Regardless of the market, buyers or investors interested in purchasing a property in a new building always ask for some sort of concession to close the deal. And almost every time, a price cut is their top request, experts say.
"About 99% of the concession conversation is price driven," said Ryan Shear, a Miami-based principal at Property Markets Group, a development firm that also has offices in New York and Chicago.
While developers might "play the game" where they offer to increase broker commissions or throw in a furniture package, Mr. Shear said, buyers often don’t care much for those incentives.
"A buyer might say, ‘It doesn’t help me if you’re paying my broker more and I don’t care if it’s furnished. Just give it to me as cheaply as possible,’" Mr. Shear said.
How much developers are willing to negotiate depends on myriad factors specific to each project, such as the city where it’s located and how its market is faring; how the developer financed construction, and whether they need to pay back lenders in a specific timeframe; and the supply or inventory of similar projects with similarly priced units in the area.
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"Every property is different, and no two developments are created equal," said Susan de França, the president and CEO of Douglas Elliman Development Marketing.
And within each local market, "brokers are the ones that understand building to building what sort of concessions they’ll get," Mr. Shear said.
Market factors drive price concession trends in individual cities
When you view concessions over a five- to 10-year period and track what developers are willing to give up to close a deal, some city-specific trends emerge based on luxury market fluctuations at a local level.
In New York, for example, where there are a lot of new luxury developments vying for the buyers’ attention right now, Ms. de França said price cuts in the 3% to 8% range are typical. "These aren’t the dramatic price reductions that people might think are happening," she said, "but there is some negotiation on price."
This represents a significant change from about five years ago, when new developments were moving at a feverish pace, and there wasn’t enough inventory to satisfy buyer demand. "That was a time in which developers didn’t negotiate at all," Ms. de França said. "Today’s market is very different based on the competitive landscape."
However, new buildings designed by premier architects that are being raised in the most coveted locations, such as 160 Leroy in the West Village, are still staying firm on price and achieving sales velocity, she said.
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Developers with units listed in the $1 million to $3 million range, where the market is most active, are also staying firm, Ms. de França said, while developers selling units that are priced above $10 million may accept a more substantial price discount.
In Miami and nearby Sunny Isles Beach, where there’s an oversupply of luxury inventory that’s selling too slowly for many developers’ liking, substantial price discounts are common, Mr. Shear said. "People are pretending that they’re giving small discounts," he continued, "but that’s not true."
While the market is far better than it was in 2009, when there were massive defaults, inventory is selling so slowly that discounts of 15% to 20% are typical, and discounts north of 30% aren’t out of the question, Mr. Shear said.
Two to three years ago, a 5% discount was more common, but that was when sales momentum was better. "Some projects are practically fire selling their inventory," Mr. Shear said, "because they need to pay off their lender."
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Meanwhile, in Boca Raton, Florida, to the north of Miami, where the Siemens Group is completing a mid-rise luxury condo building called Akoya Boca West, director of marketing Rob Siemens said that the situation is decidedly rosier.
An exterior view of Akoya Boca West in Boca Raton, Florida
Akoya Boca WestBecause their product—an oceanfront-type building with high-end amenities, located in a country club community—is unique to the area, they haven’t had to negotiate much on price, Mr. Siemens said.
That includes purchases in which they’ve sold multiple condos to one buyer to create a supersize unit. In this case, the only people who got a "deal" were the buyers who got in first, he said.
In Los Angeles, where new condo buildings and high density living are being embraced by buyers in a way that hasn’t been seen in the past, developers are willing to be patient and hold steady on price, said Maranda Blanton, managing director of new development at The Agency. "If they do come off their list price," she said, "it’s only by a small amount, topping out at about 5%."
Elsewhere in California, Palm Springs, Sacramento and San Francisco are experiencing a similar trend, she said.
But five years ago, this wasn’t the case. "Back in 2012, developers were taking huge price cuts straight off the value and then offering crazy concessions," she said. For instance, if someone was paying cash, sometimes developers would offer them 20% cashback at closing to get them to record at a higher price and drive up prices in a building.
