It’s Safe to Buy Luxury Property Sight Unseen—If You Take These Precautionary Steps
Hiring the right team and doing thorough research means you can make a safe investment from afar.
It’s increasingly common for buyers to purchase a home without ever stepping foot inside, according to a survey this year from Redfin, which found that 35% of respondents put an offer on a property in 2017 did so sight unseen.
It might seem risky to invest in a home you’ve never physically visited, but it can be done safely and smartly with the right research and experts on your side.
“If you’re seeing things yourself, you can use your intuition. But if you’re away, you need someone on the ground who you can trust,” said Deanna Kory, a broker with Corcoran who’s based in New York. “You do your due diligence on the building, and protect yourself within the contract.”
That due diligence includes hiring a seasoned broker with experience handling these types of transactions, as well as other experts, like inspectors, attorneys and accountants.
It also means harnessing the increasingly sophisticated technology that empowers buyers to visualize the property—and its surroundings—as clearly as possible.
By doing their homework ahead of time—and reflecting on their own expectations and goals—buyers can rest easy in their decision to make an investment from afar.
“It’s about really looking at information about the property and understanding its value, which is going to be different for whomever the buyer is,” said Sally Forster Jones, executive director of Luxury Estates at Compass, based in Los Angeles and Orange County.
The Type of Buyer Who Purchases Sight Unseen
The majority of people buying real estate sight unseen own more than one home and are seeking a vacation property or a promising investment.
“They are second-home buyers, so it’s not as imperative to see it in person as it would be if they were going to be the end user,” explained Jill Johns of ONE Sotheby’s International Realty in Miami. “They’re also typically familiar with the area and have fine-tuned where they want to invest.”
These buyers may have already visited the area where they are planning to make a purchase, as well as thoroughly researched the potential for a good return on their investment through rental income.
“The profile for this buyer is that they’re going to be using the home as an additional residence, and leasing it out part time,” Ms. Jones said.
It’s fairly common that these investors will hail from overseas, particularly in the Los Angeles area, where according to the Redfin survey, more than 57% of respondents made an offer on a home without seeing it in person first.
“International buyers want to have a foothold in the U.S. and particularly in L.A.,” Ms. Jones said. “They look at it as an investment, and having security and money in the U.S. is their number one consideration.”
These buyers aren’t necessarily finding bargains when they buy L.A. homes sight unseen, but rather, are making investments in property that they’re confident will be desirable for the long-term.
“Certain areas in L.A., like Bel Air and Beverly Hills, are always in demand, and whatever the market is like at the time, there are buyers for the properties there,” Ms. Jones said.
In London, many of the buyers making purchases remotely come from countries in Asia like China, Japan and Malaysia, and they lean heavily on technology to get a sense of what a property will be like.
“Whether it’s for personal occupation or purely investment credentials, they have a completely different perspective,” said Marcus O’Brien, sales negotiator at London-based Beauchamp Estates. “They have very clear computer-generated images and they already know these addresses relatively well.”
Other investors, he added, are focused entirely on the potential for leasing out the properties: “They want to know what can be achieved from a rental perspective. They aren’t visiting in person because it’s purely a numbers game for them.”
The Importance of Hiring the Right Broker
All the virtual tours and crystal-clear images in the world are no substitute for having a trusted person on the ground to guide buyers through the process of making this sort of investment, experts say.
“The first step is to hire a broker who has a great track record,” Ms. Kory said. “Find someone who understands the investment market well enough to know if you’re getting a good value for the purchase itself. You also need a broker who understands recent rental prices if you plan to rent it out.”
Seek out a broker who not only has glowing reviews but a long track record, as you’ll want to work with someone who is well-versed in the swings of the market you’re investing in.
“They should be familiar with recent comparable sales, as well as what properties like the one you’re considering have rented for in the past,” Ms. Kory said. “A good broker should also know the vacancy rate and what’s on the market in that neighborhood, and be able to provide you with this information in a form that makes you feel comfortable.”
In addition to providing critical insights into the market conditions of the area investors are considering, a seasoned real estate agent can offer important guidance when it comes time to make the purchase.
“The broker is going to be hiring inspectors and other professionals to look closely at the property,” Ms. Jones said. Furthermore, she pointed out, for both domestic and international buyers, “there are a lot of tax and legal implications as to what type of entity they will be buying the property as.”
For these questions, an experienced broker will be able to refer buyers to accountants and attorneys.
Ms. Johns of ONE Sotheby’s agreed that hiring such a professional must be the first step in the process of purchasing property sight unseen: “A seasoned agent will not only get you your best deal, they will also be your advocate and ensure the whole transaction goes smoothly.”
