In uncertain property market, try before you buy

New York

NOT too long after Tom Porth sold his business this year, he went to Colorado for a ski vacation. He had worked in different capacities for the Village Inn restaurant chain for four decades, ultimately owning nine restaurants, and he was eager for retirement.

After a trip to Steamboat Springs in Colorado, Mr Porth returned to his home in Waterloo, Iowa, intent on buying a mountainside condominium.

He found a real estate agent in Steamboat who arranged for him to rent a condo in the place he thought he would like.

"The price was more than what my Iowa blood was used to seeing, but it seemed to be what you'd pay for something of that calibre," said Mr Porth, 62.

But on that visit, his agent suggested a newer, amenity-filled development up the hill - One Steamboat Place.

It offered select people the opportunity to stay in a condo before buying it. Those condos cost even more, so he picked the least expensive unit. Still, it was double what the other one cost.

In a real estate market that has been strong, fuelled by stock market gains and low interest rates, such programmes would seem unnecessary. If one person doesn't want the condo another will.

But a combination of changes to the tax code, which limit the deductions for mortgage interest and property taxes, rising interest rates and a general feeling that increases in home prices are set to cool are making some people anxious about the luxury real estate market.

"We're a long way into the cycle," said Christopher Mayer, co-director of the Paul Milstein Center for Real Estate at Columbia Business School. "It's not surprising to see things slow down relative to where they were."

This sense of uncertainty is causing some buyers, particularly at the high end, to be more discerning. Expensive real estate is staying on the market longer.

"In markets where there is plenty of inventory, buyers are not afraid to take their time, do their research and ensure they feel they are making a good decision," said Stephanie Anton, president of the Luxury Portfolio International, a luxury real estate firm. "People are not going to overpay or make an emotional decision." Sensing this, some high-end developers have begun building their marketing plans around a concept meant to get people past that uncertainty: test it out by renting and staying in a house or condo for a while, before you decide to buy it.

And this concept is spreading not just in the second home market but to urban condominium developers.

"If you look at the real estate markets, it's unbelievable that people tour homes five, six times and make a US$10-million investment, but they've never stayed there," said Greg Spencer, the chief executive officer for Timbers Resorts, which developed One Steamboat Place, where Mr Porth stayed for his tryout. "We say, if we have available inventory, why not give people the opportunity to try it out?"

Buyers skittish

Dan Scott, president and general manager of The Whitetail Club, a development in McCall, Idaho, said the movement towards "try before you buy" is an outgrowth of the housing crash and recession 10 years ago, which left many buyers skittish about making a big investment too quickly.

"In the old days you did a real estate tour and drove people around for a few hours, but it didn't give people a sense of what it was like to be there," Mr Scott said. "Coming out of the recession, what the buyer wanted has changed."

Mr Porth said the tryout got him hooked - and more comfortable with spending a lot more money than he had planned.

"I don't think I'd do it any other way now," he said. "I need to spend time in that resort but also that unit. By staying, you can learn to love something; you can also learn something you may not like."

After staying in the lowest priced condo, which was about US$2 million, he realised he didn't want to buy that one - it overlooked the parking lot, not the slopes.

But by that point he'd been taken in by the amenities and location so he asked to try one on the fifth floor - which cost 20 per cent more than the already pricey base unit.

In April, he closed. Mr Porth would not disclose the exact price of his home, but the average cost of a condominium in the development is US$3 million to US$3.5 million.

In some ways the hook would seem to be the home, but the real selling point is the experience.

Developers can sometimes get away with less than a full home. Clear Creek Tahoe is a mountain community on the Nevada side of Lake Tahoe with golf, water sports, skiing and hiking. It is also right next to California.

The marketing of the development started before the real estate crash and essentially went into hibernation until a new group took over in 2015.

With the majority of the infrastructure built - but none of the homes - they needed a way to start selling 0.2 hectare to two-hectare plots that were priced from US$300,000 to US$1.7 million.

So they built cottages with the same high-end finishes the eventual homes would have, but designed each one to evoke why people should buy there. One reflected the style of the designers of the golf course, another the boating on Lake Tahoe.

Lori Brooks and her husband, David, who live in San Diego, had been looking for a home around the lake because it ticked many of the boxes they wanted in what would eventually be a retirement home: near a college town and airport, good health care, plenty of outdoor activities.

In the spring, on their second visit to the Tahoe area, they stayed in one of the Clear Creek cottages - no charge - and ended up buying a lot.

They are planning on constructing a 4,500 square foot home with both mountain and golf course views. "We walked to our lot every night," she said. "We envisioned what we were going to do."

Selling the escape

Others at the highest end are selling the escape from an uncertain world. Las Ventanas al Paraiso has been a successful resort in San Jose del Cabo, Mexico, for 20 years. It is now marketing the final 30 homes in the property, which range from US$2.7 million to over US$7 million.

"The question in the beginning was how do we sell them?" said Frederic Vidal, the managing director of the property who joined four years ago to run the property.

Unlike other programme managers, he knew he couldn't offer a free stay to look at a home. A lot of people knew the resort and he was concerned there would be guests simply looking for a free luxury stay for a few days.

So while he decided to charge for the stay, there was a caveat: the money would be refundable if the guest bought a house. The costs per night are US$3,000 to US$11,000 depending on the size of the home, and only those who are deemed serious buyers are eligible to stay.

The try before you buy system works with resorts because people are buying experiences as much or more than a place to sleep and eat. But buying your permanent residence is a bit different: it's a practical purchase.

Letting your children try out bedrooms and play in the yard, while you test out the morning commute and figure out where you'd put the television would yield a lot of valuable information.

Chances are, however, there is a family living in the house who would object - or other buyers who would be traipsing through at dinnertime.

A few apartment buildings are trying out a service that allows them to turn units they're waiting to lease - without flooding the market with too much inventory - into temporary hotel rooms, and it has yielded people interested in living there full time.

Jason Fudin, co-founder and chief executive of WhyHotel, which creates these pop-up hotels, said the setup provides interim cash flow for the developers but also made a new building more attractive for people looking to move in.

"In a 300-unit building everything is designed for full occupancy," he said. "When you're all alone in a big building something is off. It's not like being in Home Alone - you're in a zombie building."

At their first project last year, The Bartlett in Arlington, Virginia, Mr Fudin found that every 1,000 room stays yielded a tenant for the building, although there are limitations.

He said the tryout concept worked better for rental apartments. "A condo is like a car - it has a never-lived-in premium," he said.

Some experts say the try before you buy concept is perfect for a risky time - it allows potential homeowners the chance to be sure that they're making the right choice.

While buying a house may be about your personality, Mr Anton of Luxury Portfolio International said: "It's also a financial decision."

In uncertain times, it may be best to wade carefully into that kind of big choice. NYTIMES