Brick by BrickNevada’s Custom Home Outlook

 

While home prices continue to increase across the state and mortgage rates remain elevated, the state of Nevada’s luxury home market is on the rise.

Back from a pullback on construction in 2022, the number of luxury homes built and sold has only gone up. From Lake Tahoe and Reno down to the Las Vegas Valley, brokers and builders alike are having a busy year.

The Luxury Home Market’s Foundation

“When I started working in Las Vegas in the early 2000s, there weren’t many homes selling over a few million dollars – a $3 million home was unheard of,” said Ivan Sher, luxury real estate advisor and owner of IS Luxury, a Las Vegas-based real estate brokerage firm.

It’s not that folks didn’t have the money to spend on highly customized and tailored homes, Sher said – they were just doing it somewhere else.

“The sophistication of Las Vegas’ real estate’s architecture and design didn’t match places like California, New York, or Chicago,” he said. “It couldn’t compete.”

Years of time and work invested into the industry changed the city’s reputation, Sher said.

Now, hundreds of millions of dollars every year are pumped into luxury homes across the valley.

“I can’t accurately comment on what’s going on in other segments of residential real estate, but for the luxury segment, I can tell you the market is very, very strong here,” he said. “As the market became more desirable, wealthy people decided to put their money into assets that will last.”

Connection to California

When Las Vegas defined its own custom homes market, the city transformed from a California competitor to collaborator.

In late April of this year, Sher opened a second location of IS Luxury in Newport Beach, CA – something that’s been in the works for nearly eight years.

“Newport and Orange County are great feeder markets for Las Vegas,” he said.

Pre-COVID, Sher says around 20 percent of his buyers in Las Vegas relocated from southern California. Today, it’s closer to 80 percent.

“It’s tremendous growth,” he said.

The trend goes both ways – his Newport location is seeing an influx of Las Vegans.

“The weather can be rough here in the summertime,” he said. “For many of my clients, that’s what led them to purchase homes in southern California, near the water.”

Despite its milder summers, northern Nevada has seen a similar trend when it comes to out-of-state buyers.

“In our pool of out-of-staters, I’d say 60 to 70 percent are from California,” said Nancy Fennell, an owner of Dickson Realty, a brokerage firm based in northern Nevada. “They’re coming here for quality of life, and often, tax purposes.”

Defining “Custom”

Not all luxury homes are custom, but all custom homes are luxury.

“Whether you’re completely tailoring a house, or just the fixtures and interior, you’re in the luxury space,” Fennell said. “You need to expect a huge cost – you just cannot build without it.”

Semi-custom homes are popular in today’s market, where a buyer picks a builder’s pre-existing floor plan and makes additions or subtractions along the way. These customizations are generally done in the interior or outside framing.

“Some people refer [to these] as speculative customs – unique homes built by a developer for buyers to be determined later – but that’s something slightly different,” said Daryl Quick, president of Merlin Custom Homes, a contractor in southern Nevada. “When you buy a home that is somebody’s product, that product is going to be optimized toward appealing to a promising market.”

In contrast, a “custom home” is one-of-a-kind. “A custom home is built, finished or renovated as a service and optimized toward the specific buyer,” Quick said.

Deciding to go the fully custom route is a lot more work than some buyers initially expect, Fennell said.

“It’s a prototype design built from the ground up, specific to the client’s desires and needs,” Fennell said. “You go through a long process with an architect, and then connect with builders, interior designers, the whole lot.”

Putting together a full roster of employees can quickly overwhelm a client.

“Building a house is hard,” she said. “Someone who isn’t used to looking at houses or isn’t familiar with construction is facing an uphill battle. You have to have a very good team supporting you and be prepared to face all kinds of questions.”

In 1991, Fennell herself had a custom home built in northern Nevada. The builder, Troy Means of HomeCrafters, still works with Fennell on projects today.

“I need your decisions about doors, windows, heating and cooling systems, roof style, cabinetry, tiling, lighting – and that’s just the beginning,” Means said. “When a client says they ‘just want to do something simple,’ that raises alarm bells for me. The word ‘simple’ is a red flag when it comes to customization.”

Footing the Bill

As the popularity of custom homes increases throughout the state, so do the prices.

“You need to have a budget that starts at $500 per square foot,” Means said. “But that number can swing up very easily and is dependent on an unlimited number of factors. For example, if your site’s topography requires excavation, you can add $150,000 to $200,000 in costs just in the actual construction of the building.”

Once a customer dives into the particulars, the numbers get even higher.

“I have clients who will literally spend $300,000 just on a kitchen,” Means said.

That’s before considering the rising expense of labor any residential build faces.

“Costs with all types of construction, at least locally, have been trending upward for many years at a somewhat faster pace than general inflation,” Quick said.

Trends in Custom Homes

The influx of Californians has influenced the style of custom homes in southern Nevada, Sher said.

“The California contemporary and traditional are among the best-selling homes out there right now,” he said.

