Navigating Legal Issues When Practicing in the Luxury Housing Market

Luxury Homes

Kristin E. Rosan
Partner, Madison & Rosan, LLP Attorneys at Law


Most will agree there are key differences in clientele when practicing in the residential market versus the commercial market. Similarly, there are differences in clientele between the residential market and the luxury home market. These differences make it easy for agents to alter their proven business practices, to accommodate a luxury buyer. Such deviations can result in costly mistakes or create legal issues exposing the brokerage to liability for damages. Below are tips for practicing in a luxury market while navigating potential legal issues.


1.    Understand Luxury Clients. 

Let’s be blunt, clients in this market are wealthy. Some may be entrepreneurs, others highly educated professionals, and still, others may have obtained their success through participation in sports or careers in the arts. They may be fierce negotiators and likely to be very proficient with numbers and technology. Although these clients are wealthy, they still need the talent and expertise of a trusted real estate agent to navigate their transaction.


2.     Exercise Discretion. 

Agents should assume that clients buying and selling in the luxury market are private and will demand absolute discretion and confidentiality. These clients may not want their names associated with a potential transaction and disclosure will not be in these clients’ best interests. Think of how exciting it is to land the bank president or rookie NFL player as a client. Certainly, this is something to be shared with friends and family, right? Although all real estate clients are owed a duty of confidentiality, extra care must be taken, even in casual conversation, to protect the identities of your luxury clients.


3.    Get it in Writing 

There is something about wealthy people; they are perceived to be more trustworthy. For example, you might think, “My client is [famous, wealthy, intelligent, experienced] and would never do anything improper.” This perception based solely on a client’s finances, can be a source of legal trouble for agents. Wealthy clients should complete the same forms, disclosures, and agreements like any other client. These transactional documents protect both your client and you from errors, disagreements or misunderstandings, that could scuttle a transaction and leave you exposed.


4.    Have Personal Property Agreements on Hand. 

Luxury home buyers and sellers may have an interest in acquiring/selling personal property in a home. An owner of an investment condominium along the Florida coast may want to include the furniture and furnishings in the sale. A buyer may want to purchase a Colorado ski vacation home fully furnished. The best business practice is to handle the sale of any personal property separately from the sale of the real estate. Personal property agreements will set forth the exact items to be sold, the sale price and can be contingent on the successful closing of the real estate. Such avoids the necessity of having personal property appraised or artificial inflation of the real estate sales price.


5.     Learn Financing 

The financing of luxury homes is different than the financing of a moderately priced home. Learn the different thresholds and requirements for financing a luxury home. With interest rates remaining low, luxury buyers may opt to finance even though they can pay cash. For cash buyers, make sure your clients can document their available funds in a way that will be acceptable to sellers. A client that has documentation of funds in their IRA and 401k isn’t demonstrating an ability to pay cash for the home. Providing your client the right guidance and resources on financing and/or paying cash will avoid pitfalls from not having the right information or giving incorrect advice.

With current above-trend growth and low inflation, the real estate market is ripe for luxury home buyers and sellers. Following the tips above can help you to effectively represent these clients and navigate them to a successful transaction.