The price of luxury: $3 million; spec homes sell for $2 million-plus

The Institute for Luxury Home Marketing in Dallas defines the "luxury market" as homes sold at prices in the top 10 percent of the market within the past 12 months, said Laurie Moore-Moore, the organization's founder and president. The minimum price that constitutes luxury, according to the institute, is $500,000.

Alan Pope, an appraiser at Redmond-based Alan L. Pope & Associates, says the price of luxury differs by neighborhood.

For instance, over the past 30 days, the median price of a home sold on Mercer Island was $1.03 million, with the highest sale recorded at $4 million, according to data from the Northwest Multiple Listing Service.

What is determined as luxury on Mercer Island will exceed most luxury price points for communities in the region.

In King County, the median home price hovers around $435,000.

Another way to gauge the luxury market is to take a look at how much builders can borrow to build a home for sale to the general public. In the building industry, this is known as "speculative" or "spec" construction, meaning there is no guaranteed buyer.

"The speculative housing market has moved from where we rarely saw a [speculative] home above $1 million in the early 1990s to where the $4 million to $5 million range is now possible," Pope says, but speculative construction limits vary by neighborhood.

Teri Deora, vice president at local builder William Buchan Homes, echoes Pope's analysis. What builders can borrow for new construction varies greatly by the builder's resources and reserves and by the neighborhood where the home will be.

Buchan Homes routinely lists and sells speculative homes for more than $1 million in areas such as the Sammamish Plateau and Bothell in Snohomish County.

"That's the nature of the beast now," Deora said.

In the past, many houses listed for $2 million or more probably were custom-built for a specific buyer who already owned land or who could afford to tear down a home and replace it.

However, Pope says, spec homes priced from $2.2 million to $2.5 million have begun hitting the market over the past two years. This indicates that developers now have confidence that some buyers can afford homes this luxurious, and builders are willing to take the risk to build these homes and put them on the market.

For that reason, he says, the luxury threshold may be closer to $3 million.