As the national real estate market descends from record heights, condo developers in some markets are buddying up to home shoppers and real estate agents with promotions and incentives.
The “dog-eat-dog” condo market of the not-too-distant past has lost some bite but not its bark, according to Thomas C. Demsker, a Realtor with Prudential Douglas Elliman in New York City.
Inventory is up, and some sellers have dropped prices after realizing they were expecting too much, he said. It’s not unheard of to see price reductions of $100,000 for properties that are slow to sell.
“They’re (developers) much more flexible and much more accommodating. What they’re doing is sweetening the pot by adding a little perk here or there. It’s becoming more prevalent. Some are actually negotiating on price,” Demsker said. “They’ve become very amenable to my calls all of the sudden.”
One developer was offering a Vespa scooter as an incentive for participating in the sale of a unit, while another offered a membership in a classic car club, he said.
Similar trends are echoed on the West Coast, with real estate professionals in Southern California reporting that developers are reaching out to the brokerage community and are more aggressively marketing their properties.
The condo boom may be past full bloom – the frenzied pre-construction sales are not as common these days, and buyers are typically taking more time to make up their minds.
Demsker said the market is healthier now. “It’s allowing real estate to go back to the normal way real estate should be. (Consumers) are making more informed decisions. Before they were basically fighting to get places.” Even so, sellers continue to hold the upper hand in the Manhattan market, he said. “It’s not really a buyer’s market.”
Those places that offer good location and amenities are still popular – Demsker said that about 80 percent of the units in one new project sold in the first three months. And investors may be a “little reticent” these days, though there is still investor activity for properties with good pricing, he said.
Veronica Hicks, broker-owner for Condos etc., based in Orange County, Calif., said the condo market is generally slowing, and buyers “are starting to be a little bit more apprehensive.” Units are selling for 98 percent to 99 percent of the asking price, while last year properties generally did not sell below the list price, she said. The average price for Orange county condos is $564,000 and the median price is $459,500, she said.
Hicks said that rising interest rates and prices are making it more difficult for investors to make a quick buck on condos.
The California Association of Realtors trade group reported that the statewide median condo price was $430,910 in December, up 10.2 percent since December 2004. Condo sales in the state, meanwhile, tumbled 21.7 percent from December 2004 to December 2005. Nationwide, condo sales were up 9.3 percent in 2005, setting an annual record for the 10th consecutive year. The national median price of condos in 2005 was $218,200, up 12.7 percent from 2004, the National Association of Realtors reported.
Developers of new condo projects aren’t negotiating much on price, Hicks said, though they seem more willing to work with real estate brokers and to offer incentives such as free upgrades in the interior features of condo units. “What they are offering consumers is not necessarily price reductions. They are offering them upgrades and closing-cost assistance,” she said.
Some developers are offering commissions of up to 4 percent and 5 percent of the sale price as compensation for bringing buyers into a transaction. “As recent as a few months ago they were offering absolutely zero,” she said. Also, Hicks said developers are placing more new condo listings in the local multiple listing service database, where real estate professionals can readily access the information.
Troy Soumis, broker-owner at Condosource, a brokerage company that focuses on downtown Los Angeles, said it’s still a seller’s market for condo units, though “it’s not as good as it was last year.” Inventory is up, and several conversion and new-construction projects are coming into the market. The growing inventory is also a result, in part, of investors who bought the properties for a quick sell and are now returning them to market. This investor activity has served to drive up prices.
In 2005, the average number of days on market for downtown condo and loft units increased 59 percent – to 49 days – over the 2004 level, according to a year-end Condosource report, while the average unit sales price increased 22 percent and the average price per square foot increased 27 percent.
Condo units lately are spending about two months on market, Soumis said. “Fewer offers are coming in than last year. There are situations of multiple offers, but not to the degree of five or half a dozen multiple offers.”
Soumis said that there are also a number of small multi-family projects going up on properties that used to be the site of single-family residences. There is a shortage of housing in the area that is still powering the downtown market, he added.
Meanwhile, the Washington, D.C.-area market “has softened quite a bit and several projects have folded,” said Daniel Rubén Odio-Páez, founder of DROdio Real Estate Inc., based in Arlington, Va. Odio-Páez tracks and lists area condo projects at the OnlyNewCondos.com Web site.
One proposed $100 million-plus project in D.C.’s Logan Circle area has been withdrawn from the market, for example, he said. “Our market is still strong but there seems to be a glut of condos,” and condo inventory is three times higher than it was 12 months ago, year-to-date, he added.
Market analysts have cautioned about the waves of proposed and under-construction condo projects in some markets, such as Miami and Las Vegas, as a possible indicator of over-supply, with some developers changing their condo plans mid-stream or canceling projects altogether.
John Mudd, a Tampa, Fla., Realtor with Exit Realty Suncoast, told Inman News that pre-construction and condo conversion sales are slowing down, “but that’s not my problem – it’s the problem of developers. Their brokers often give me and my buyers first pick of the units. Brokers who tell agents it’s about getting the listings are wrong. In this market there are too many listings.”
Mudd said that the market has “normalized” in the Tampa area. “If you know how to paint a picture with words to reach the buyer you’re targeting, and if you know what buyer demographic to target, you won’t have too much trouble selling condos, even if there is a glut of condo inventory on the market – and there is a glut of inventory.” The under-$500,000 condo market has slowed, he also stated.
Joshua Lioce, broker-owner for Realty Executives Lioce Properties in Milford, Mass., noted that the higher-end condo market is showing “signs of decline” in his market area. “A builder in Uxbridge, Mass., about an hour southwest of Boston, is currently offering to pay the first year of condo fees, roughly $2,500. This is something that we have not seen around this area, but I feel that we will see more and more of this, especially in the higher-end condos.”
In the Boston condo market, there are a number of high-end new construction condo projects, said Anthony Longo, founder and CEO for condoDomain.com, a site that offers condo listings and other news. “We’re still on a great pace,” he said.
Developers are very sophisticated in their condo sales techniques, he said. “Each building is getting its own personality,” he said, with a customized marketing campaign and interior design. “They are getting much more refined at what they want that building to look, feel and smell like,” Longo said.
And in San Francisco, the high-end condo market seems to be performing better than the low-end, as some entry-level buyers are getting priced out, said Ed Campaña, a Realtor who specializes in lofts and condos. “Surprisingly, the seller is still in pretty good control” in the local market, Campaña said. Properties priced between $800,000 to $1.1 million are selling well, he added.
Developers may be more willing to negotiate on the lower-priced units, he said, though they generally aren’t offering too many incentives right now. That may change as interest rates bump up, he said.
When the market was really hot, developers were more reluctant to pay commissions to agents who brought in buyers for condo units, Campaña said. Also, there were some out-of-town builders that weren’t used to the local commission practices. One condo project had initially offered a 1 percent commission to outside brokers but recently raised it to 2.5 percent, he said, and some developers offer a 3 percent commission.
Developers are very savvy at marketing new projects, he said. “Any new development that comes out has its own Web site. They all drive people to their Web sites by their hard-copy advertising.”
Open houses have slowed down a bit in the condo market, and there aren’t as many offers for properties now, he said. “This year I think will be steady. After that, all bets are off.”
***
What’s your opinion? Send your Letter to the Editor to glenn@inman.com; (510) 658-9252, ext. 137.