Next Steps in Doing Your Due Diligence
Today’s buyers are empowered by technology to get a strong visual sense of a property without ever stepping foot inside it. And by taking advantage of visual tools like FaceTime, Google Earth, and virtual tours, buyers are able to see both the interiors of a home and its surroundings from afar.
But “if it’s an isolated property somewhere and not part of a planned community, then I would be very hesitant to purchase it sight unseen,” Mr. Santa Cruz cautioned.
The danger, he said, is that visuals alone might not reveal the negatives about a property’s surroundings, leaving out potential eyesores, a sense of who your neighbors are, and what you can expect in terms of local services and infrastructure.
In order to avoid any unpleasant surprises, in addition to accessing quality visuals, investors should ask an agent or other trusted person on the ground to share their impressions of what it actually feels like to occupy the space.
“You can look at floorplans or videos but not actually understand that the windows are as tall as the ceiling, so the home feels nice and big,” Ms. Kory said. “You need editorial assistance for the views and the feel, as well as a pre-closing inspection. If you’re not in town, have an inspector or architect go through and test everything, along with the broker. ”
This won’t be possible for those buyers who are considering an investment in a new development that has not yet been built. But for such schemes, it’s easier than ever to get informed about what the end result will look like.
“With the technology and show suites presented, and vast fortunes spent, even though you’re not actually seeing final product you’re buying, there’s a clear indication of what it will be like,” Mr. O’Brien said.
Buyers of property still under development should also inform themselves as much as possible on the surroundings of the construction site.
Begin researching, via videos, maps and photos, the location of the planned development, advised Ricardo Santa Cruz, developer of Mandarina, a luxury planned community on the Mexican riviera.
Questions buyers should ask, he said, include “What is the distance from the property to the main highway? What existing infrastructure is there? A developer may have great photos, but exclude facts like a couple hundred feet to the right there is a gas station or another major condo project in the works.”
Especially for those considering vacation homes in remote locations, he added, it’s crucial to see what services are available in the area.
“You could purchase a beachfront lot only to find that the cost of bringing electricity there will be almost the same as the cost of the lot you bought,” Mr. Santa Cruz said.
For those purchasing resale properties, it can be helpful to contact the city appraiser’s office to get a sense of the history of the property, how its market value may have changed over time, and what its condition was upon its most recent appraisal.
Furthermore, Ms. Johns suggested, “You always want to make sure you have a right to inspect clause within your timeline to do your added due diligence.”
In addition to doing that due diligence when it comes to a property’s interiors and exteriors, investors must also investigate the legal and tax implications of making a purchase remotely—especially if they are foreign buyers.
In Mexico, for instance, Mr. Santa Cruz explained, foreigners were prohibited by the Mexican constitution for many years from owning land within 40 kilometers of the ocean. Six years ago, constitutional reform amended this policy so that foreigners can make purchases through a renewable trust.
Preparing oneself for these kinds of restrictions often comes down to hiring the right people locally.
“It’s so important to have a very reliable CPA and attorney who specialize in international clients and understand the ramifications of the different types of ownership,” Ms. Jones said.
Property Types To Consider
The way investors approach purchasing a property sight unseen will vary depending on whether the home they’re considering is a resale or a new development.
In London, it has become something of a rarity for buyers to purchase anything but new construction without seeing it first.
“In the last 24 months, we’ve only sold new homes and new developments sight unseen,” Mr. O’Brien said. “Buyers will put money down and then follow up upon completion.”
In the recent past, he added, it was more common for investors to purchase second-hand homes without seeing them because supply was tighter. Today, there is more uncertainty in the market as a result of political changes, including a decrease in capital gains tax benefits and the Brexit decision.
“Now supply has caught up with demand, and with any prime addresses, there is more than a handful of properties available,” Mr. O’Brien said. “The necessity to commit to buying sight unseen has dropped exponentially.”
Coupled with a decrease in the urgency around buying a resale property, many investors find that there’s a greater sense of security in purchasing in a new development.
“When there’s a planned community, you generally have a serious developer behind that project, which allows buyers to research who the developer is, and whether they have a good track record and the liquidity to finish the project,” Mr. Santa Cruz said. “When you can say you know the developer and their master plan, it’s a lot safer to pull the trigger.”
In other parts of the world, though, buyers are more confident in purchasing resales sight unseen. In Miami, for instance, there are more resales available than new constructions.
“People here do not hesitate to purchase a resale home sight unseen,” Ms. Johns said. But, she acknowledged, “It takes a lot more due diligence to make sure it’s a good fit for the buyer.”