Monday, May 21, 2007

Sweeting the pot...too much of a good thing?

Ahhh...those lovely buyer incentives...they just want to reel you in, don't they? Don't get me wrong buyers incentives can be great...hey, who won't take a year free assessments or a free car? Yes, a free car. Take a drive down the Kennedy expressway and check out the screaming banner that say "Buy a condo, get a car." I'm half tempted just to call to see what kind of car they're "giving" away. I would have taken a picture, but driving and taking a picture at the same time could present some motor vehicle issues, if you know what I mean. The sign has been up for months and months, so it just got me wondering, what would drive a developer to offer a car to a potential buyer. And apparently they're not the only ones....I just saw an ad on craigslist with the same come on, but certain "conditions" have to be met to get the car. Never mind that whoever is holding the mortgage is really going to hate trying to value the property given the unusual addition of a car!

Before I get too far into this discussion, let me say, not all incentives are bad, nor all they all acts of desperation. Incentives whether you're looking at a resale or new construction, can just be used as a tool to distinguish yourself from the competition. For example, pre-construction pricing is just an incentive to get you to buy early in the construction process, and developers will partner with lenders for discounted rates. Or for a resale you might see a year paid assessments or some other sort of closing credit.

Ok, now back to this car deal. Let's be realistic, they're not going to be giving you a Lexus or a BMW, but it's certainly a hell of a way to distinguish yourself from the competition. So, let's say that the car is worth $18,000, sounds like a good number right? And let's assume that they developer is actually paying $18,000 for the car. So that could be construed as an $18,000 discount right? Well, kind of. In this case, I would want to raise the question of why is the developer offering such a "large" incentive. A plasma tv is one thing, but a car? As an agent the first thing I would be doing is checking the comps to make sure that the unit is priced in line with other new construction in the area. If it's not, that's a red flag. Next, does the property have a major flaw that is hindering it's current sale? If so, that's another red flag. Incentives, especially substantial ones, can become tricky and red flags in and of themselves. Which leads to the next question, is the developer artificially inflating the price on the home to offer the incentive? If the price is in line with the comps, then probably not, but buyer beware. They could be and all this means for the buyer is a potential train wreck down the road when they try to resell. Welcome to the legally gray area of buyer incentives.

So you ask, why not just take the dollar amount of the incentive off the price? Sure that would make sense, and that's what many developers do, but that also eliminates the wow factor of it all. And sometimes people just feel like they're getting a better deal if there is some type of incentive, period.

Ultimately, when it comes to the bottom line, the incentive should work for the you, the buyer. Paid assessments, a discounted mortgage rate, a closing credit, all those kind of things clearly work for the buyer, but if there are any red flags, it's time to do some digging. Be careful not to be drawn in by the "deal" because in the long run it might not be such a great deal after all.

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