Enough Commission Incentives - Just Drop Prices!
(Toes here! I've been really busy lately, my apologies for the length of time it has been since I last posted!)
Lately, I feel like developers and owners are trying to bribe me at every turn. Particularly since Bear Stearns went under, my email inbox is flooded with commission incentives:
"2 months broker's fees and one month's free rent at Dwell by Starck!"
"6% broker commissions at Atelier!"
The NY Times called it - this summer's rental market is soft. Management companies are offering tons of incentives like one or two month's free rent and "OPs" ("Owner Pays" broker's fees). Usually there are a few OPs in places like the Financial District, Midtown West around 10th Ave, Harlem, and Roosevelt Island. This year, there are OPs all over Manhattan. 89 Murray in Tribeca is paying one month free rent and one month OP and giving a $200 Amex gift card to the broker at the lease signing. BLDG, one of the largest landlords in NYC, offered OPs this summer for the first time I can remember. And not in undesireable locations - in buildings on the Upper East Side & Upper West Side, in Midtown East & Midtown West, and even in the Village! OPs in the Village?! Woah.
I realize that it makes owner's rent rolls look better to keep rents high and just pay the broker's fee to get a tenant into the apartment. But it would be far more effective if landlords did not try to raise rents 10%-15% this year. The last two years saw huge rent increases & I think that renters are just saying "enough!" Renters aren't upgrading to a better apartment. They're sitting tight because they would have to make a huge jump in price to get something better than where they are now. People are watching their wallets. Maybe they are worried about layoffs, next year's bonuses or high oil/gas prices. Maybe they're entering a holding pattern because it is a Presidential election year. Whatever the reason, owners should keep rents the same as they were last year if they want 100% occupancy in their buildings. Maybe a 5% increase. Maybe.
New developments typically pay between 2.5% and 3% commissions upon closing of the apartment. Sometimes they pay 4% commissions. Recently, developers are offering to pay commissions in advance and 4%, 5% and 6% commission emails are popping up in my email twice daily. Here are some examples:
1. "4.5% commission for the first apt sold at 45 John; 5.5% commission for the 2nd apt sold in the building"
2. "6% broker commissions at Atelier!"
3. "Earn Green When Your Clients Buy Green! 1% upon contract signing; 3% commission upon closing at Visionaire (total 4% commission)"
4. "Earn a $10,000 AMEX Gift Card plus 3% Commission at 34 Leonard"
5. "4.5% Commission at m127!"
6. "4% Commission and Chance to Win Dinner at Ago in The Greenwich Hotel" (Riverhouse Condo)
7. "1% at signing and 3% at closing at 166 Perry St"
What I find interesting is that when the Manhattan market started slowing down a few months ago, I was inundated with emails for broker's previews, cocktail parties, champagne open house tours and luncheons. The developers realized that they might need us so they went for our stomachs :) ! Now that things have gone a bit further downhill, they seem to be throwing money at us.
What I would love to see instead is... Price reductions! Or at least closing cost incentives; pass savings on to the buyer! Most real estate agents who love their jobs want to pair their customer with the best apartment at the best price. Offering commission incentives does nothing for me. I will offer to lose the extra commission to try to get my customer a better price on the apartment every time. But I wont bring a customer to a building where prices are completely out of their budget.
If a building's inventory is completely over my customer's budget, it wont appear in the search I created for them in my database. Rather than making me call every new development to figure out if they are paying the closing costs, extra commissions, giving out AmEx cards, etc, it would make my life much easier if developers would just bring the prices down.
I realize that dropping prices causes the need for the developer to file extra paperwork with the Attorney General's office. I am sure that filing a price amendment with a downward trajectory is depressing for a developer and investors. I suspect that other buyers who may have purchased at a higher price will be annoyed. When the building closes & the sales become public record, those buyers will know that you sold the apartment upstairs from them for $2.15M instead of $2.3M anyway.
Which leads me to my next point: negotiability. Prices in many new developments (and rental buildings) have finally become NEGOTIABLE! It's amazing! Last year, I'd bring a buyer to a new development and we were lucky if we got $10K off the price of a $1M apartment. Or we were lucky if the developer split the transfer taxes with the buyer. This year, developers are negotiating more on pricing and closing costs.
Toes says: Developers and owners of rental buildings: Incentives are just not as effective as making prices more realistic for the current market conditions.
Toes says: Don't be afraid to make a low offer. Definitely ask for the developer to pay the transfer taxes. However, if a building is selling well, don't be surprised if they won't take your offer, either.
Toes says: If you see an apartment that you love, be it a new development or a resale - make an offer! You never know where someone is in their selling cycle - you may bring them to that 50% point where they can declare their offering plan effective. They may only have a few units left in the building. Maybe their goal is to sell those units quickly so they can stop paying their sales team and stop spending marketing dollars. It never hurts to try. For a rental, don't expect to get an apt listed for $3000 for $2500, but $2800 is not inconceivable.
Toes says: If it is unique or in a fabulous location, it is still selling/renting. Cookie cutter apartments that are not very well priced or that need renovations are more likely to sit on the market right now.