Trading Million-Dollar Homes in Arizona’s Slow Real Estate Market

Posted By Mike Padgett

July 17, 2009

SCOTTSDALE, Ariz. – A unique service in one of Arizona’s luxury residential communities is adding a new option to the state’s on-its-knees real estate market.

The service is centered on the trading of residences within Desert Mountain, the luxury gated golf community at the northernmost end of Scottsdale. Trading homes is a classic example of the saying, necessity is the mother of invention, says Brian O’Neill, president of Desert Mountain Real Estate.

“It’s not something that’s really revolutionary,” he says. “I think it came about through need and through people saying, ‘How do I get out of a house I want to get out of.’ It’s just something that works well for both parties.”

Although many owners of these seven-figure residences have access to more financing than many, that doesn’t mean they can buy a new house on a whim. They often face the same hurdles as many others, including the need to sell their existing home before they can buy another.

Which is how the idea of trading homes within Desert Mountain came about.

“In a market like this, how you get the deals done is to be creative,” he says. “We talk to our (Desert Mountain) members all the time, and they say, ‘Yeah, I’d be a buyer but I’ve got to sell my place and the market’s tough and I don’t know if I can sell it.’”

O’Neill has a list of more than 30 homes or lots in Desert Mountain in which the owners are interested in trading homes or residential lots. On the list is the owner of a $3 million, 5,200-square-foot home interested in trading for a smaller home or for a lot.

Another on the list owns a $3.5 million, 5,400-square-foot residence and is interested in trading for a smaller home. And another with a $5.8 million, 7,600-square-foot home wants to trade for a smaller residence.

Trading faster than selling

In the current real estate market, existing and speculative high-end homes are taking longer to sell, sometimes a year or two or more. In addition, the owners of residential lots who had planned to build a luxury home are learning that today’s prices of existing homes can be less than the costs of design and construction, O’Neill says.

“Unless you really, really want to build a house and want it just so, you can go and buy a lovely house for a lot less than you could build a house for,” he says. “The costs of what you can buy homes for are way below (the costs of building), just because the prices have come down so much.”

Since the trading started last year, the swaps have included a lot for a home priced at $2.1 million; another lot for a $1 million home; a deal involving homes priced at $700,000 and $1.3 million; and a trade involving a $1.1 million home and a bank-owned $3 million speculative home.

One of the largest trades so far in Desert Mountain involved a $7 million custom home and a $2.5 million villa. That home-to-villa swap was in September 2008.

Challenges built into trading properties, compared to individual sales contracts, include getting both owners to agree on values of both homes and on commissions to be paid to the real estate agents. And because a trade involves two properties, the two individual contracts are tied by a joint addendum, which was written by Desert Mountain Real Estate’s attorneys, O’Neill says.

The trade service has been focused within Desert Mountain. But at least one community member is interested in moving to Troon. Another would like to move to Paradise Valley, “and is willing to do a trade from here to there,” O’Neill says.

Luxury foreclosures

He adds that Desert Mountain residents haven’t been immune from foreclosures. “There’s quite a few foreclosures up here, either in the process or they have already been foreclosed. There’s a lot of these spec builders that just have to get out or they’re going to lose the homes.

“But there’s also people living here that are not adrift in cash, and they may have other properties, so there’s a lot of financial pressure on people,” O’Neill says.

Depressed prices of luxury homes have attracted buyers scouting Desert Mountain and other luxury communities. “They’re shopping and they’re more interested in the deal than they are in the house, quite frankly,” he says.

“They want to see foreclosures and they want to see the houses that are not complete, where the builders ran out of money,” he says. “So they want to make a steal. Well, by the time they do that, they might be better served and making a real good buy from somebody who’s not in foreclosure. You may get a bargain-basement price through the bank, but you may get a bargain-basement price or short sale from somebody who’s got a very good house who just needs to get out.

“But I don’t think foreclosures in our high-end market are a steal. Maybe you could shop around for a comparative price and buy something you’d like better.”

More than a few of the luxury homes in Desert Mountain are some of America’s future castles. They will last well into the late 21st Century – probably longer – because the artistic creations are built largely of stone and steel. Teams of trades people who create these residential masterpieces will take at least a year or two to complete the job, compared to a few months for production housing.

Desert Mountain’s ranching history

When I heard about trading homes within Desert Mountain, O’Neill and I made an appointment to meet in his sales office. For me, visiting Desert Mountain is a treat that reaches beyond the community’s creative and artistic architecture. In the 1970s, before developer Lyle Anderson began carving the 8,000-acre community out of the old Carefree Ranch in 1986, I visited a cousin on the property. He worked as a cowboy on the ranch, herding cattle and keeping them fed and watered.

It was a spring day when we parked our vehicles on a ridge and looked down on the corrals and cattle. He told me about his work, which included saddling up and riding into the nearby canyons to search for strays. That’s where he often spotted deer and other wildlife that stayed near the canyon springs. As times changed, my cousin left Arizona to find other work. He has since retired, resting his bones in another state. There aren’t many cowboys left.

Today, Desert Mountain residents tell me they often see a variety of wildlife. The temperatures are a little cooler, too, because the community is higher than the rest of metro Phoenix.

And if you look closely as you approach the guard gate with its bright traffic lights, you can spot the original Carefree Ranch entrance. Though partly hidden by vegetation, the old arched ranch gate with its fading letters is a quiet sentinel hinting at the Valley’s ranching history next to a community where stone-and-steel homes will last for many generations.

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Jul 17th, 2009

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