Whether you are a luxury specialist or an agent who wants to provide the best customer experience for clients in any price range, understanding the psychology of the affluent will help you attract the highest-quality clients in your marketplace.
When it comes to the luxury market, did you know that there are two fundamentally different types of luxury clients?
The first category is “the millionaire next door,” which Thomas Stanley and William Danko first described in their book of the same name.
The second category is the “Richistanis,” described by Robert Frank in his book, “Richistan: A Journey Through the American Wealth Boom and the Lives of the New Rich.”
The millionaire next door
Ninety-two percent of today’s millionaire’s are self-made. When interviewed, they don’t view themselves as being wealthy. Instead, they will tell you, “We’re successful members of the middle class.”
“Millionaire next door” clients tend to be financially conservative and live within their means. They typically purchase a modest, comfortable home and would never consider the showcase home that screams, “Someone rich lives here!” They purchase high-quality cars that they keep for 10-15 years. In terms of their wealth, they place a premium on privacy and prefer to fly below the radar.
Two notable examples of “millionaires next door” are Warren Buffett and Michael Bloomberg. Warren Buffett purchased his current home in Omaha, Neb., in 1958 for $31,000. He has also committed to giving away 99 percent of his fortune to charitable causes.
“Millionaires next door” buy top-quality shoes that they have repaired. Michael Bloomberg, mayor of New York City and founder of Bloomberg News and the 10th-richest man in the United States (according to Forbes’ Richest People in America list, 2012), reportedly has worn the same two pairs of work shoes for the last decade.
For “millionaires next door,” money is a detail rather than a primary area of focus. Many of them have created their wealth through relatively mundane products such as making the best widget that fits a mechanical device that everyone uses.
Others have saved their money and invested wisely. I remember Gary Keller, founder of Keller Williams Realty, once saying, “I pinch pennies so I can invest dimes.”
“Millionaires next door” are family-focused, active where they worship, and involved with charitable giving. Don’t be surprised to find them working at a food bank or volunteering in an area where they can do their job without drawing attention to themselves.
Richistanis are an entirely different story. Robert Frank spent several years researching what he calls “the residents of Richistan.”
Richistan is “a country that exists inside our country composed of people who have net worths of at least $1 million. For Richistanis (those who inhabit Richistan) a $1 million net worth is not wealthy — it’s simply being affluent.
To move to ‘Lower Richistan,’ you must have a net worth between $1 million and $10 million. Those who live in ‘Middle Richistan’ have a net worth between $10 million and $100 million. Those worth $100 million to $1 billion reside in ‘Upper Richistan.’ Richistan’s most exclusive residents are those individuals who belong to the ‘Billionaire’s Club.’ ”
Richistanis play the conspicuous consumption game with a passion. They constantly compete to have the biggest and the most expensive toys and properties.
According to Frank, “The goal is to show that ‘mine is bigger than yours. They have 400-foot yachts, 30,000-square-foot homes, household staffs of 100 or more … Only in Richistan would you be ridiculed for buying your girlfriend a mere Mercedes SLK or would have your 100-foot yacht called a dinghy.’ ”
By the way, this behavior is not limited to American residents of Richistan. In many countries, a man’s success and wealth is judged based upon the size of his house and how well his wife is outfitted with the finest clothes and the most expensive jewelry.
Richistanis lead exceedingly complex lives. Frank described this by sharing a story he called “The Mouse in the House.” The principal character in the story explained that before he became extremely wealthy, if there were a mouse in the house, he would sweep it outside with a broom.
Today, he follows an entirely different process. When he sees a mouse, he must first contact the household manager who will notify the groundskeeper. The groundskeeper will contact the exterminator. The exterminator will come out to the property and remove the mouse from the house. The exterminator informs the groundskeeper that the mouse issue has been handled. The groundskeeper then notifies the household manager who informs the owner that the mouse in the house has been removed.
Because Richistanis are generally self-made, Frank discovered that many of them hire household managers (as opposed to a butler) who can help them act like “proper rich people” as well as managing their complex lives.
In contrast to the “millionaires next door” who typically have more money than they will ever spend, Richistanis almost always feel they don’t have enough. They live in terror of losing it all. In fact, many Richistanis, including many billionaires, believe that they would feel secure provided they have about twice as much as they have now.
This scarcity attitude also means that some Richistanis are super cheapskates. They will let you take them out to lunch and expect you to pay for their expensive meal and drinks. Many of them don’t tip and often try to weasel free stuff out of others.
Because these two categories of ultrawealthy vary so greatly, be sure to adapt your style to that of your client. If they’re “millionaires next door,” know that they will be conservative with their money and will probably buy much less than they can afford. If they’re Richistanis, they will want the biggest and the best while simultaneously living in fear of losing it all. Watch your wallet and keep the hand sanitizer handy.
What does it take to become a luxury agent? Do luxury certification courses help? See part three of this series to learn more.
Bernice Ross, CEO of RealEstateCoach.com, is a national speaker, trainer and author of the National Association of Realtors’ No. 1 best-seller, “Real Estate Dough: Your Recipe for Real Estate Success.” Hear Bernice’s five-minute daily real estate show, just named “new and notable” by iTunes, at www.RealEstateCoachRadio.com.