By Nancy Trejos
Washington Post Staff Writer
Saturday, July 28, 2007
Shauntise Harris expected competition when she put her one-bedroom condominium on the market in April.
But she didn't know how intense that competition would get. Not only was she up against some of her neighbors at 555 MassAve, a 246-unit luxury building in the District's Mount Vernon Triangle neighborhood, but she also was competing with the project's developer, the JBG Cos. Nineteen months after starting sales, JBG still had units to unload and was offering a year of no condo fees on one-bedroom units -- an incentive Harris could not match.
"I'm like, you guys are still here?" she said.
During the real estate frenzy that ended in 2005, the developer would have been gone within weeks or months of starting sales. But contract cancellations and excess inventory have kept developers tied to projects much longer, pitting them against owners reselling their units.
"It certainly makes for interesting competition," said Gregory H. Leisch, chief executive of Delta Associates, a real estate research firm based in Alexandria.
There are 20,217 new condos on the market in the Washington metro area, by Delta's count. Marketing on another 18,867 units is expected to begin in the next three years, Leisch said, citing his firm's midyear analysis of the condo market.
What's hurting new projects the most are contract cancellations -- when buyers back out of deals.
"A lot of times these projects were sold out. But people would put down deposits and wouldn't go through with the closing," said William Rich, vice president of Delta.
At the same time, the resale market is flooded with investors who thought they could flip properties, people who took out exotic mortgages that they can no longer afford or homeowners who need to sell because of life changes.
Individual sellers and developers both say they lose out in the competition.
For sellers, matching developers' incentives, such as closing cost subsidies, can be difficult.
"The developers have a lot deeper pockets than we do," said Jae Lee, whose condo at the Artisan, a 160-unit building in the District's Penn Quarter that was also developed by JBG, recently went under contract after months on the market. "If I try to match them or try to outdo them, I will be losing money."
Private sellers also cannot match the marketing power or large professional sales staff of a developer.
Such is the case at 555 MassAve, which has a large sign near the entrance and a long banner draped down one side. A sales office is immediately to the left of the front entrance.
The building's Web site offers one-bedroom condos starting at $359,900 and boasts of amenities such as a security guard, fitness room, rooftop pool and e-lounge. Until July 1, anyone who bought a one-bedroom would not have had to pay condo fees for one year.
Harris paid $319,000 for her one-bedroom unit almost two years ago and spent thousands more to upgrade it, adding stainless steel appliances, granite countertops, hardwood floors and lighting.
Because she was moving to North Carolina, she put her place on the market for $355,000. With sales costs, if she budges on the price, she will lose money, she said.
"Once I pay the agents, I don't have anywhere to go," she said.
Some real estate agents said they don't bother holding open houses in such buildings because they know potential buyers will be lured away by the developer's sales staff.
Condo owner Rebecca Velinsky said people on their way to her open houses at Shirlington Village ended up talking to the builder's sales representatives instead. The building had been sold out, but 20 of 159 units went back on the market after cancellations.
Desperate to sell because she was getting married and needed more space, Velinsky dropped her asking price for her one-bedroom with parking from $349,000 to $338,000.
She sold it for $330,000 in January. The developer, Trammell Crow Co., recently finished selling all its units.
Developers acknowledge that they have advantages, especially because of their large marketing budgets.
"If anybody's got the bigger sign, it's us," Matthew Blocher, JBG's senior vice president, said of 555 MassAve, where about 10 units are available.
And the units they're selling are brand-new.
"In the minds of a lot of buyers, new is better even if [the resale's] never been lived in," said Erich Cabe, an agent at Fairfax Realty who represented Velinsky.
But private sellers have one thing in their favor: If they can afford to, they can slash prices. Developers are reluctant to do that because it can upset early buyers.
"We don't want to devalue the property for folks," Blocher said.
Since the start of the housing sales slump, developers have increasingly included clauses in contracts prohibiting resales within a certain period of time. Developers particularly try to avoid competition from those who bought before construction, when prices were lower.
"Let's say your last units are selling for $500,000. . . . Some of these people may have bought for $300,000. That puts the developer in a tough spot," said Lynn Hackney, president of D.C. marketing firm Urban Pace, which represents the Chastleton, a condo conversion project near Dupont Circle that is 70 percent sold out and has had a handful of resales.
For buyers, the competition can be a blessing.
But agents say they should still do their due diligence and look at all available units, both resale and brand-new.
Sometimes a resale unit may come with a storage area or a parking space when a developer's unit does not. Or it may have more upgrades, such as marble bathrooms or hardwood floors. Or it may just be in a better location in the building or have a better layout. Of course, any given new unit could have those advantages, too.
"It could cut either way, and that's why they need to look at options and upgrades very carefully," said Thomas K. Meyer, president of real estate brokerage Condo 1 in Falls Church.
Meyer said potential buyers should not be afraid to offer less than asking price, especially when they're dealing with the developer. The price they offer may not be accepted, but they might get a free storage unit or hardwood floors out of it.
"It's a much more competitive world for the builders now," he said, "and the farther away you get from Washington, the more competitive it is."
Rachel Valentino, an agent at Long & Foster in Friendship Heights, showed client Rebecca Lewis more than a dozen units at the Artisan.
The building had been sold out, but 10 percent of the units went back on the market after cancellations, Blocher said. A recent e-mail from marketing firm McWilliams Ballard to potential buyers advertised immediately available condos starting from $389,900 and no condo fees for one year, for a limited time.
Andrew A.J. Johnson, an agent at Long & Foster in Chevy Chase, was representing the owner of a one-bedroom there. He first listed it for $397,500 and offered help with closing costs because the developer was doing so. He then dropped the price to $375,000 but took out the closing cost concession to compensate.
"The important thing was we had to stay aware of what the developer was doing in terms of marketing their properties and react accordingly," Johnson said.
Lewis liked the unit Johnson was selling more than the brand-new ones because she liked the layout, the color of the floors and cabinets, and the terrace off the courtyard. Although it was a resale, it had never been lived in. "I got the benefits of a brand-new unit," she wrote in an e-mail.
"I bet I got a better deal because there were other units available by the developer and many units had been on the market for some time, making the seller eager to sell as well as keep their prices competitive for fear of me just picking another unit," she said.
Valentino knew that the developer would pay closing costs. So she offered Johnson the full price but asked for a closing cost subsidy. Johnson agreed to $9,000. The agents struck a deal in May.
"I feel bad for the sellers because that absolutely puts more pressure on them to compete with the building," Valentino said.
Still, she said, "that definitely helped us get the deal."