Serhant on real estate: Bedroom, office features rank over price per square foot

Risk of a banking-sector collapse, wobbly stock investments and forever changes to where and how people work after the global pandemic revealed the upside of flexible jobs are just some of the drivers impacting high-end real estate — in fact, housing markets broadly.

On top of that, the inventory of listings remains historically lean, forcing buyers especially, and their agents, to get creative.

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MarketWatch asked high-end real estate fixture Ryan Serhant for some expertise in navigating buying and selling in a still-changing, post-COVID 19 world.

Serhant is an agent, CEO and founder of SERHANT, a vertically-integrated mega brokerage comprising a listings division, as well as an in-house film studio, education arm, marketing team and technology platform. He's also a bestselling author, producer and a central figure on Bravo's "Million Dollar Listing New York" and "Sell It Like Serhant."

Some answers have been edited for length and clarity.

MarketWatch: It's a rising interest-rate environment, stock markets SPX, +0.62% are volatile and we nearly had a bank collapse that took aggressive reshuffling in the financial space to fix. How is the high-end real estate market — often an all-cash market — impacted?

Serhant: The luxury market, whether it's real estate or jewelry or art or cars, is relatively [stock and interest-rate] market-resistant. That's how we like to look at it. In the high-end residential market, we’re seeing an influx of deals still at record-breaking [price] numbers as buyers are trying to determine where to put their cash.

That said, volume is obviously lower. And buyers are a little bit cautious with emotional purchases. We did a lot of transactions during the COVID quarantine years with people who were making decisions more with their heart than with their wallet and logic. And so it was a very, very active market that has now slowed down a little bit but is still strong.

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MarketWatch: It's a slightly healthier relationship, then, meaning buyers are not having to make an offer practically sight unseen? Instead, there's a little more push and pull between buyers and sellers, a little more normalized?

Serhant: I wouldn't say normalized and I’m not unique in saying this. With every market move, there's a disconnect. Sellers are obviously of the mind that the market is stronger than it is. Buyers are of the mind that the market is worse. So sellers turn on the news and say wow, rapid inflation. Nowhere to put your money, banks are failing, real estate is the strongest asset ever, I’m raising my price. Buyers look at the news and they see recession is looming, doom and gloom, [and say] I’m going to throw out there something like 20% of asking. So there's a disconnect.

But what makes this market unique is that there is a very, very, very noticeable lack of inventory due to higher interest rates, because your average seller now can't move up — I own a two-bedroom home and now need a three or a four, and so on. And that's what they had been doing since the 1950s.

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MarketWatch: And international buying in the U.S. is healthy? Those all-cash, above-asking offers that pushed many domestic borrowers out during that long-running, low-interest-rate environment?

Serhant: At the beginning of this year, we started to see foreign purchasers come back into the United States. You know, they like buying U.S. dirt, right? They like putting money to work here.

We’ve been kind of the beneficiary of countries like Canada who have very, very publicly renounced foreign purchasers as they try to gain control over their housing market. Now, there are loopholes and there are ways to still be a foreigner buyer in Canada. But you know, it's extra work.

There's also a lot of parents buying apartments for kids who are going back to school, back to university, and not just going [to classes] over Zoom.

" ‘The U.S. high-end real estate market has been the beneficiary of countries like Canada who have very, very publicly renounced foreign purchasers.’"

MarketWatch: Any particular trend right now? Certain configurations, certain amenities, footage? What's moving faster than others?

Serhant: It's interesting. It used to be that we would focus a lot on price per square foot. That's how you would determine whether you’re making a good purchase or a bad purchase. Now, we’re seeing people look at price per foot, but they’re really factoring in price per bedroom, saying I need that extra space. I need that home office. And they’re sometimes paying extra for it. Yet we have a handful of deals between New York City, the Hamptons, in South Florida, where the price-per-foot is incredibly high compared to the comps, but the price per bedroom is low. And so we’re helping people look at their investment according to different metrics these days. In part, because again, when driven by such low inventory, you have to change the way you think about buying and selling real estate.

Open floor plans and larger square footages are still very popular. COVID was not that long ago. Hybrid work is still very popular. Maybe not so much at investment banks, but at a lot of companies.

"‘What makes this market unique is that there is a very, very, very noticeable lack of inventory due to higher interest rates, because your average seller now can't move up.’"

