Soothing Buyer Trepidations with Price Protection Guarantees at Closing
By Josh Barbanel, November 16, 2008, NYT
As fear and uncertainty stalk those glittering new-condominium showrooms, with their stainless steel kitchens and stone countertops, developers have found a new way to try to calm the nerves of would-be buyers.
“Why should I buy now, when condo prices may tumble over the next year?” one buyer asked at the Steelworks Lofts, a new 88-unit condominium in a former steel warehouse on North Fourth Street, a few blocks from the waterfront in Williamsburg, Brooklyn, a few days after the apartments went on sale last month.
To address such trepidations, the project’s developer, David Berger of Fifth Square Partners, has come up with a new marketing tool, a price protection guarantee.
Sign now, say Mr. Berger and other developers across the city, and if the economy forces future price cuts, at the closing you will be guaranteed the lowest price available to other buyers. The promise is being written into individual sales contracts, and some developers, like Steelwork Lofts, are filing amendments to their offering plans so that they can extend it to all buyers and include it in their advertising.
“It’s a comfort for people concerned about what the future might bring,” Mr. Berger said.
Buyers looking for a “me too” clause in their contracts would be wise to read the fine print of these offers, which differ from building to building. Some promise to match cuts on similar apartments in official offering prices filed with the state attorney general; others will match price cuts and concessions won by other individual buyers.
The price protection guarantee is only the latest feature offered by developers as they bring long-planned projects into a rapidly chilling real estate market. Some developers are subsidizing mortgage rates and providing 90 percent financing, or asking for only a 5 percent down payment. Others are paying six months of maintenance or covering buyers’ transfer taxes.
Developers say projects that offer fine finishes and amenities and are perceived to offer good value are continuing to engender buyer interest. Three apartments are now in contract at Steelworks Lofts, where a fifth story is being added, to be topped by shared rooftop gardens and private cabanas. Prices range from $495,000 for a studio to $1,550,000 for a one-bedroom.
On 44th Street in Sunset Park, Brooklyn, Paul J. Klausner is renovating and converting a 54-unit prewar rental building to a condominium called One Sunset Park. His plan is to combine stylish kitchens and modest prices in a six-story building providing expansive views above the neighborhood’s low-rise buildings. Prices range from $300,000 to $595,000.
After three weeks on the market, Mr. Klausner said, the building is attracting interest but has only one accepted offer. “People like what they see; the value is good,” he said. “Then they look at the Internet and pick up the paper and there is more and more frightening financial news.”
Under the terms of the offer, buyers will receive the same percent reduction in asking price given to any other buyer (excluding insiders) who agrees to purchase in the building.
“We are not trying to fool around, we are not trying to play games,” Mr. Klausner said. “If any other apartment in the building gets a 7 percent reduction, they will get the benefit of that same reduction.”
Stephen G. Kliegerman, the executive director of development marketing at Halstead Property, organized the campaign, which has been adopted by eight developments represented by Halstead. He said that from a developer’s perspective, the plan made perfect sense.
If the economy stabilizes over the next year or so, the plan will reassure buyers, while costing developers relatively little in rebates. If the economy collapses, and prices plummet, most developers will return deposits, and convert their projects to rentals until the economy improves.
The guarantee is offered at Shirley Woods at West 238th Street in Riverdale, the Bronx; at two projects in Harlem, the Ellison on Adam Clayton Powell Boulevard, and the Fitzgerald on West 117th Street; at 905 West End Avenue near West 104th Street on the Upper West Side; and at 80 Met, on Metropolitan Avenue in Williamsburg.
The price protection guarantee is also being offered at +Art, a building under construction at 540 West 28th Street near 10th Avenue, close to the path of the High Line park. Prices there go up to $4.16 million for a four-bedroom. Three apartments are now in contract.
But this is not the first buyer protection plan offered by +Art. Before the presidential election, it came up with a clause guaranteeing buyers the right to back out if Barack Obama did not win; however, no buyers signed the contingency clause before the election.
Erik Ekstein, a developer of the project, said that neither plan was a gimmick. Both were designed to soothe the worries of potential buyers.