Friday, March 23, 2007

"Lowest Price Guarantee?" Park At Courthouse in Virginia. Real or Fluff?

In 2003 and 2004, the demand for new construction condominiums was so high, builders didn’t offer any incentives (either price or upgrades) to the buyers. Now that the market has changed, we’re noticing the builders for these new construction condos are lowering prices, negotiating offers, and even offering “Lowest Price Guarantees.” One particular property, the Park at Courthouse, is offering this guarantee and I decided to investigate to write about it here. My questions were: 1) is the guarantee real? and 2) how can they offer such guarantee, considering the prices are probably lower than most nearby condos to begin with?

Since 2003, the prices of condominiums in Arlington (among many other places) sales prices soared, but only to come back down. Now we know the double digit increase is a thing of the past and the immediate future of condo or real estate market looks cloudy. Regardless ofwhat the experts say about the future of real estate, builders in Arlington have continued to move forward to construct new condominium buildings. One particular building I visited was the Park at Courthouse. Their advertising theme of "Turn back the clock to 2003 prices" seemed very appealing so I took a client there for a visit. As advertised on their website, the one bedroom condos at the Park really started at $328K WITH a parking space, which is generally much lower than existing nearby condos. If I were a buyer, at these prices, I would definitely choose a new construction over a unit that someone else has already christened, given all things equal. But all things aren’t equal for new constructions since there are higher risks with new condos: a) you’re buying at the same time and many others and therefore a larger % of these units are selling at the same time. Simple supply and demand says this should lower the prices considering the current market; which leads us to b) people can sometimes buy at a far lower price than others, which was catastrophic experience for Parkside Alexandria buyers. Not only that, the Park at Courthouse has an appealing "Guaranteed Lowest Price" program (which I'm sure the neighboring condo associations aren't happy with) that screams "I'm Perfect! Guaranteed!"So, I decided to do some research to see if you're truly getting a bargain with a built in insurance policy.

What I found is that the "Guaranteed Lowest Price Program" is a marketing ploy (albeit a good one). Heck Frank got them (the Park) into the Washington Post since he loved the initial marketing idea and thought all new condos would need to go in this direction to sell large quantities. The guarantee instead says the lowest price if the builders decide to lower their LIST prices overall. The key is the word “List” when it should be based on the NET price, including all incentives and upgrades. List is too easy to manipulate in order to look good.
For example:

-Customer A enters and buys a 1 BR unit at $350K and purchases upgrades for $6K to make the total; net sales price at $356K.
-Customer B is thinking of buying an identical unit at the list price of $350K but is unsure. The builder could then offer customer B the unit at the list price of $350K and offer the same upgrade as customer A for free, to make the total netprice at $350K and customer B “saved” $6K.

The problem is that the total list price remained at $350K and the builder actually makes more money with this strategy then to lower the prices of all the units by $6K. I'm not saying that the builder at the Park are offering such deals to everyone, but a good Realtor can identify such situations and a) warn you about their trick or b) try to get you that $6K upgrade for a significant discount. The sales office's argument will be that the builder has already reduced prices twice already, but the average reduction is unknown. They won’t disclose it, I asked several times. How convenient. If I were a builder I would drop prices $1,000 two times, for the mere marketability to say “Oh don’t worry, we have already dropped prices two times, see it is real”, but their Achilles heal is when you say “show me exactly how much”. I think I would rather get the free $6K upgrade then to have the prices reduced by only a thousand dollars.

If you already bought a unit, ask your Realtor, and if you don’t have one, ask a lawyer if what they are doing is legal.

However, even if their “Lowest Price Guarantee” is not real their prices are still relatively low compared to the condos in the area. So, my question is how can they price it lower than their competitors? One of the reasons why the Park at Courthouse can keep the prices lower is by providing very basic features inside the claimed “luxury” condos and all the luxury features count as a paid upgrade. For example, the standard appliances are the typical white regenerators and microwave. To get the, sleek looking, black appliances, you have to upgrade for about $1,000 more (for 1BR unit). Stainless steel appliance upgrade package is $3,500 more (at Home Depot you can start with SS at $2500, but I doubt they will take off the value of the basic white $1,200 appliances and let you put in your own). The cabinets tell a similar story, where the basic cabinets are not as desirable as, nor are they as luxurious as the basic cabinets offered at other luxury condominiums. And, most of the units don’t even offer balconies, which many people feel it’s a must to have a “home” feel. Basically, the overall features offered at the Park are not as upscale as other new constructions, such as the Palestine or even existing newer condominiums. Further, the Park does not offer the same amenities as other condos. The Park does not have a pool, rooftop access, or 24-hr concierge (although they have a 9-5 hour concierge from their adjacent apartment building).
But even if you upgrade all the appliances to match with other luxury condominiums and account for the floor, VIEW, sq footage, the prices at the Park are still lower than other condos, such as the Palestine. My question is then, how can they sell their units for lower than everyone else AND have the lowest price guarantee? We go back to simple and demand. They have larger quantities available and limited number of buyers. This and the fact that guarantee is a weak one at best.

One other side note – the Park at the Courthouse has 92 or so units and they are really pushing for additional sales with this guarantee. As of March 10, 56 units were still available and this is a concern because, I think there’s a requirement on the % of units that must be sold in order for the builder to transition the ownership to condo association (maybe a lawyer can verify this for me). This could be the builder's final desperate attempt to try to sell the minimum required units for the condo conversion. If they fail, then it's possible they may convert to apartments as other builders have done. The Park at Courthouse already has a sister apartment building built and it would only take minimal work to manage another very similar (maybe identical) building.

Anytime you buy a property, or anything else for that matter, think: Caveat Emptor – Buyer Beware. Before you decide to purchase, you must understand/know all the risks so that you can make the most informed decision. That's why Realtors are recommended and they are “free” and paid by the builder (most builders aren’t allowed to adjust their price for buyers without Realtors. Despite the myths FSBO people may think, Realtors are not here to get paid for the same work you can do on your own, nor are they here to get you a steal of a deal in the most desired neighborhood/condominiums. Rather, Realtors are here to help you find a property, identify the risks and benefits of different buildings, neighborhoods, and then develop a strategy to get you the home you desire for as little as possible. The biggest mistakes I hear people make are from those who have jumped into a decision without the inside scoop. A good Realtor can get you that inside scoop.

- Written by Ray Hwang- Realtor

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Sunday, March 11, 2007

New Sub-Blog

In an attempt to not clutter the main, I've created this new Sub-Blog that will be an area for Agents to discuss particular areas or buildings.