BOSTON BUSINESS JOURNAL - In $1M-Plus Residential Market - Psychology Counts

July 14, 2004

Mark Micheli - Boston Business Journal Staff
As seen in the Boston Business Journal - July 14, 2004
Charles Kennedy, a senior vice president at DYG Inc., a marketing research firm in Danbury, Conn., is laying it all out in a carefully written slide presentation for a gathering of real estate brokers who generally sell properties in the $1 million-plus category.


Quickly flipping from slide to slide in his presentation, "The Psychology of the Affluent Consumer," Kennedy claims that a major shift in the psyche of American consumers has occurred in just the past three years. And he tells the crowd of Century 21 Fine Homes & Estates brokers gathered in the café overlooking the inner garden courtyard at the Museum of Fine Arts that they may want to alter their selling strategies to capitalize on this change.


"The psychology has shifted from America triumphant to America uncertain," Kennedy says after quickly cataloging the barrage of assaults on this country's buying prowess: the anticipated Y2K global technology crash that never occurred; the dot-com bust in the spring of 2000; the September 2001 terrorist attacks; "Enron-itis" in 2002; and the war in Iraq this year.


Still, even such calamities may prompt wealthy consumers, with a little help from their neighborhood real estate broker, to buy million dollar properties.


The wealthy have learned that there are economic risks, and they better not have their eggs all in one basket (the stock market), Kennedy says. He adds that they realize they need a "Plan B" for their investment money, and that can be real estate.


And he claims that these consumers crave an identity beyond their monetary success, and that could result in them seeking a prestigious home.


"The same purchases happen, but now the rationale shifts," Kennedy explains. "They now say, 'I need that $5,000 Viking stove because I'm a gourmet cook and I love to entertain my family and friends.' "


He says people either want to build a wall against the uncertainty in the world (reflected in an increase in Hummer vehicle sales, for example) or they want to escape from it (reflected in a spike in BMW sales after the Sept. 11 terrorist attacks).


He adds that for some, spending money or splurging is a way to show how tough they are -- that world events they have little control over are not going to keep them down.

But does any of this pop-psychology resonate with the brokers who have seen the number of sales of $1 million-plus homes in the Greater Boston area fall while the time needed to sell them has steadily lengthened?

"I do think all of those events have affected consumers. It's been very good for residential real estate. It's made it more important," says Patrick Fortin, owner of Century 21 Fortin in Winchester. He adds that home ownership numbers are up and he's not sure if it's related to these world events but he believes owning a home gives people a sense of control.


Although they acknowledge that some of the thinking patterns of their clients have changed over the past three years, Fortin and other brokers have a tough time pinpointing any noticeable changes they've made in sales strategies.


He admits that the number of property sales in the million-dollar-plus range have decreased in recent months; that there's more inventory in that price range; and that sales are taking longer. Jason Silfies, a manager in Century 21's home office in Parsippany, N.J., concedes this, too. But he maintains this isn't the reason the number of Century 21 offices that cater to luxury homes -- the company's Fine Homes & Estates offices -- was cut in half from about 1,600 to 800 in January. He says that was done to better reflect the inventory of homes the offices sell.


All of these factors, both tangible and psychological, have been good for the home auction business, according to Jerome J. Manning, owner of Jerome J. Manning & Co. Inc. in Yarmouthport.


Manning auctions off $1 million-plus luxury homes throughout New England, many of them in unique oceanfront settings. He claims the high-end market for him over the past six months has been "hot as a pistol," with double the number of homes being auctioned and more qualified buyers showing up at those auctions.


"People are putting their homes up for sale this way because they've tried the traditional method and had no luck," Manning says. "And I think more buyers are coming out because everyone is nervous."


He says both buyers and sellers now are usually very competitive people that are used to taking educated risks with a built-in comfort level, otherwise they never would have been able to accumulate their wealth. And he claims auctions, therefore, naturally appeal to them.


"Sure the adrenaline gets going and they get butterflies in their stomach, but at the end of the day the seller knows he sold at the highest possible price. And the buyer knows he bought it at the lowest possible price, because if he didn't make his last bid, someone ahead of him would have bought it."