Concessions - Hidden Price Cuts on New Construction

1. The 4-5% closing costs estimate includes transfer taxes, so you're double counting there.
2. Not all developments are paying all closing costs just off the bat, and not all developments who are paying closing costs are paying ALL of that sum. It's wrong to assume that "essentially, there is an extra 7% price chop built into" the price.
3. Even when they do pay all the closing costs, pay for some maintenance, etc., the sales price is what they wanted. It establishes comps, which in the long run is good for when you want to sell, so while you are saving some money, this is a different kind of price "chop."

Peanuts. When measured against the risk of purchasing in any new development that is not substantially completed in today's market, this tells you why new developments are not selling at all right now. There are quite of few new developments I have seen that have units that have been listed for the same price for nearly a year. Those listings are from a different universe and aren't marketable without at least a 20% price cut. Concessions on closing costs are insignificant.

billshiers, I think you're right that a lot of new development is overpriced, but I think nyc10022 has a point in bringing up the concessions as "valuable" to the buyer. They aren't huge price chops by any means, but I wouldn't call them peanuts either. One of the last purchasers in my building was able to get two of the last remaining parking spots for next to nothing, plus who knows what other concessions. I think there is some value there, though would agree on a case by case basis, it may not be nearly good enough for some buyers.

> 1. The 4-5% closing costs estimate includes transfer taxes, so you're double counting there.

Not according to Crain's.... they provided the total and the components. They weren't including transfer taxes in the closing costs...

> 2. Not all developments are paying all closing costs just off the bat, and not all developments who
> are paying closing costs are paying ALL of that sum. It's wrong to assume that "essentially, there
> is an extra 7% price chop built into" the price.

Agreed... I just said can. But the crain's article seems to reference that the both part is commonplace...

> 3. Even when they do pay all the closing costs, pay for some maintenance, etc., the sales price is
> what they wanted. It establishes comps, which in the long run is good for when you want to sell, so
> while you are saving some money, this is a different kind of price "chop."

Of course it is what they want... it is cutting the price to get the sale without having to admit they cut the price in the general sense.

My point is that things can sell for 5-7% less than they were without a visible "price cut". And a 15% price cut could actually be more than that...

Billshiers, I don't disagree with you either. I'm just pointing in what is factoring into "prices" of whatever is closing... I agree that more than 7% is needed in this market, just saying the 7% might be on top of whatever cuts are there.

"Not according to Crain's.... they provided the total and the components. They weren't including transfer taxes in the closing costs..."

I didn't read the article in question, but I am pretty familiar with closing costs. I've never heard of a case where they add up to 7%, though you can probably push 6% if you're paying the 1% mansion tax and every last fee they could possibly throw at you. Take a look at the Corcoran page on closing costs - it explains it quite well: http://www.corcoran.com/guides/index.aspx?page=ClosingCosts

I could not tell you for sure, but I think the lesson still holds even at 5%. I haven't yet seen stats that show how much of sales are affected by giveaways (everything seems to be anecdotal), but if it is significant, it will be swaying the medians a bit... similar to landlords who will give you 2 months but not lower the "rent".