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Since then, the city has seen a lot of changes, one of which is an influx of Chinese conglomerate developers and other massive development firms to the area, both of which don’t often rely on lenders to finance construction. "Because they’re mostly supported by private funds," Ms. Blanton said, "they have the flexibility to wait out the market and see what happens."
When price cuts aren’t on the table, there are other options
When a price concession isn’t possible, developers still often offer other concessions to sweeten the deal and make the sale more financially compelling—specifically in markets where buyers have a surplus of options.
For instance, in London, David Galman, the sales director for developer Galliard Homes, said a developer who can’t offer a price cut might offer to pay the 3% Stamp Duty land tax surcharge.
In Miami, Peggy Fucci, the CEO and president of OneWorld Properties, said that if a buyer is purchasing off-plan and pre-construction, a developer might offer flexibility in how they schedule and pay deposits.
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This could mean that instead of paying 30% upon signing a contract, plus 10% when construction hits the purchased unit’s floor, and a final 10% when the building is topped off, a developer might agree to 20% down, with 10% six months later, another 10% in a year, and the final 10% six months before closing.
Another option she’s seen accepted is a payment plan, where for a $300,000 deposit, a buyer offers to pay $20,000 per month to the developer until they reach the full payment, she said. "The buyer asks for what they want, and then have to convince the developer to accept their offer," she said, adding that, "every situation is different."
Although 20% cash back deals at closing are a thing of the past in Los Angeles, Ms. Blanton said she has recently seen a developer offer what she called a "quick cash closing credit" of 5% to a buyer who offered all cash. "This isn’t a huge number," she said, "but if someone closes quickly, it might be in a developer’s interest to offer this sort of rebate."
More commonly, she’s seen developers offer buyers Home Owners Association credits to cover about a year of these fees—worth $1,000 or more per month—or an additional parking space (worth $50,000 to $75,000) or storage space (worth about $10,000).
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In New York, some developers will absorb the sales and transfer taxes that buyers typically pay, which can be between 2.5% to 3% of the purchase price, Ms. de França said. Others offer to pay for sponsor attorney fees, which are typically a couple thousand dollars.
Brokers aren’t immune to the allure of an incentive targeted at them to bring in buyers either, Ms. de França said, noting that some New York developers will increase the typical 3% broker commission to 4% to entice them to bring in more clients.
Also, for the first time in many years, she said she’s seen some developers willing to pay brokers progress payments, where they receive a portion of their commission when the contract is signed, rather than waiting until the unit closes.
"Over the years, I’ve seen this sort of thing happen," she said, "but when the market gets stronger, it immediately goes away."
Gone (mostly) are the days of free cars and other flashy incentives
While in the past, some developers would offer "cool" incentives to entice buyers, like a sports car or free vacation, today, those extras are pretty much nonexistent, experts say.
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"People have realized that if someone is spending $10 million on a penthouse, they’re going to buy whatever car they want," Ms. Fucci said.
Instead, if a developer is going to offer an incentive that a buyer could most likely afford on their own, they’re likely to give something that will make the buyer’s life easier.
In New York, Ms. de França said concessions related to health are a draw. For instance, at the Lower East Side’s 196 Orchard, the developer is offering a one-year membership to the Equinox gym, which has a private entrance from the building.
In Boca Raton, Mr. Siemens said that while buyers have asked for upgraded flooring or a special electronics package, these types of extras can get expensive, and lead to mistakes. "The more you customize, the more room you have for error," he said.
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Instead, they’ve offered an upgraded washer and dryer or another appliance.
In Miami, Ms. Fucci said she’s seen developers offer a unit that is meant to be delivered "decorator ready" the option to have a decorator finish out the unit, from the finishes to the furniture.
Mr. Shear agreed that he’s seen developers offer concessions such as fully finished units, or upgrades to marble countertops or more expensive blinds in South Florida. But he added that just because the market is slow and concessions are plentiful, buyers shouldn’t worry that it’s a "bad market."
"This cycle produced a lot of great product," he said. "If I was a buyer and I had any interest in the South Florida condo market, I’d be buying yesterday."