In recent months, wealthy buyers in search of security and personal space have flocked to vacation and single-family home markets across the country, leaving some new condos in the dark.
And for buyers still interested in vertical living, there has never been a better time to negotiate. But instead of offering open discounts, many developers are closing the gap with unusually dramatic concessions, covering, for example, closing costs and decorating costs for free parking spaces worth tens of thousands of dollars.
“We definitely see developers being creative and paying joint fees and taxes for a few years, either heavily discounting or throwing in storage and parking facilities,” said Stephen Kliegerman, president of Brown Harris Stevens Development Marketing.
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“If the sellers don’t admit, for the most part there is simply no deal,” added Rachel Glazer, New York-based Compass agent. “What I see the most are young professionals who benefit from reduced interest rates and also from the fact that the market is a little softer as an alternative to renting.”
While many retail sellers choose to simply take their offers off the market until conditions are more favorable, new developments often do not have that luxury, with loans to be paid back on a schedule and pressures not to drop and lower prices Sales proceeds for the rest of the building.
“They can weather the weather in high-quality luxury buildings whose finances are in order and who have no construction loans [the downturn]”Said Vickey Barron, a compass agent in New York City.” Others can get you [a net discount] of 20% discount because they don’t have the time. You have financial obligations due and need to get going. “
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While this phenomenon appears to be more pronounced in New York City, where there was oversupply of new development inventory and sluggish sales before the pandemic, high-rise buildings in other cities are no exception.
“The condominium market has really slowed down. People don’t want to live in apartment buildings, ”said Jill Epstein, an agent at Nourmand & Associates in Beverly Hills, California. “We just closed a high-end apartment last week and the concession offered was an adaptation [to the apartment] and a little more flexibility in price. In general, I haven’t seen a price drop yet, but as the market adjusts, condos will be the first to hurt and the last to recover. “
Standard concessions are getting very large
Concessions are a standard part of dealmaking on new developments and are not necessarily a sign of market instability. In any case, the offers currently on offer go beyond what is usually on the table.
According to several brokers, it goes without saying in New York that the developer covers the transfer taxes, which are between 0.4% and 0.65% for New York State and between 1% and 1.425% for New York City state to cover the cost of the state’s so-called villa tax, which can be up to 3.9% of the sale price, and mortgage taxes for buyers who use funds.
“There is currently no buyer in a new development who will pay transfer taxes,” said Kobi Lahav, sales director at Living NY.
Shared fees are also more negotiable than usual, especially in areas where building facilities like gyms and other common spaces are currently inaccessible to residents. While getting a year or two of developer-paid general fees is more typical, that number may be higher in the current climate.
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“They want to keep the look of the higher price,” said Seth Levin, a realtor at Keller Williams New York City. “I heard of a development that involved paying joint fees for 10 years. That was for a very high price in the tens of millions. “
Developers can also lower the net price with closing credits, which are not reflected in the recorded sales price, but can significantly reduce the buyer’s expense.
“We see [closing credits] in almost every degree, ”said Mr Lahav. “At $ 1 million, you can get a $ 25,000 final loan. Or let’s assume your closing costs amount to 5% of the purchase price. The developer pays for it. There is no money in your hand, but you use it to pay your attorney, pay villa tax, and pay for upgrades in your apartment. It works just like getting a discount on the apartment, it just doesn’t show up in the books. “
More specific credits are also offered to buyers interested in covering decorating or moving expenses, Ms. Barron said, or in a case where the developer agrees to pay for the buyer’s Uber rides for two years.
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Buyers “go after the offer with this list of things that would normally look crazy, but now [developers] Say, ‘Okay, we’ll do this or that,’ said Ms. Barron. “It’s getting more common and is no longer the exception to the rule.”
Parking garages, storage rooms and other areas already owned by the building are also more negotiable than usual and can add significant value to a business without affecting the final selling price.
“This has always been an additional way for developers to make money from the building, selling warehouse, rooftop cabanas, and parking,” Lahav said. “Right now, all of these things are up for grabs. In many cases, $ 50,000 or $ 60,000 in parking spaces are now simply thrown in. These things are treated separately, and if the market picks up in the future, nothing will stop you from selling them to your neighbor. “
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Creative financing approaches
Low mortgage rates, which averaged 2.87% on Friday, mean the majority of buyers in the market are currently interested in financing and their loans may become another area of negotiation.
“Sometimes the developer offers to lower the interest rate and pay a point or two on the mortgage to lower the interest rate further,” Kliegerman said. “We’ve also seen developers who in the past weren’t open to mortgage quota, and now they are.” (Mortgage contingent liabilities allow buyers to get out of business without penalty if they cannot secure funding.)
Villa Valencia, a development in Coral Gables, Florida offers to finance the buyer’s 50% down payment at a rate of 0%.
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“We finance the security deposit for free against the buyer’s first mortgage [on a primary residence]”Said Rishi Kapoor, CEO of Location Ventures, the developer of the project.” It takes out this calculation of thinking, ‘I don’t want to move any money.’ We give them 90 days after the deadline to be able to repay the mortgage, and give them time to list their home and overcome the uncertainty in the market. “
Hire-to-purchase options are also popping up for buyers who are unwilling or able to pay a large down payment but are interested in closing a sale at a competitive price.
“There are different ways in which it can be structured. For some buildings the entire annual rent is offset against the purchase price,” said Ms. Glazer. “Others will do part of it. I have a deal we’re working on that the buyer can’t close for a year because they need to free up money. “
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The net discount that results from this varies by price, and by and large, units priced above $ 4 million see more room for negotiation than their lower-priced counterparts. Buildings either at the beginning or at the end of their sales process are also likely to offer significant discounts, Ms. Barron said.
“We already saw a typical discount of around 7% for new developments [prior to the pandemic]and now it’s probably closer to 15% when it’s all thrown in, ”said Levin. “If you’re getting a 15% to 17% discount on a $ 5 to $ 7 million property, you’ve done pretty well.”
He added, “There are nuances, but it’s straightforward – developers hurt right now. But they want to protect their prices and are ready to get creative. “
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