Many Virginia condo builders have bailed before completion of their projects, voiding thousands of contracts (see: Arlington Condos Trend: Back to Apts). Meanwhile, other builders, including single family home (SFH) builders, decided to plow through the rough market.
Earlier in the year, builders (condos and SFH) were finding buyers were backing out of new construction contracts. Some left 2-7% deposits on the table, some fought for their deposit (ask for specifics). Can you blame them? If a property has dropped $70,000 and you put a deposit for $20,000… um, I know that stinks but why not just leave your deposit on Monday, and go in on Tuesday and buy another one for less?
So now the builder has inventory that they need to move and fast! The liquidation sales are here! And “These prices won’t last!” But are they a good deal? I’ve said before that (No Such Thing As a “Good Deal”) but now I want to specifically look at new construction homes.
The decision is VERY tough for buyers.
You can buy a new place:
- Get a $10k-$100k “savings” on a new construction vs a similar new resale (or off the sticker price) BUT
- Risk further liquidations, dropping your unit value another $50,000+
Or you can buy a resale:
- It might cost $5k-$15k more, BUT
- The lower supply, reduces Supply and Demand risk.
I’ve heard from a source in a new construction project that they were considering hiring an auction house out of Boston to dump the rest of their 30 units, once and for all! So a buyer might get a $50k “deal” today, to find their value dropped $50k the next day.
Supply and demand is crucial, and with new constructions, it can be out of whack.
For example, take my Clarendon Condo (please take it!!) I saw as many as 40 of the 400 units (10%) on the market at one time. That was bad, prices tanked faster than other Arlington condos. Down $150,000 from the top price to the current lowest price.
Meanwhile the new construction Phoenix Condos in Arlington two blocks away has about 180 total units. Only 31 have closed and about 20 are under contract. They still have 130 units to move!
One agent just told me they got a steal of a deal there. They were able to get a deep discount off list from the builder through the sales office: McWilliams Ballard. She was brilliant. She made them show her actual HUD1 statements of other units (since nothing recorded yet on the MLS or tax records) and she went down from there.
But what about the other 130 units? Are they going to sell for the same or more? Probably not.
But her final price was $100,000 UNDER a comparable list price for 2 units in my building!
When she initially asked about my building vs the Phoenix, my first reaction was “All else being equal, I’d rather buy where there is less inventory, so you have less downward risk”
- Sidenote, when I say “all else being equal” I mean after you account for the % off list you can get on the resale, and you adjust for amenities, view, floor, size etc.
I might, if you were ready to buy, go as far as recommending paying $10,000-$20,000 MORE for a unit in a location with less inventory risk (5% at Clarendon 1021 vs 72% at Phoenix)
But the decision gets tougher if that spread is more like $50,000 to $100,000.
Another example: A Realtor that I highly respect is currently focusing on new construction. She was thrilled that she got $70,000 off list (about 10%) for a home 2 months ago, yet last weekend at a “big sales event” she got another client $125,000 off at the same community!
So her first client effectively LOST $55,000 in 2 months!
What? You want me to: “shut up and tell you what to do”?
- If you decide to buy, make sure your horizon is long enough, otherwise rent (See Video: Don’t Buy).
- Pick exactly when to buy (read Attn. Market Timers! The EXACT…)
- Calculate the difference between this “Sale” unit to the AFTER NEGOTIATED price of the resale. Maybe even put in a few offers into resales and SHOW THEM what their competition is (see “Round Robin” Buying)
- Get copies of HUD1s (closing statements to prove sales prices) and look at subsidy and parking spots (sometimes a $30k spot gets thrown in, make sure you compensate for that)
- Ask about how many they have left, and get proof! (watch out Wilson 1800 in Arlington likes to make you think they are “almost out” until they suddenly “release more”)
- Use a knowledgeable Realtor, you don’t get a better deal going in alone.
- Consider putting into the deal a $30,000 escrow to be given to the buyer if further price reductions occur.
- If it is a preconstruction consider putting a clause to reduce the price if other units sell for less (but watch out, see Lowest Price Guarantee)
- Be patient when negotiating. You can either get a FAST and high deal or a SLOW and low deal. Slow play it.
Written by Frank Borges LL0SA- Broker FranklyRealty.com