Home Buying Spree At The Top? Steep Price Cuts Lead To Billionaires Snapping Up High-Profile Properties.

The impact of Covid-19 has seemingly set in motion a sudden trend of discounts at the very top of the country’s most expensive real estate markets. Most notably, billionaire Travis Kalanick, former Uber

UBER
CEO, purchased Los Angeles’ Bellagio Estate for $43.3 million, after it sat on the market for $75 million; Kylie Jenner purchased a $36.5 million home in Holmby Hills that had originally been listed for $55 million; Billionaires Bill and Melinda Gates purchased a Del Mar compound for $43 million that had previously entered the market for $48 million; Apple

AAPL
co-founder, Mike Markkula, has re-listed his Carmel property for $37.5 million, down from $59.95 million in 2013, after a pit stop at $45 million, in 2016; and Gloria Estefan has re-listed her Florida home for $27.5 million after an initial ask of $35 million. 

There are at least another three Los Angeles homes at the top of the market that have recently gone under escrow with equally large discounts, according to David Kramer, real estate agent with luxury brokerage Hilton & Hyland and co-agent on the $100 million UNICA property. Kramer declined to comment on the details for any of those transactions but did explain the discounted prices by saying, “The high price becomes part of the marketing campaign [but] the thing that we’re talking about amongst each other is these prices still sold within 10% of what they would have sold for before.” 

Appraiser Jonathan Miller (and fellow Forbes contributor) comments, “For most of the aspirational-priced listings, it is unlikely they were ever worth their ask. The massive discounts we have seen for properties that actually sold largely don’t reflect a drop in value as much as they indicate how wildly overpriced the listing was.” 

But why are all these discounts happening right now? 

Kramer explains the sudden market moves by saying, “You’ve got a concerned seller and so they’re being more flexible on their price. What’s happening is buyers are saying this is an opportunity to get someone off an aspirational price to a realistic price, and then get a little bit more of a discount.” He cites a listing of his that will be coming on the market in the next two weeks which he describes as “Covid-priced”. Located in a high-end neighborhood of Los Angeles, it is a 26,00 square foot home on 4.5 acres asking $40 million. “It’s priced to sell,” says Kramer.

Kramer adds that some sellers are becoming more creative to help facilitate a sale, citing seller financing and pre-paying the homeowners dues for a year as two recent examples he has seen.

There are an equal number of single-digit discounts happening as well. Actor Sylvester Stallone has re-listed his property at a loss with an asking price of $3.35 million. He paid $4.5 million for it about ten years ago; Drummer Tommy Lee seeks $4.59 million for his property, lower than the $5.85 million he paid in 2007; Former Red Sox player David Ortiz has listed his home for $5.5 million after previously asking $6.3 million; Even former New York mayor Michael Bloomberg managed to shave just over six figures off the $46 million asking price of a 4,600 acre Colorado ranch owned by billionaire Henry Kravis, co-founder of private equity giant KKR

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Paula Del Nunzio, New York agent with Brown Harris Stevens, is seeing the demand for discounts increase, but says only certain types of properties in the New York market will qualify. As she explains, “The deals are going to be made on the unrenovated places. Renovated? No, not really. You can move right in. There’s a lot [to offer] and total control. Nobody can come in that you don’t approve of. From a Covid point of view it’s a sanctuary.”

Del Nunzio currently has the most expensive townhouse listing in New York—a $79 million home on East 69th Street that belongs to billionaire Vincent Viola. The home nearly had a buyer from China over a year ago but regulatory interference from the Chinese government led to that deal falling through, as the Real Deal reported.

That’s not to say there aren’t buyers actively seeking gargantuan discounts. Del Nunzio says she has had buyers say they want a “50% discount of a pre-Covid price.” She explains further: “They have the money but typically they don’t have billionaire money. They have enough money to do some portion off the ask price because they’re going to need to be renovated.”

Kramer echoes similar sentiments in the Los Angeles market saying, “A lot of offers are being written that are not accepted right now.”

The longterm effect of all these newsworthy price cuts will most likely send the message to current homeowners of top tier properties that the trend of giving a stratospheric price to a listing isn’t going to translate into a sale, even if the property gets a lot of attention because of the asking price. As Miller concludes, “The era of aspirational pricing is long over. It was a historic anomaly and it is time to get over it.”