Developer Incentives Avoid Price Cut
I can feel the new development slowdown - can you feel it? I know Elliman superstar Doug Heddings feels it as he recently reported on "Broker Incentives" two days ago on his blog TrueGotham.com:
I couldn't resist blogging about something I just heard. Avonova, one of the latest condo conversions on the Upper West Side located at 81st and Broadway is launching a new program offering broker and buyer incentives for upcoming sales. Buyers will receive a $10,000 gift certificate towards the purchase of California Closets and their agents will receive a full 4% commission and an additional $2500 American Express gift card at closing. The reason I share is that incentives are rarely seen in a hot market where demand outweighs supply. Perhaps this is a sign that the Fall market isn't providing the demand that sellers and developers had hoped for.My new development buyers are just not in the game right now. They're looking, but no one is buying anything. They're worried about their jobs and their bonuses. They're concerned about a recession. They anticipate a market downturn in the first quarter of 2008.
Unfortunately, I don't have a crystal ball and I don't know how long it will last. All I can tell my buyers is that if they buy now there are some good deals and incentives out there. Thanksgiving to New Years is generally a dead time for sales and is probably a big reason why developers want to stimulate sales before year end. Since we aren't expecting record bonuses this year, sales are probably going to be fairly weak until people at least find out what their bonus is going to be and whether they still have a job.
My low end buyers are buying, but they are resale buyers since new development basically starts at $900K. The $1M+ new development buyer seems to have gone into hibernation. The buyers I have over $1M right now are looking for "value". They want the worst house on the best block or a great price per sq ft.. As long as they are getting a "good deal", they are buying - but right now, that means they are buying resales.
Developers must be feeling the slowdown because I can hear a hint of desperation in the voices of their salespeople. Salespersons at new developments and conversions are quietly dropping hints that the developer "might" negotiate the transfer taxes or throw in a storage unit. They are encouraging customers to "make an offer", whereas a few months ago, they would flat out tell you there was no negotiating on prices. This is definitely a new tune from the spring when the same sales agents practically laughed me out of the room when I asked if the developer would pay part of the closing costs or was offering concessions of any kind.
And although I'm not seeing prices come down yet, the developers must be feeling a crunch. They are doing everything they can to move apartments without reduce prices. In the past month, I have been invited to more catered broker's open house tours and cocktail parties at new developments than I can possibly schedule into my blackberry. Suddenly vacations, AmEx gift cards, and offers of higher commissions are coming out of the woodwork! My prediction is that there are more incentives come over the next few months.
So who's offering?
The Chatham at 464 W 44th street is offering the following incentives to brokers:
A $15K AmEx giftcard to the broker that sells PHC, a 2bed 2bath, 1576sf, E and W exposure for $2.5M.
A $5K AmEx giftcard to the broker that sells PHA, a 1bed 1.5bath, 828sf apt for $1.25M
Commission Incentives:
(Toll Brothers frequently pays 2% commission but most new developments pay 3%. Some developers, such as Related, usually pay 4% commission, but in general, 3% is the norm to the broker bringing the buyer).
45 Park Avenue is offering 5% commission to brokers to help them sell the last 10% of their units
Avonova is offering a $10K California Closets gift certificate for buyers and their e-flyer says to "ask about additional broker incentives." They are also offering 4% commission.
SohoMews is offering to pay 50% of the commission to the buyer's broker at the contract signing instead of at the closing.
Other incentives:
865 UN Plaza - Developer paying closing costs (this isn't new, they have offered this since they opened)
517 W 46th - Paying transfer taxes & attorney's fees
75 Wall - Offering 18 month rate lock
Twenty9th - Developer offering long term rate locks and rate buy-downs
The Clement Clark is offering to pay the developer's transfer taxes, which will save you 1.8% of the sales price in closing costs.
Morgan Court was offering to pay the buyer's transfer taxes for the next 5 apartments that sell.
Loft 14 - paying transfer taxes (1.8% of sale price)
Here are some other events appearing in my inbox. Brokers are fairly easily bribed into attending new development events when free food and an open bar are involved.
** You're Invited to a SOUTH STAR Event at the Hotel Gansevoort - Wednesday, November 7 **
** Your Invited to Mohawk Atelier for a Preview of our Astonishing Penthouse - Thursday, November 1 from 5-7:30pm **
I will keep you posted periodically with where the incentives are! You never know where the next "great deal" will appear! :)
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Comments (7)
If you drove down IS highway 95 1-2 years ago down to condo-land Florida and you wouldn't hit a crocodile or a hurricane you would have found these "cute" sales promotions to move property without slashing the price. This is the last dance, one more spin to go for the condo-land crowds and finally the reality of the market will send condo prices south all the way to key west, distance 85 miles from CUBA.
Posted by highway 95 revisited | November 2, 2007 4:56 PM
while dev incentives to brokers is a sign of slowing demand and an effort to stimulate sales, I just dont see how nyc inventory can ever be compared to markets in florida.
not saying prices wont correct a bit, but nowhere near the severity florida has, with its 85% condo inventory and speculator friendly policies. After all, their market is full of inventory and no buyers. Quite the opposite here, at least for now.
Posted by Noah | November 2, 2007 5:12 PM
funny how developers will do everything but lower prices. But I think buyers can smell desperation and WILL hold out for price drops.
We looked at new const. last spring in Harlem and you're right, there was no wiggle room on price. That was a turn-off, considering we couldn't even customize the places one bit. I hate that sort of take-it-or-leave-it attitude.
We eventually bought a pre-war co-op, and while it isn't perfect, we're pretty happy.
Posted by Peter | November 3, 2007 1:25 PM
Curious, why are developers so eager to give out incentives without a price cut. Is there a psychological reasoning for this? Like for example when a developer provides material goods in exchange for a purchase of a condo, like maybe a large screen tv, an upgraded fridge, maybe even a new car. Even the one incentive you mention above for $10k gift certificate for a new condo.
None of those things would ever convince me to buy I would rather take a price cut. I just dont get how some material item short of a 50k+ car or other huge deal would ever convince someone to buy.
Posted by Mike | November 3, 2007 6:06 PM
``Is there a psychological reasoning for this?''
I think the buyer pool is pretty limited therefore if one development lowers prices so will others trying to compete for the small pool of buyers; in essence, a price war. Once a price war ensues, it would be detrimental for everyone so I don't think anyone wants to take that first step, YET.
It will happen however; these developments are usually finance with short term financing deals and either repossessions take place or we'll have fire-sales to begin the price declines. It's only a matte or time.
Posted by nestor | November 5, 2007 5:01 AM
Mike - nestor is on right track. Developers dont publicly want to lower prices because:
1) it shows desperation and will induce more negotiating buyers
2) it screws over those that paid higher prices earlier on
3) it may start a trend of lower prices among other developers. They dont want to compete against themsleves
I think the dip in buyer confidence is starting to hurt some sales offices that were late to the overall party, or whose prices were so originally out of whack with the group, that no one bit. At some point, they need to use every weapon in their arsenal to get deals signed. It will be interesting to see if broker incentives are enough
Posted by Noah | November 5, 2007 7:37 AM
Great news for Morgan Court. We have significantly lowered prices. 1100 square feet stunning units begin at $1,265,000 plus Sponsor will pay three year's maintenance at the closing and will pay for city and state transfer tax. It's an exceptional opportunity to move in immediately and choose finishes that are extraordinary in full service white glove condominium. Call 212 696 0069.
Posted by Reba Miller | November 7, 2007 12:35 PM