When Sher thinks of interior trends in southern Nevada, it’s the garage.

“We’re looking at five plus garages,” he said. “I’ve seen some with a dozen parking spaces. If you’re going to be spending over $10 million on a home, and you’ve got a big enough lot, we’ll probably be building excess parking.”

Custom home buyers in southern Nevada also favor prep kitchens and secondary bedrooms that feel like masters, with huge floor plans and en suite bathrooms.

In contrast, Fennell said northern Nevada custom home buyers are skipping the vast square footage (from 7,000 square feet in 2010 to 4,000 today) and fancy outdoor amenities for more expensive interiors.

“Whether they’re coming from California or relocating from another part of Nevada, 75 percent of our clients are baby boomers,” she said. “They want to be near their grandchildren. They’ve owned homes before, and they know what they’re looking for.”

This translates to expensive master bathrooms with full spas, accessible showers, no stairs and heated floors. Interiors in these homes are often grandkid friendly as well, with flooring and wall materials chosen specially to withstand childhood antics.

“That’s what we had in mind when constructing my custom home,” Fennell said. “It was an aging-in-place house for us, which I see is common here.”

However, younger custom home buyers are on the rise in northern Nevada.

“I think it has a lot to do with the shift to remote work during the COVID-19 pandemic,” Fennel said. “Some of these young people got great jobs, came into a lot of money, and then realized they could live anywhere.”

These buyers, like those in southern Nevada, are looking for excess. “A garden, a pool, wet rooms, full outdoor kitchens and living spaces, multiple beverage centers and warming drawers, huge wine cellars,” Fennell said. “I could keep going.” Both age groups do have one trend in common: smart home integration.

“You can talk to your appliances from your phone and start heating your oven while you’re still at the store,” Fennell said. “As conversations continue around AI, I expect to see more in custom home builds.”

Lack of Land

Despite demand, the space to build extra amenities isn’t guaranteed. The burgeoning market for custom homes has one major roadblock: land availability.

“We don’t have a lot of open land in northern Nevada these days,” Fennell said. “And we especially don’t have enough land for someone to build a custom home.”

The solution? Resale.

“We’re starting to see people buy older homes in great locations, and then either take them to the studs or completely demolish and start over on the lot,” Fennell said. “We just don’t have a new master plan community with 400 home sites coming on the market.”

Some buyers have decided to purchase lots outside of the Reno/Tahoe area, favoring surrounding cities like Winnemucca.

“If you’re willing to look outside the major cities, like Reno, there is available land,” she said. “As you go down through the Washoe Valley, south of Carson City – it’s beautiful down there, and there are many lots to build on. It’s just a different kind of lifestyle than what you’d expect further north.”

It’s dire straits in southern Nevada, too, Sher said. “About a dozen custom home neighbors support $10 million and more homes,” he said. “These neighborhoods have almost completely sold out over the last 20 years. Howard Hughes, MacDonald Highlands, Ascaya, Southern Highlands – I could go on and on. They’re on the last of their empty lots and builder-designed homes.”

While some new developments are in the works, it’s not enough to meet demand.

“I’m sure a new neighbor could pop up here and there, but for the most part, we’re going to be at capacity for building a custom home,” he said.

Even if a buyer wanted to expand out of the city limits to more rural areas like buyers in northern Nevada, Quick said they’ll be facing a bigger bill.

“Labor costs here and an abundance of work in the city have made projects in nearby rural and mountain settings costly and difficult to realize,” he said.

The solution is similar to what northern Nevadans are doing: buying already existing custom homes and re-customizing.

Resale of custom homes is complicated by restrictions throughout the Valley on speculative builds.

“If you were to buy a lot and build on it, then you would be required to live in that house for a year before attempting to sell,” he said.

If a custom home builder were to sell the home to another buyer before that year mark, the penalties can be substantial: “the HOA can keep the majority of your profit,” Sher said.

“These custom home and luxury communities, they want to be residential rather than full of people trying to capitalize and profit on a sale,” he said. “They’re very anti-speculative.”

While not as common, Fennell has seen anti-speculative trends on the rise in the northern part of the state as well.

“When I think of a custom home, it’s about what the person living there is going to want to see every day,” Fennell said. “It’s less about trends – which impacts ultimate resale value – and more about the buyer’s wants.”

A Positive Outlook

Nevada’s real estate players are all facing these challenges with optimism. “We expect homes in Las Vegas to continue to be in strong demand and a certain subset of buyers to continue to invest in custom homes, whether because they have exacting needs and desires for their homes or because they’re in love with particular pieces of land or custom communities,” Quick said.

Sher said he’s looking forward to the upcoming years, especially with his expanding boutique firm.

“I’m the kind of person that even in the downward markets, I have to see the light somewhere,” he said. “I am bullish on the Las Vegas market specifically and now Newport, too.”

Fennell, too, sees a bright future for northern Nevada. “As trends and buyer demographics change, we’re confident demand in the market will continue,” she said. “It’s an exciting time.”