Buy early in new developments for the best prices and concessions

A summer housing slowdown is hitting markets across the United States, amid concerns about rising interest rates and inflation. According to Fed Chairman Jerome Powell, activity has “weakened” and the National Association of Realtors found that in June, contract signings had fallen 20% year-over-year.

Despite falling demand, median home prices remain high, up 31% in June year-on-year and 16.6% in July, real estate found, which experts attribute to the slowness of sellers to adjust their prices to the new normal.

For buyers looking for deals and greater marketability, there is one area of ​​the housing market where they can find better opportunities: new developments.

“The downturn is affecting all different types of properties,” said Susan Abrams, broker at Coldwell Banker Warburg in New York. “It’s a good time to be a buyer of new development, because you can get a better deal than you [could] six months to a year ago.

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One of the advantages of investing in a development that is still under construction is that developers have an incentive to sell a certain percentage of units quickly in order to meet their loan obligations. Those who buy early may get better prices or concessions, but there are also risks, like unforeseen delays in completing the property.

So when is the perfect time to invest in a development still under construction?

“The best time will be right at release time, which is usually when you get the best price. Promoters want to get people in the first place, and then over time they will increase their prices,” said Melissa Camp. , agent at Sotheby’s International Realty in Seattle.

However, she cautioned, this type of investing is not for the faint of heart and buyers need to have an exit strategy in place if things go wrong.

“You need to make sure you do your research and buy from a developer you can trust,” Ms. Camp said.

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Advantages of buying in a new development now

Despite some cooling demand, luxury buyers of New York shouldn’t expect to get substantial discounts. Although contract signings for new developments have been down 13% year over year in the second quarter of 2022, prices did not follow.

This does not mean, however, that negotiation is out of the question, especially in developments under construction that are just open to buyers.

“Developers like to keep the asking price as high as possible and negotiate on lots of extras instead,” Ms. Abrams said. “They could agree to pay transfer taxes, give away free storage and take on a lot of the closing costs. It adds up quickly. »

In Seattle, cooling demand led to lower median home prices, down 11% since May. The region’s usual summer slowdown is compounded by economic factors, such as rising interest rates.

Still, Seattle is experiencing population growth, gaining just over 20,000 new residents from April 2021 to April 2022which augurs well for a rebound in demand in the fall.

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A new development in Seattle could be an especially smart buy right now for investors who aren’t in a rush to move.

“It’s a great investment if you put down a deposit early and can get equity before you even close on a home,” Ms. Camp said. “A baby boomer downsizer is a good buyer profile for pre-construction. You know where you’re going to be in a few years and you have time to make that transition.

South Florida’s real estate market, meanwhile, is still booming, with prices in Miami up 37.3% year-over-year in the second quarter, according to the Knight Frank Prime Index. Global Cities.

The advantage of buying in a new development in such a fast-paced market full of bidding wars comes not from price cuts but from having more time to think about the investment.

“One of the biggest benefits of buying a pre-construction condominium is the flexibility it gives buyers,” said Edgardo Defortuna, president and CEO of Fortune International Group in Miami. “With the current state of the market and growing demand, existing homes often sell out within a day or two of coming on the market. Considering buying a new construction condo gives buyers plenty of time to decide if this property offers everything they want, from finishes to amenities.

Strategies for timing your investment

It’s never ‘too early’ to invest in a new pre-construction development, property experts say, as the opening of a project tends to be the best time in terms of price.

“The best time to find deals is often around the launch of pre-sales, when developers want to secure a buyer base before they officially hit the market,” said Ryan Shear, chief marketing officer at the PMG-based development company PMG. New York and Miami. “You will also be able to find value on particular ranges of units that have not sold as well as others but still meet your needs.”

Buying into a new development can offer particularly good value depending on the market. In Miami-Dade County, where prices continue to rise and sellers, especially of move-in ready homes, have the upper hand, pre-construction could offer good opportunities.

“There is an incredibly limited inventory of new, move-in ready condominiums and continued buyer demand, so sellers of these properties may command higher prices,” Defortuna said. “Buying a pre-construction unit locks you in at a certain price point, and the price per square foot will only keep going up.”

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The flip side of finding this better value, however, is that buyers of new developments face a higher degree of uncertainty.

“The benefit of buying early is a better price, and if the development is successful, often the developer will file amendments with the attorney general and raise prices for subsequent units,” Ms. Abrams said. “But you’re buying something that you haven’t seen, and you’re really relying on the development offer plan and the floor plan, and what it promises to deliver.”

Relying on the supply of plans and buying on demand requires waiting a while until a new property is ready to move in, and that comes with risks, but there are ways to mitigate those risks.

Buyers should, for example, research the developer’s track record and include clauses in their contracts that offer them a solution in the event of major problems, such as major delays, construction defects or end results that do not meet the design plan. offer.

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And drops in the asking price, while tempting, could be a red flag, Shear said, as it could indicate the developer has had trouble with lenders.

“Look at the history of the developer’s projects, and if there have been any complaints or disputes,” Ms. Abrams said. “There are always protections you can include in your contract, like the right to inspect the new unit, and the right to cancel and get a refund if the developer doesn’t deliver within a certain time.”

Buyers should also anticipate the possibility of delivery delays due to pandemic-induced supply chain issues plaguing the construction industry. Longer waits before moving in may mean they should consider the possibility that their own priorities may change in the meantime.

“If the development delivery is two to three years away, you need to have an exit strategy. What if something changes in your life? Can you rent or resell immediately? Mrs. Camp said. “Make sure you have backup plans.”

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