Saturday, March 22, 2008

Time To Negotiate!

The recent turmoil in the financial markets, the Bear Stearns collapse, the impending drop in employment in the city, and a national economy in recession, marks a specific opportunity. The Manhattan real estate market has been on fire for years, and for years potential buyers have been waiting for the market to cool and for prices to come in a bit. All indications lead to the conclusion that the time has come. There is no doubt that we have found ourselves in a buyer's market and, for once, prices are truly negotiable. Why? Aside from the obvious Wall Street/financial and national economic trends, fear and timing are working to a buyer's advantage. As I have mentioned before, February is the natural low point for real estate sales in the city. Every year, after the bonus bounce wears off there comes a point in February where the buyers dry up. Every year I talk to brokers and agents around the industry at that time, and everyone seems to be in some sort of panic, wondering if and when the clients come back. And, every year, as sure as daffodils start blooming in Central Park, the buyer come flowing back into the market during the spring. Most experienced developers recognize this trend and keep their powder dry and wait for the buyers to come back. This year is different. There is true fear in the market. While the surge of development inventory is past it's peak, most developers who have any portion of their building(s) unsold are more than willing to make concessions so that they can finish off a project and move on. They recognize that the market has slowed, and while they are confident in the market, they fear the worst and would rather not take their chances.
It is important to understand how to negotiate and what is important to developers. While there are a handful of developers who have reduced prices in Manhattan, this is, generally speaking, not the most palatable way to go for most of them. If a developer has sold a majority of it's units at a given price, say a 2 bedroom for $2Mil., they hate to book the same type of apartment at $1.8Mil.. To do so only ruffles the feathers of those that they have already sold to. So, the developer wants sales recorded at or only around what previous similar listings have sold for. So, the real discounts are in the details. There are 3 paths to a discounted price.
First, a "closing credit". A closing credit really works for both the developer and the buyer. On that $2Mil. apartment, rather than discount the price $100k, and record the sale at a lower price than others have paid, a developer would be much more apt to sell it to you for $2Mil, and give you a $100k back at closing. With this method, the various taxes are paid and recorded at the higher price, but you get money back.
Second, closing costs. Again, the developer may not want to reduce the price for appearances, but you could save significantly by asking them to pick up some or all of the closing costs. Closing costs for a new condo can run up to and above 5%, so this represents significant potential savings.
Finally, broker representation can make a big difference- particularly by a small yet experienced and savvy firm (like A. Fine Company). I have found that my relationships as a broker have gone a long way to getting the right price. A good broker can work effectively as an intermediary in negotiations and feel out the sponsor without insulting them. I have also experienced sponsors who have been willing to bend for me where they may not for others because they like the way that my company works.
My experience is that the real estate market revolves around fear and greed. These primary emotions change rapidly and the second that owners get the idea that the market is firming, negotiating power vanishes. That's why I see this period of time as an opportunity. Truth is, there are many, many positive fundamentals going for our market. Obviously, the island is only so large, but there are positive demographic trends (families staying in the city, retirees moving in), low rates, a cheap dollar, and very little new inventory in the works, to name just a few of the positives looking forward.
So, with a little help, and a little strategy, a new home can be yours for less than you might expect.

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