According to experts, this is what you should know.

By Camilla McLaughlin



The basics never change: a willing buyer and seller come to a meeting of the minds over a property. But it seems that just about everything else related to buying, selling and owning a luxury home has changed over Unique Homes’ 45-year history. For this installment of our year-long series commemorating our anniversary, we aim to help readers stay at the top of their game. We’ve tapped a number of experts to weigh in on what homeowners might not know about everything from insuring collections to the value of a dock for waterfront property.

Still insuring your multimillion-dollar home with the same agent and company you chose when you were 18 and insuring your first car?

If so, experts say it’s time to take a closer look at your insurance. “If you’ve moved up in the amount and scope of possessions, you should probably move up in the sophistication in which you protect them,” says Christie Alderman, vice president of client products and services for Chubb Personal Risk Services.

Consider collections. Maybe it’s inherited works or a passion that builds with each acquisition, but collections sometimes just happen. “We’ve seen clients who started with just a few items that suddenly
became a 100-piece collection,” says Laura Doyle, North American collections management specialist at Chubb. “We also have had clients who purchased a piece of art decades ago for $20,000 and then find the current value is $2 million.”

No matter the circumstances or motivation, there is a point when collectors need to seriously consider valuation and preservation, beginning with improved record keeping. “Basically, you should have an updated record of what’s in the collection, where it’s located and values,” Doyle explains. Provenance is more important today, so an inventory should also include any documentation, invoices, bills of sale and history of the work or artifact. Keep valuations in sync with the market. “Collectors need to be getting updated appraisals on a regular basis.” Three to five years is the time frame Doyle suggests unless it’s a category that is appreciating extremely rapidly, then every two to three years might be in order.

What many consumers don’t realize is insurers such as Chubb, which is the largest insurer of private collections in the U.S., can be a valuable resource. “We do see that a lot of collectors are starting to build homes with collections, so they are installing sophisticated climate control, special light fixtures and additional storage on site for collections,” Doyle shares, noting that Chubb has a team that goes to homes under construction to assess any potential risks and also offers guidance to contractors on the design and construction of spaces to display art, wine cellars, even private galleries. In addition to a team of specialists who came to the company from the art world, Chubb’s resources include a network of trustworthy vendors including appraisers, art advisors, conservators, wine specialists and off-site storage facilities.

For insurance overall, one of the biggest mistakes high-end consumers make is insuring a house at its real estate value instead of replacement value, which takes into account finishes, materials and the cost of labor to replace them. It’s not unusual for high-end insurers to send risk consultants to the property to advise on the proper amount of insurance.

Wealth management has become a boutique business.

Along with explosion of wealth, there has been a similar boom in private wealth management advisory firms, especially those dedicated to serving a single or a select group of families. “People are generally not trusting Wall Street, and with massive wealth and all the complexity that comes with it, you really do need your own team,” explains Paul Morelli, managing partner of Vernal Point Advisors in San Francisco, a wealth management firm that functions as a multi-family office.

Investment strategies are only part of the service family offices provide, beginning with educating family members and goal setting. They also provide risk management, trust and foundation administration in addition to financial reporting and compliance.

man holding the phone with program smart home on the screen against the background of the computer

man holding the phone with program smart home on the screen against the background of the computer

Security is personal.

When it comes to security, theft is not the main concern for insurers. Instead, it is fire. Alarm companies are not attuned to the scope of high-end properties, and install for the bare minimum of life safety. In larger homes, that sometimes can mean that large amounts of space are unprotected.

For the affluent, personal security and privacy have become paramount, raising the bar for upscale agents. “Luxury consumers should recognize that a good agent will innately understand a client’s desire for privacy, and also understand how busy they are,” says Stephanie Anton, executive vice president for Luxury Portfolio International.

Additionally, a growing number of agents are taking greater measures to ensure potential buyers are legitimate before giving them access to a prized listing. Emerging are firms such as JJA Advisory Group, a business development and executive recruiting firm, dedicated to developing best-in-class search methodology. Not only does this firm identify top talent for the wealth management industry, they also qualify potential high-net-worth clients. Founder Gog Boonswang says the information in searches is all publicly available.

Security also takes on a broader meaning, expanding beyond physical security to cybersecurity and medical security, particularly when homeownership extends to global locations. “The major struggle is to make sure they have adequate doctors and the ability to evacuate the family,” explains Morelli.

What expert agents want you to know.

Agents want to be partners with their clients. “The perfect client is someone who is going to value the agent’s knowledge. Agents tell me it is someone who understands they have much more to offer than data,” shares Anton.

Also “critically important,” according to Anton: sellers understanding how long it takes to sell a significant property. They should expect their agent to provide information on the supply and absorption rate in their marketplace. Additionally, agents should know how important it is to reach beyond their marketplace, whether it’s nationally or globally, because there is a good chance a buyer will come from outside the local area.

It’s not unusual for buyers from outside the country to purchase a property sight unseen, says Kathy Murray with Douglas Elliman in Manhattan. “They should have a trusted local advisor who can explain the process.” Since it takes a year or more to complete new buildings, it’s important to investigate payment structures and to have their funds in place. Also, Murray says, be sure the agent is pulling rental comps that are real and valid. She says prospective buyers in Manhattan, for example, should hire a good Manhattan-based real estate attorney.

