There was an article in last Saturday's WaPo Real Estate section describing the trials and tribulations of condo sellers competing against sales of unsold units by their building's developer. Now that the market's slowed down [to use a charitable word], developers are finding that projects either aren't sold out by the time they're ready for "delivery" or, seeing dreams of instant riches disappear as fast as a snowball in the New Orleans summer heat, buyers [flippers or "investors"] are walking away from their contracts, putting some units back on the market. So the builders have to sell those units, knowing they'll be competing against the project's residents.
Shauntise Harris expected competition when she put her one-bedroom condominium on the market in April.
But she didn't know how intense that competition would get. Not only was she up against some of her neighbors at 555 MassAve, a 246-unit luxury building in the District's Mount Vernon Triangle neighborhood, but she also was competing with the project's developer, the JBG Cos. Nineteen months after starting sales, JBG still had units to unload and was offering a year of no condo fees on one-bedroom units -- an incentive Harris could not match.
"I'm like, you guys are still here?" she said.
555 MassAve isn't alone in offering incentives to buyers [555 MassAve's offer ended July 1]. The Artisan is advertising it will pay condo fees for one year. Last year free plasma TVs, this year free condo fees.
But the article also showed revealed developer mendacity and buyer ignorance that really works my nerves. For example:
But private sellers have one thing in their favor: If they can afford to, they can slash prices. Developers are reluctant to do that because it can upset early buyers.
"We don't want to devalue the property for folks," Blocher [of JBG] said.
I'm sure that's comforting to condo owners at the Artisan, where the developer [JBG] cut the price on unit #1005 from late March's $649,900 price to $589,900 now [MLS #DC6340135 ].
And, finally, this gem [edited to condense the tale]:
Rachel Valentino, an agent at Long & Foster in Friendship Heights, showed client Rebecca Lewis more than a dozen units at the Artisan.
The building had been sold out, but 10 percent of the units went back on the market after cancellations...
Andrew A.J. Johnson, an agent at Long & Foster in Chevy Chase, was representing the owner of a one-bedroom there. He first listed it for $397,500 and offered help with closing costs because the developer was doing so. He then dropped the price to $375,000 but took out the closing cost concession to compensate.
Lewis liked the unit Johnson was selling more than the brand-new ones because she liked the layout, the color of the floors and cabinets, and the terrace off the courtyard. Although it was a resale, it had never been lived in. "I got the benefits of a brand-new unit," she wrote in an e-mail.
"I bet I got a better deal because there were other units available by the developer and many units had been on the market for some time, making the seller eager to sell as well as keep their prices competitive for fear of me just picking another unit," she said.
Valentino knew that the developer would pay closing costs. So she offered Johnson the full price but asked for a closing cost subsidy. Johnson agreed to $9,000. The agents struck a deal in May.
To recap the tale, with the advantage of my database:
- The unit involved had closed 12/1/2006 for $329,900.
- The "investor" tried to sell it for $397,500, a 20.5% bump upwards, but was forced to cut the price to $375,000, a 13.7% bump upwards, because of the "competition" from the Artisan's developer.
- The buyer paid full price and "bets" she got a better deal. She paid $375,000 for a one bedroom condo, which would buy a very nice house in most parts of the country, and "bets" she got a better deal. She committed herself to a monthly note of about $2251 PI [assuming 5% down and 6.5% interest fixed] and "bets" she got a better deal. I may be silly, but I'd want to know I got a better deal when I put down $375,000 for a one bedroom condo in downtown DC [no grocery stores, no trees, not much neighborhood ambiance] with more than 20K condos for sale in the area with another 18K in the pipeline.
- After the $9000 closing credit and an assumed 6% real estate commission, the "investor"might have cleared around $13,000, excluding other transaction and carrying costs. Given the "investor" had to make about 6 mortgage payments on the unit [the District recorded the sale in June], I suspect it was an unprofitable "investment".
P.S. Thanks to pqliving and dcblogs for the links!