want to own multiple properties – all of which almost serve as primary residences – across the country and globe.
This part of the business hasn’t been slowed as severely by the weak economy. Since the start of 2011, Satawake has closed two such deals, one in Dallas and one in Indianapolis. He has another deal in Los Angeles that should close by the middle of August. He’s also worked with an Ohio-based client who has purchased a second home in Chicago. Together, these five deals represent roughly $15 million in second home business for Satawake.
“I don’t think there’s a huge market for traditional second homes today,” Satawake said. “But it’s still a great market for people who buy and sell multiple homes. Typically, they trade one in every three years, just like how someone will get a new car every three years or so. They decide on a new location or they decide to upgrade in their current location. Often, for whatever monetary opportunity, they’ll liquidate one asset and move on to another. That market has remained solid.”
New Price Points
To properly serve their second home clients today, real estate agents need to educate both buyers and sellers on how the vacation and investment home markets have changed.
For example, in such Southwest Michigan communities as New Buffalo, Union Pier and Grand Beach, asking prices for even those second homes located in prime lakefront locations have fallen.
This is something that both buyers and sellers need to understand: sellers so that they don’t overprice their properties, and buyers so they don’t overpay.
Iwamoto said that buyers today can find Harbor Country second homes in the $300,000 to $500,000 range – prices that were rare just three years ago. Houses in this price range will sit within two or three blocks of beach access. It once cost $700,000 to $800,000 to buy within striking distance of the beach, Iwamoto said.
Knowing the typical price ranges of second homes throughout a market is a key part of understanding a market well enough to guide clients to a smart purchase. But agents have to know more than just price points to prove to their clients that they truly understand all the nuances of a market, Satawake said.
The best agents know which neighborhoods feature the best nightlife or which ones cater to retirees. They know which ones are within walking distance to top-ranked restaurants and which have a reputation for quiet streets. It’s this type of information that buyers who are new to a community need to know, Satawake said.
“We have to prove through our knowledge that we understand the social community in the city in which we are working,” Satawake said. “Clients want to know that we understand and have experienced the lifestyle of that community so that we can translate that to a client coming from outside that community.”
Satawake’s high-end clients demand in-depth knowledge of the communities in which they are considering buying. As an example, Satawake provided clients a list of the best available private schools to help them facilitate moves to Los Angeles and Long Island, N.Y., last year. Satawake, though, went a step beyond: he introduced these clients to community members who could help his buyers navigate the often tricky process of getting their children into highly desirable schools.
“When you are coming from outside of a community, it can be difficult to get your child into a program without a local relationship,” Satawake said. “In the markets we serve, we need to have those relationships.”
Taillon, too, emphasizes the importance of customer service to any agent who wants to succeed in the second home market.
Taillon isn’t content to simply put her second home listings on the MLS and hope they will sell. Instead, she’s aggressive in holding open houses with traditional second homes and receptions to help move the area’s higher-end residences.
Taillon describes a reception as an open house that is open to invited guests only, for security reasons. These events have high-end food, and often include live music.
“At the end of the day, second home buyers are looking more at a lifestyle. They are not as focused on the primary needs of the family as primary buyers are.”
– Diane Taillon
Taillon also provides glossy, high-quality brochures to showcase her listings, provided through Sotheby’s. Taillon and her office also sponsor community events in the Door County area. This can be costly, but it does build name awareness among potential buyers and sellers in the county, she says.
“We are heavily involved in the community here,” Taillon said. “Already, this year, we’ve contributed to three or four different events. We are a real community supporter up here. It’s costly to do that, but it does pay off.”
The agents working the second home market say that they expect sales to pick up – or pick up even further in the case of Door County – throughout the rest of this year and the immediate future.
This might happen even if the economic recovery remains sluggish, these agents said. Second home buyers differ from primary buyers; they don’t always stop spending just because the economy is struggling.
These same differences, though, do bring with them a challenge: second home buyers rarely make quick decisions.
“In the second home market, you are working with buyers who don’t have to purchase a home,” Iwamoto said. “This is a big luxury item for them. They can take their time when searching, as they should, to find something that really feels comfortable to them. They’re not buying a necessity. They’re looking for a haven to come to.”
Taillon agreed. She also said that she expects even better times in her community as the year moves on. People are tired of the bad economy, she said. They’re eager to invest again in second homes and family vacations.
In other words, people are looking forward to living again – and for some consumers, this means finding the perfect second home for their families.
“There’s been a lot of money sitting on the sidelines,” Taillon said. “People are returning to the market now. They’re ready to buy again.”
“At the end of the day, second home buyers are looking more at a lifestyle,” she adds. “They are not as focused on the primary needs of the family as primary buyers are,” she said. “They’re not looking for three bedrooms as opposed to four or three baths as opposed to two. It’s more about if they want to be on the beach or if they want to be in a cozy little cabin.” C.A.
Prudential Rubloff Harbor Country
Hunter’s Fairway Sotheby’s International Realty