By Dina ElBoghdady
Washington Post Staff Writer
Saturday, December 2, 2006
Soon after Bryan O'Keefe popped the big question to his girlfriend, Kimberly Hall, the newly engaged couple began looking for a home to call their own.
They quickly spotted a two-bedroom condominium they liked at the Four Winds at Oakton for $345,000, about $30,000 less than the original asking price. The deal got even sweeter when the developer offered to give back 6 percent of the sales price, or about $20,700, which the couple used to pay closing costs and other fees.
And the concessions kept coming -- even after they signed a contract in October.
"That's when they called to say they lowered the price on our unit and they gave us a $5,000 price reduction, just like that," said O'Keefe, 25, a writer and researcher at a District-based think tank.
With tens of thousands of new condos entering the market, some developers are moving beyond luxury cars, plasma televisions and other inducements to lure buyers. Instead, they're starting to negotiate the base price of homes, a tactic unimaginable during the condo-selling frenzy of recent years, when developers scoffed at offers below the asking price.
"There's now an offer/counteroffer mentality, a back and forth," said David Mayhood, president of Mayhood, a McLean firm that has marketed condos since 1983. "That would have been unheard of as recently as six months ago."
The developers who are reducing prices say they are doing it to buck up the confidence of a large pool of jittery would-be buyers. After all, they say, the economy is sound, jobs are plentiful and interest rates are low.
The price of new condos fell 4.6 percent in the District and 2.6 percent in Northern Virginia in the third quarter of this year compared with the same period a year ago, according to real estate information firm Delta Associates. Only in Maryland, where the supply of new condos is relatively low, did prices climb, increasing 5.3 percent.
But many condo units remain to be sold. At this point, if no other condos were added to the market, it would take another three years to sell them all, and builders are eager to find buyers for the units already available. There are also thousands of units available for resale by their owners.
Against that backdrop, O'Keefe struck his deal at the Four Winds, a 366-unit complex Orion Residential converted from apartments. Orion released about 260 units for sale in September 2005, soon after the condo market started softening, and reduced prices this fall, said Dan Gumbiner, the company's president and chief executive.
"The market was adjusting, and we adjusted with it," Gumbiner said. "We retooled our marketing approach and our pricing schedule. . . . [For us] to remain competitive, people needed to feel that we weren't taking advantage of them."
The strategy appears to be working, Gumbiner said. Orion has sold about 130 of its units so far and closed on roughly 105. It has slowly increased prices again, but not to their starting levels.
Bush Construction has followed a similar strategy at the Park at Courthouse, a 98-unit project one of its affiliates is building in Arlington, but has taken the incentives a step further.
The developer has slashed prices twice since it began marketing the condos in June 2005, said Andrew Viola, one of the company's vice presidents. It has sold 23 units there. Condos originally marketed for $380,000 to $660,000 now sell for $317,000 to $565,000.
Company officials found that even with price reductions, some potential buyers stayed on the fence, waiting for prices to drop further, Viola said. So Bush launched a price guarantee program this summer. The company assured customers in writing that if it reduced prices while their units were under contract, it would give them the lower price up until seven days before settlement.
"It's not working as well as I had hoped," Viola said. "We still don't have people coming through the door saying 'We want to buy today.' We haven't found a price that would make them do that."
But the price was right for Huong Tran.
A few months after she and her boyfriend, Sean Magee, signed a contract at the Park this summer, they received a letter informing them of a price drop and inviting them to rewrite the contract to reflect the reduced rate on their one-bedroom condo. Instead, the couple opted to upgrade to a one-bedroom loft with a larger patio, higher ceilings, more deluxe amenities -- and a price tag only slightly higher than the original unit.
"It's really worked in our favor," said Tran, 26, a systems auditor at a large accounting firm. "The amount of money we saved eclipses any of the free upgrades, free closing costs and other incentives that we saw offered by other builders."
Developers usually hate reducing the base prices of condos because it hurts profit and often angers previous buyers who forked out more money for similar units. Dropping prices is usually a last resort: Developers do it to move their inventory quickly so they can pay off their construction loans and shed the costs of carrying empty units.
"For them, it comes down to taking less profit or not paying off a bank loan," said Michael Larson, an analyst with Weiss Research in Florida. "Lower prices are the third stage after they've tried incentives and then more aggressive incentives."
But bargains and freebies won't -- and can't -- last forever, said Pat Peavley, a regional vice president at the Fairfax office of First Horizon Home Loans.
"The incentives are just about maxed out because there's only so much developers can legally give in order to entice consumers to buy," Peavley said. As for price cuts, "many of the developers are down to the bare-bones amount they can sell for and still stay in business."
Not all developers are cutting prices. Some haven't found themselves under such pressure, especially if they have already secured financing on most of their projects.
KSI Services, whose properties include Midtown Reston Town Center, said its condos are a good value. It is focusing on displaying well-furnished models for units still under construction instead of reducing prices.
"Before, we didn't have models because the units were sold out before you even had a chance to look at a model. People purchased based on floor plans and brochures," said Jamie Gorski, KSI's chief marketing officer. "Now, if I'm selling just off of brochures and floor plans, people can walk down the street and buy something else" that's ready for move-in.
No matter what their situation, most developers are courting the real estate agent community they once shunned, promising lavish perks for those who come through with buyers.
"At one point the builders wouldn't even let us bring the clients we were representing," said Charlene Lois Schaper, an agent at Long & Foster in Old Town Alexandria. "Now they're offering us bonuses, paying us commissions and serving us lunch."
Schaper now has a sheaf of fliers she's received from developers. One from Toll Brothers, for example, recently promised a 3 percent commission for the first sale, a 4 percent commission on subsequent sales and a $5,000 bonus on nearly completed condominiums at the Belmont Country Club in Ashburn.
Another firm dangled a "fantastic getaway for two adults" at the One&Only Ocean Club in the Bahamas for those who sell units at the Turnberry Tower in Arlington. "The more homes you sell, the more lavish and exciting your One&Only Ocean Club vacation becomes," according to the brochure.
Real estate experts say that consumers need to be aware that the real estate agents handling their transactions may be earning more than the ordinary commissions. Savvy consumers inquire about any additional perks and try to get some value out of the additional compensation themselves, said Dave DeSantis, vice president of sales and marketing at PN Hoffman, which is marketing the Alta, Chase Point and Union Row in the District, and Carlyle Square in Alexandria.
"Consumers end up asking for the [agents'] incentives," DeSantis said. "Technically, if your real estate agent gets money or a lease or some other perk, that's a financial element of the transaction that should be disclosed."
PN Hoffman recently began dealing with agents for the first time in several years and offering them commissions, not freebies. When the market was super-hot, many companies saw no need to compensate agents because buyers were lining up outside their doors on their own.
The marketing spree aimed at consumers and agents is more a sign of the changing market, DeSantis said.
"If you had come in two years ago and tried to offer less than the asking price for one of our condos, we would have been polite about it, but we would have said: 'Sorry, there is somebody right behind you willing to offer full price,' " DeSantis said. "Now, it's no secret we're willing to entertain offers."