Boomerang buyers go back to the city.

After a sojourn in the suburbs, a good number of empty nesters are rediscovering urban living.

“It’s become very sexy to move back to the city,” observes Jessica Cohen, an associate with Douglas
Elliman in Manhattan. And once the search begins, a few unexpected facets of properties often surprise. Central air conditioning, and a washer and dryer in the apartment are luxuries not to be found in a majority of buildings in Manhattan, except new construction, which typically fetches a 25-to-30-percent higher price. Most older buildings prohibit washers and dryers in the units because the plumbing can’t accommodate them, says Cohen. Central air is also a rarity in older buildings, making window units a go-to solution.

Also unexpected is the amount of financial information buyers are asked to disclose. “Seventy-five percent of the units in the city are co-ops, so buyers need to be comfortable disclosing all their financial information to the co-op board,” says Cohen. Buyers of new condos, unless it’s the first sale in a building, will be asked to make some financial disclosures. “It’s the price of entry here, even if they pay cash for the property,” adds Cohen.

What you need to know about waterfront properties, ranches and land.

In Cape Cod, Massachusetts, potential buyers have plenty of options, from view properties overlooking a rocky coast to those directly on the water. When it comes to waterfront, docks, views and beaches all matter, but the value equation really balances on what is important to an individual. For example, says Paul Grover, co-founder of Robert Paul Properties, “Docks really drive value and it’s important to be aware of the value of the dock.” Grover points to the multilayers of approvals — local, state and federal — required to add a dock in Massachusetts. “It’s quite a process, but it adds value.” But, he emphasizes, unless someone is a boater, it might not be the best way to spend money. Then, location and views have a bigger impact on price. And, of course, you can’t discount the impact of a nice sandy beach, which is very valuable.

When it comes to ranches, the market is very good, but demand is limited to prime properties. “Class A properties that are truly an A or A-plus trade well,” says Telluride broker George Harvey. Below that level of quality, ranch properties take longer to sell, he adds.

Land itself has become a hot commodity. This year, Harvey says, “The 1 percent globally are once again looking at land as a hedge against volatile equity markets.” Anyone can build a spectacular house or estate, but more land can’t be manufactured.

Access to water contributes to land values in the West, making water rights critical to a deal for ranches and agricultural properties. “It’s a big issue,” says Harvey. Legally, when it comes to water rights, it’s a use it or lose it proposition, and it’s not unusual for a seller to discover they don’t own as many water rights as they thought. Sellers need to have their rights legally researched. Discrepancies can cause big issues at closing, and even kill a deal, according to Harvey. “And it’s not just an issue with money. Buyers can easily turn that information into a negative in a hurry.”

What makes smart homes smart?

It’s the security system.

“It’s the one system that’s knows if you are home, where you are in the home, and what door you come in and out of,” says Peter Cook, owner of Automation Design + Entertainment Inc., of Portage, Michigan. Knowing whether that door contact is open or closed can trigger all the other elements in a smart home system. “The next wave is how we maximize this system.”

Voice control is expected to be a game changer, which Dave Pedigo, senior director of emerging technologies for CEDIA, sees as an opportunity for manufacturers and home technology professionals. “Soon you will see manufacturers with Alexa and/or other voice control products specifically built into their products,” he observes. “I do not think that Alexa will replace Lutron or Crestron. Instead it will actually complement both of those manufacturers, making their products more compelling.”

The appraisal: What’s it worth to you?

Appraisals are the wild card in a transaction, thanks to the combination of rapid appreciation, a notable number of properties in the upper price brackets selling without being on an MLS, and the increased oversight resulting from Dodd Frank. The bottom line hasn’t changed, and Rick Singh, the Orange County (Florida) Property Appraiser, reminds sellers that “cost doesn’t necessarily equal value.” In the typical scenario, lenders hire the appraiser and buyers pay for the service, but cash deals also often involve appraisals, and frequently sellers will have the property appraised to determine market value.

No matter who hires the appraiser, it shouldn’t “change their opinion of value. There’s kind of an assumption that an appraiser is going to favor one side or another based on who is hiring them, and that’s really a myth,” says John Brennan, director of appraisal issues for the Appraisal Foundation, a professional organization authorized by Congress as the source of appraisal standards and qualifications. “At the end of the day, it’s the appraiser’s obligation to be competent, to understand the appraisal problem at hand, to understand the marketplace and to be able to render what we refer to in the standards as a credible opinion of value.” Another myth is that appraisers set the market. Instead, they are tasked with reflecting the market.

For upscale properties, it is important to have an appraiser who understands that this is not a traditional tract home appraisal, which means they might have to search farther from the subject property to find comparable sales. “Depending on the value and the type of property, in some cases it may be a national market,” shares Brennan.

The Dodd Frank act put in place requirements to insure lenders could not influence appraisers. However, Brennan points out, “Dodd Frank has specific exemptions in it, including asking an appraiser for further explanation, for clarification, or to consider additional information that may not have been in the appraisal, such as additional comparable sales or features of the home that may not have been fully recognized. Not only is it allowed, but it is specifically spelled out in federal law, and there is a provision for it.”