In recent months, wealthy buyers looking for security and personal space have flocked to the vacation and single-family home markets across the country, leaving a few new condo developments in the cold.
And for buyers always interested in the vertical life, there has never been a better time to negotiate. But rather than offering blatant discounts, many developers are filling the gap with unusually spectacular concessions, covering things like closing costs and decorating expenses to free up parking spots worth tens of thousands. of dollars.
“We certainly see developers being creative, paying a few years of common charges and taxes, either by giving big discounts or adding storage and parking,” said Stephen Kliegerman, president of Brown Harris Stevens Development Marketing.
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“If the sellers don’t concede, there’s just no deal, for the most part,” added Rachel Glazer, New York-based Compass agent. “What I see the most are young professionals taking advantage of the reduced interest rates and also the softer market as an alternative to leasing.”
While many individual sellers simply choose to withdraw their listings from the market until conditions are more favorable, new developments often lack this luxury, with loans that they are required to repay on a specific schedule. and pressure not to lower prices and lower turnover for the rest of the building.
“In quality luxury buildings that have their finances in order and don’t have construction loans, they can resist [the downturn]”said Vickey Barron, a Compass agent in New York.” Others you can get [a net discount] 20% off because they don’t have time. They have financial commitments that are owed, and they need to build momentum.
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While this phenomenon appears to be most pronounced in New York City, which faced excess new development inventory and sluggish sales even before the pandemic, high increases in other cities are not exempt.
“The condo market has really slowed down. People don’t want to live in multi-family homes, ”said Jill Epstein, agent at Nourmand & Associates in Beverly Hills, California. “We just closed an upscale condo last week and the concession that was offered was some personalization [to the apartment] and a little more flexibility in pricing. In general, I haven’t seen prices drop yet, but when the market adjusts, condos are the first to be affected and the last to recover.
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Concessions are an integral part of negotiating new developments and are not necessarily a sign of market instability. But in all respects, the current offerings go beyond what is usually offered.
For the developer, the coverage of transfer taxes – which vary between 0.4% and 0.65% for New York State and between 1% and 1.425% for New York City – is now a given in New York. York, said several brokers, many of whom are also now prepared to cover the cost of the so-called state residency tax, which can reach 3.9% of the sale price, as well as mortgage taxes for buyers using financing.
“There are no buyers right now in a new development who will be paying transfer taxes,” said Kobi Lahav, director of sales for Living NY.
Common charges are also more negotiable than usual, especially in areas where building amenities such as gymnasiums and other shared spaces are currently not accessible to residents. While it’s more common to have a year or two of common charges covered by the developer, in today’s climate that number can increase.
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“They want to keep the higher price lens,” said Seth Levin, a broker with Keller Williams New York City. “I heard about a development they were talking about paying for 10 years of common charges. It was for a very high price, tens of millions of dollars. “
Developers can also lower the net price with closing credits, which are not reflected in the recorded sale price but can significantly reduce buyer’s expenses.
“We see [closing credits] in almost all closures, ”Mr. Lahav said. “On a million dollars, you can get a $ 25,000 closing loan. Or let’s say your closing cost is 5% of the purchase price, the way it works is the developer will pay for it. It’s not money in your hand, but you use it to pay your lawyer, pay housing tax, pay for improvements to your apartment. It works just like giving the apartment a discount, it just doesn’t show up on the books.
More specific credits are also offered to buyers interested in covering decorating or moving costs, Ms. Barron said, or, in one case, having the developer agree to pay for two years for the Uber’s rides. Buyer.
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Buyers “take the offer with this list of things that would normally look crazy, but now [developers] say ‘Okay, we’re going to do this or that,’ ”Ms. Barron said. “It’s more and more common, and it’s no longer the exception to the rule.”
Parking garages, storage spaces and other areas already owned by the building are also more negotiable than usual and can add significant value to a transaction without affecting the final sale price.
“It has always been another way for developers to make money on the building, selling storage, rooftop cabins, parking spaces,” Lahav said. “Right now, all of those things are up for grabs. In many cases, the parking spaces that are worth $ 50,000 or $ 60,000, they will now throw them away. These things are sold separately, and when the market recovers in the future, there is nothing to stop you from selling them to your neighbor.
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Creative approaches to financing
Low mortgage rates, which averages around 2.87% on Friday mean that the majority of buyers in the market are currently interested in financing, and their loans may become another area of negotiability.
“Sometimes the developer will offer to help them lower their interest rate, paying a point or two on their mortgage to reduce the rate further,” Kliegerman said. “We’ve also seen developers who in the past weren’t open to mortgage contingencies and are now. (Mortgage contingencies allow buyers to opt out of transactions without penalty if they are unable to secure financing.)
Villa Valencia, a development in Coral Gables, Florida, offers to fund the buyer’s 50% down payment at a 0% rate.
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“We will finance the deposit at zero cost, with a guarantee against the buyer’s first mortgage [on a primary residence]Said Rishi Kapoor, CEO of Location Ventures, the developer of the project. “It takes that math of thinking, ‘I don’t want to move money. We give them 90 days after the closing date to pay off the mortgage, giving them time to list their home and weather the market uncertainty.
Option-to-buy lease options are also appearing for buyers who are unwilling or unable to make a large down payment but want to lock in a competitively priced sale.
“There are different ways to structure it, some buildings will count the full year’s rent as part of the purchase price,” Ms. Glazer said. “Others will be a part of it. I have a deal we’re working on where the buyer just can’t close for a year because they need to release funds.
The net discount to which it all adds up varies with price, and overall units priced above $ 4 million have more room to negotiate than their cheaper counterparts. Buildings early or late in their sales process are also the most likely to offer big discounts, Ms. Barron said.
“In new developments we were already seeing a typical discount of around 7% [prior to the pandemic], and now it’s probably over 15% with everything in it, ”Mr. Levin said. “If you can get 15-17% off a $ 5-7 million property, you’ve done pretty well.”
He added, “There are nuances, but it’s simple: the developers are suffering right now. But they want to protect their prices and are ready to get creative.
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This article originally appeared on Global Manor.
