Unlike individual sellers, developers (also referred to as sponsors) generally tend to avoid outright price reductions. Price cuts affect future sales, as each unit’s recorded sale price is a matter of public record. So if the sponsor gives you $25,000 off, he will probably have to give every other buyer in that line $25,000 off.
Instead, focus on extracting “off-deed” concessions that the rest of the world will not automatically learn about. You'll find the most negotiability in troubled projects, at critical moments of a development's lifecycle (see below), and/or if you're paying all cash. "Off-deed" concessions include:
- 3-12 months of common charges paid in advance
- Payment of attorneys fees
- Upgrades to your unit like a better flooring (if not yet installed) or other finishes and appliances
- Roof rights, rooftop cabanas, storage bins, bike spaces, parking
- Payment of your contribution to the building’s reserve fund (“capital contribution”)
- Mortgage recording tax “splitter”: Not many buyers know about this, and it certainly pays to ask, as it can save you the entire amount of your mortgage recording tax (nearly 2% of your mortgage amount)
- An interest rate "buy-down"
- Furnishings, particularly when you're buying a model unit
To offset the extra closing costs of buying in a new development , work with a brokerage that offers a buyer’s rebate on its commission. With Prevu, you’ll receive a rebate of two-thirds of the commission paid to the buyer’s broker at closing. On a $1.5 million condo, you’d pocket up to $30,000. Click here to learn about Prevu’s Smart Buyer Rebate.
In some cases, you may have more leverage at the beginning and end of a project. That’s because during the preconstruction phase, the sponsor will be focused on getting 15% of the units under contract. Fifteen percent is the magic number at which the offering plan is declared effective by the attorney general and closings can legally begin. It is also the minimum threshold at which most lenders will even consider financing sales in the building (some want to see as many as 50% of the units under contract).
If you're paying all cash in the preconstruction phase, you may have the most negotiating leverage of all as far as concessions, if not purchase price.
Conversely, you may have extra leverage at the very end of the project, when a sponsor may be eager to close down the sales office and focus fully on the next project.
Other points of negotiation:
- Deposit amount: Most sponsors ask for 10% down when you sign the contract, but in the preconstruction phase, when the sponsor is eager to hit the 15% mark described above—and is likely to be sitting on your deposit a very long time before delivering the unit—you may be able to negotiate a lower amount, such as 5%.
- Drop dead dates: Sponsors will never offer this up, but most will agree to a reasonable “drop dead” date at which point you are let out of the contract. For example, if you’re signing a contract in August and the sponsor predicts closings will start Oct. 1st when the building is predicted to be 25% sold, you can ask to be let out of the contract if closings are delayed 3-4 months past Oct. 1st.
- Expecting some concessions with your new condo? You may be unpleasantly surprised »
- Concession Update: What developers are giving and how to give it »
- How to buy preconstruction smart »
- How to find--and negotiate--a preconstruction deal »
- How to get your developer to finish your punch list »
- “Splitters” can save you thousands on a new condo »
- Analyzing the “special risks” section of an offering plan »
- Why you may want to buy (or not) in a condo when it's nearly sold out