How New Yorkers can take advantage of the city's oversupply of luxury condos
The developer Extell is offering creative deals in order to attract buyers to its luxury condo development.
You don't have to be shopping for a $3 million apartment to take advantage of the oversupply of luxury condos in New York City. For the past two years, high-end apartments have been lagging on the market and that has, predictably, had a ripple effect on the rest of the city's inventory.
What it means for your housing goals will depend on whether you’re buying or selling. For buyers, “it’s a moment of improved affordability,” says Jonathan Miller, president and CEO of appraisal firm Miller Samuel. The condo glut has driven prices down across the board, and the gap between what buyers will pay and what sellers are willing to accept has shrunk.
However, Miller says, there is "only so low a seller might go." As a result, NYC may be getting to a point where the "good stuff is taken off the market" as sellers yank their listings rather than reduce prices.
[Editor’s note: An earlier version of this article was published this month. We are presenting it again here as part of our winter holiday 2019 Best of Brick week.]
For sponsors, who don’t want to lower the asking prices of their apartments, negotiability on transfer tax, mansion tax, and other closing costs are a given. And the market is putting pressure on sellers of co-ops and existing condos, providing an incentive to spruce up older buildings in order to stay competitive with new development.
Negotiating apartment price
Price drops on NYC resale apartments are increasingly prevalent. Based on current data, StreetEasy predicts discounts of between 15 and 20 percent on condos will be the norm by next year. Jeff Gordon, an agent at Platinum Properties, says it’s only now that sellers are acknowledging the downward shift in the market.
Even so, he says sellers of resale apartments who have reduced their purchase price by 8 percent aren’t going to take kindly to offers that reduce it by another 10 percent. “You are going into business with these people, you need to be respectful,” he says. Completely lowballing a listing that's already discounted could shut down negotiations.
Perks from a sponsor
If you're in the market for a luxury condo, you don't have to look very hard to see some of the increasingly creative measures being used to get buyers to sign on the dotted line. Extell, for example, has offered to pay a buyer’s common charges at some buildings, and Gordon says he recently closed on an apartment where the sponsor offered a $10,000 American Express gift card to buyers.
While sponsors may be less flexible than a resale seller on asking price, there are discounts that can be negotiated through closing costs, taxes, and attorney fees.
"On the books, the price will be close to asking because sponsors want to show high sales prices to the lenders but on a $1 million apartment you have $10,000 in the mansion tax, 1.85 percent in transfer taxes, and around $3,000 in attorneys fees, which are substantial savings if the sponsor pays," says Gordon.
Rent-to-own opportunities
Programs where tenants can exercise an option to buy have never taken off in NYC, but a major developer, Extell, decided to explore this option with a rent-to-own offering that allows you to credit a year of rental payments towards your condo purchase at its massive 815-unit condo development, One Manhattan Square, on the Lower East Side.
If the numbers work, it's an opportunity to test drive a building and a neighborhood before you commit to buying.
Trading up within the same market cycle
Another way of taking advantage of the current market is to trade up as prices flatten out. Unless you are moving out of the city, if you decide to sell, you’ll maximize your spending power if you buy again quickly within the same market cycle. Vickey Barron, a broker with Compass, is seeing buyers do just this. In fact, the oversupply of luxury condos means the market is softer the higher you go, so upgrading now can mean your negotiating power increases as you look for something larger.
Barron says she has helped the owner of a one-bedroom apartment upgrade to a three bedroom simply because "the price is too attractive to pass on."
Buying now means you can take advantage of low mortgage rates. Miller anticipates pressure from ongoing trade wars will result in rates dropping even further in the new year.
Make your co-op more competitive
Miller says there are many co-ops, especially luxury buildings, that are "detached from market conditions and continue to act as if the market is very tight and they are calling the shots." If you're an owner in a building like this, you may have put off selling, for now. But now is a good time to address how competitive your building is and take steps to make it more attractive to buyers.
Miller says co-op boards need to start thinking about this sooner rather than later because competition with condos isn't "a blip" but "a long-term structural change." He says as soon as co-op boards are engaged and in sync with market conditions, the sooner they will see more activity and better pricing in their building.
So if you're a co-op owner, you can try to push your board to get improvements, speak up about lobby renovations, or make sure the building is in good financial standing and ready to weather any storms ahead.
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