True Gotham

I am frequently emailed specific questions from TG readers to whom I directly respond.  Occasionally, the questions are such that I believe the responses would be helpful to all TG readers.  The comment forum of the blog is also a great place to gain additional insight from others who are willing to share their experiences. 

The following two questions were posed by a TrueGotham reader who is obviously somewhere in the stages of purchasing in a new development project:

Q)  When buying late in the sales process where the vast majority of apartments are already sold, should you always expect/insist that the selling agent representing the developer will disclose prices paid by those before you (any recommended tactics around this)?  If the other apartments have been sold but not yet closed on, assume this isn't public data and there is no way to determine aside from talking to people?

I have found in my 16 years in the real estate business that expecting disclosure of recent sales data, particularly apartments that haven't closed, usually results in disappointment.  Keep in mind that over the past 7 or so years that new development projects have amended their offering plans so frequently with price increases that the data you are seeking is often irrelevant.  It will just make you wish you purchased earlier.  That said, I have also found that the most successful development projects won't only disclose info but they will boast about what properties sold for almost as to make you feel depressed that you didn't buy earlier.  The best advice I have is to do your homework and research the prices in other comparable development projects to get a better sense of the properties value.  And remember that when dealing with most developers, they are exceptional at pricing their product at levels that will be absorbed by the marketplace.  They have done their homework.

Q)  What is the recommended procedure/tactics around submitting a bid on a new construction apartment slightly below asking price if you're not using a buy-side broker at this stage?

There is absolutely no harm in submitting a bid below the asking price. NOTE: 99.9% of developers protect brokers and have already priced the commission into their Pro forma before the project ever breaks ground.  You won't likely get a better deal without a broker.  But if you do prefer to go after it on your own, don't expect huge discounts off the asking prices.  Again, developers are generally keyed in on what the market will bear for their properties.  You may want to consider a bid at 5% below the asking price and/or suggesting that the developer absorb some of those high new development closing costs.  Developers are much more likely to offer a concession in closing costs at this stage than a price reduction but give it a shot.  An offer below ask will not be taken personally by a developer the way it may be by an individual apartment owner.  It's business. 

Hope this is helpful and best of luck.  If any TG readers out there have differing opinions/advice or thoughts to share on either of these questions, please chime in.

I am a big fan of the blog, and i realize you are trying to promote your services and all, but please be honest with your readers. If someone does their own legwork and finds a new development themselves directly they can and should get a better price than if a broker "introduced them." However, i am not saying you should use a broker for their info and then screw them like that grandmother did. You are providing a service and you should be compensated for that.

If you're a big fan then you know I speak nothing but the truth and my opinions and perspectives. Call some on-site sales offices and ask them if prices are more negotiable if you come to them directly. You will obvoiusly be surprised by what they tell you as evidenced by your distrust of my post. I'm not "selling" my services but rather sharing 16 years of experience and market knowledge. It always surprises me that if report anything negative about the market or my industry, I'm seen as being so honest. But when I report (with the same integrity) anything positive about the real estate profession, it is labeled self-serving or dishonest. Keep reading and you will find that I have and will NEVER compromise my integrity for a self-serving end.

Thanks for sharing and please do keep reading.

Hi Doug: I was talking to a college friend of mine yesterday (lets call him John) who's a broker at another firm, who learned that another college buddy of ours (let's call him Hortense; well why not?), who works as a commercial broker, went direct to the sponsor (let's call him Jack) on a new development purchase for his own home. This was after John had helped Hortense in the past with renting and buying a couple of residences (yes, even brokers use brokers).

Hortense did it to negotiate a 3% discount for himself on his purchase, which he did get from the Jack. Without him knowing that, John went to contract with customers in the exact same project a week earlier, and got a 4% discount for them, and will get paid his 3% commission on top of it.

Developers are all about business, they know that it is their best interest to pay brokers, if they want to get their developments sold. Hortense would have done better to tap John's knowledge and expertise. But thought that 3% was worth enough of a bounus to place considerable strain on his relationship with John. He actually left 4% on the table considering he didn't know the marketplace like a residential broker, might have negotiated an etra point off the sale, and missed the opportunity to co-broke the deal with himself. You get what you pay for.

The moral of the story is that you will almost always be better served to use professionals who get the job done, especially those whom have already performed well for you. Even though Hortense thought he knew better, he didn't know Jack :-) True story.

I find that developers do everything they can to reach out to the brokerage community to bring in potential buyers. Whether it be broker lunches, eblasts, higher commission and rewards for deals, presentations at brokers' offices, etc..

I also find that the level of desperation, so to speak, or the willingness of a developer to negotiate varies and is totally dependant on their costs, debt obligations, loan terms and if sales activity is meeting those terms, and market sentiment. Generally, if a developer is willing to negotiate, they will do so if a broker is involved or not!

For me, I only sold 4 new dev's and I successfuly negotiated on 2 of them, and was unsuccessful on other 2. I do agree that you have better shot at incentives in closing costs than price.

But all in all, developers look to brokers and price that expense in. Even a colleague of mine tried to buy a new dev unit on her own, and tried to get a 3% (buyer brokers fee) reduction in price in exchange for going at it alone. Developer said no and didnt budge.

Agreed with Peter that brokers involved with new devs know how to deal with them and what their ranges may be to get a deal done. But that will NEVER change a buyer from thinking that using a broker will HURT their chances of getting a better deal. Thats engrained by now in their heads and no broker will ever change that psyhchology. I find that most buyers want the comfort of having a ethical and unbiased broker with them, to guide them on the new dev purchase and to ask the questions whose answers are in the buyers best interest (like, does interior size include common elements; will buyer have to pay for RM apartment; what percentage sold are they; will sponsor hold all unsold units after closing or convert to rentals, mature taxes after abatement; etc..)

Be Honest has some valid points, and I am a bit surprise about the strong broker sentiments posted by Doug/Peter/Noah. For some people, a broker is extremely important to the buying process, but for the experienced buyers/sellers there is a cost. For all buyers and seller, it is the bottom line. I can not believe a developer or any seller that does not factor commission in the selling price. Maybe in some cases there is no difference going with a broker, but not the 99.9% case that Doug noted. I am sure a small time developer trying to close out a development will be more negotiatable with a direct buyer. Peter, you provided one example, but I am sure there are plenty of examples that highlight the exact opposite. Noah, I hope you confirm the brokers answers on those questions with your lawyer.

Again, why is it so difficult for people to believe us when we speak the truth. I find this remarkable and frustrating. Do the research yourself and you will indeed find that Manhattan developers are a broker friendly lot. I know many of them personally and have consulted with them on projects. I'm not talking out of my a** or trying to persuade people to use brokers. Just stating facts as I always do.

JT - I advise my client to confirm those answers as their atty does diligence, YES!

Wouldn't a developer prefer to pay a buyer's broker with a higher offer, rather than accept a no-broker buyer who wants to save his 3% simply because he wants the sale price to stay as high as possible, even if his net would be the same in both scenarios?

Enjoy the blog.

Sorry for the delayed response Mel. I was Vermont with the family. No computer. Truth is that most developers understand that the they can't operate without the cooperation of the brokerage community so they protect agents and brokers and bend over backwards to work with them and not against them.