MarketWatch: I cover sustainability, climate change and energy transition topics as well. So I wondered in the luxury market, let's compare it to, say, three years ago versus five years ago versus 10 years ago, are those types of questions factoring in? I’ve even covered some markets where buyers are opting for the sleek look of induction electric stoves over once must-have gas.

Serhant: They don't ask about [sustainability] as much as they ask, will there be a cost savings or are there health concerns. First and foremost in a city like New York you think about air quality. So they might ask, what is the quality of the air that we’d be sleeping with and breathing and that my baby is going to be breathing in? Is this recycled air? And they ask about water quality. So, for example, in one of our buildings in lower Manhattan, Jolie, on Greenwich Street, we put in changeable filters in our shower heads.

In our suburban markets, where we have houses, people think about their carbon footprint mostly with regard to transportation. They are looking for home chargers for electric vehicles (EVs) TSLA, +4.58% and in our townhouse markets, we are seeing more and more solar panels TAN, -0.28% to help power these homes. Even from my house in Brooklyn, as I look around to new construction, I’ve never seen so many people putting solar panels on their roofs. So I would say, [sustainability and alternative energy] is not the first thing people think about when making a decision of where to live, but it is part of the conversation.

" ‘Now, we’re seeing people look at price per foot, but they’re really factoring in price per bedroom, saying I need that extra space. I need that home office.’ "

MarketWatch: We’ve covered a lot of articles on the future of downtowns and city cores in a post-COVID world, the future of hybrid office work, work from home, the destiny for half-empty office towers. And certainly, there are advantages and challenges of turning office buildings and their unique plumbing stacks or lack of natural light, into residential. What's your take?

Serhant: I think there are some amazing offices out there that will now need to find some some adaptive reuse, whether that's residential or into better schooling or something experiential. I got my start in office-to-residential conversion projects. One of my first projects on John Street in [Manhattan's] financial district was a huge insurance building that was then converted to residential. But you know, like you said, it's not the easiest. You can move quickly with construction because the building is already there. A lot of office buildings have very intense stone facades, for example, that would be super expensive to do from scratch today. So great, boom, we just have to clean it up. You know, you could have 12 foot ceilings, because maybe a lot of the floors held servers over the years, things like that.

Or you can run into situations where these are just office buildings: tiny windows, landmark status that limits even interior renovation to residential.

A lot of these office owners are going to have to figure out what to do. I think the number that's being thrown around is, something like, $1.4 trillion in office loans are going to reset in the next 18 to 24 months. So, what's next is a huge question.

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MarketWatch: At MarketWatch, we periodically feature our Help My Career column. No doubt, the role of real estate broker has changed, with technology, with a younger set of buyers that's empowered to do a lot of research, and so on. You blend a lot of media and technology options with your selling. What advice do you have for would-be agents in this changing world?

Serhant: Obviously, the home-ownership process has changed over the years. Affordability has changed over the years. But most people do not think about real estate as a business every single day. And it's a major financial decision, whether you’re looking to buy or sell. There are many, many ancillary costs that are associated with the entire process. And you want to make the right decision even when you’re renting, right? It's still money out of your pocket. And so even with greater technology, even with AI, even with amazing systems that showcase everything from which someone could ostensibly make their own decisions, there is an even greater need for real estate professionals to explain it.

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Something I’ve always said to agents if to understand that people hate being sold to, but they love shopping with friends. That's why e-commerce is popular — it's easy to share an image with friends, get buy-in. If anything, what we’re seeing is that with more information, there are more decisions to make. And you need somebody who knows what they’re doing to help guide you along the process. People also hate confrontation. People don't really want to represent themselves. You can stand up for yourself in court as your own legal representation, sure, but would you do it?

"‘ Even with greater technology, even with AI, even with amazing systems that showcase everything from which someone could ostensibly make their own decisions, there is an even greater need for real estate professionals to explain it.’ "

We’re seeing more and more people get into this business every single year because I think more people are becoming entrepreneurial and by 2027, something like 50% of the workforce in the United States will consider themselves part of the gig economy.

I say, just remember that your main job every day is to generate business, to meet new people, create new relationships, find new products, new inventory and put deals together. And the way you’re going to be able to do that the most successfully over the long term is to build a personal brand beyond salesperson.

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Rachel Koning Beals is a MarketWatch news editor in Chicago.