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The Age Of Incentives

Apr 15, 2008
With an apparent over supply of new condos on the market, both from last year's inventory and new units coming online this summer, it sometimes seems as though developers are offering more incentives than ever. Everything from kitchen upgrades to the often used free parking lure has been heavily advertised with most developments. At first glance incentives usually always seem attractive. You can get higher end stainless steel appliances in the kitchen, maybe granite counter tops or back splashes, select wood cabinets, crown molding, surround sound, plasma televisions or even marble baths tacked on to your condo. Some buildings have even thrown in a session with a professional interior designer. But while those luxury finishes may attract your attention, don't forget to look at the bottom line.

Incentives that developers offer are often targeted at people who are buying for the first time or have a little more difficulty getting financing. This is largely due to the fact that for buyers who are experienced and have financial resources, the incentives aren't as important or as much of a deciding factor on the condo or house. First time buyers are sometimes pressed for cash to cover closing costs, and developers will often agree to pay those, offer lower down payments, reduced interest rates if the buyer uses the preferred or in house lender or offer reduced or waived assessments.

In exchange for these more cash-based incentives you want to be sure that the developer isn't cutting back on the interior finishes of your condo to recoup that money. It won't pay in the long run to have a condo or home where the interior isn't up to standard or doesn't please you. You will either end up spending money to upgrade or make improvements yourself whether or not you live there or decide to sell. And there goes the money you may have saved by compromising on interior finishes to gain financial incentives.

The past two or three years have seen both a record number of new developments and incentive packages. The deal tends to sweeten when the developer is trying to pre-sell units to hit the 50 percent mark to secure financing or when the building is completed and they are trying to sell the final available units. It isn't unusual to be able to knock $10,000 to $35,000 off the purchase price with a good incentive package. But it does cut into the developer's profit margin, and some analysts theorize that the trend of mega incentive deals may come to an end as developers scale back on new construction and the spring/summer buying season kicks in. Autumn and winter are slower selling seasons and more incentives can typically be found then.

The Chicago Agent Magazine recently published a survey that said about 70 percent of developers intend to offer incentives this year, whether it be interior upgrades or financial assistance. The most recent quarterly report from Appraisal Research Counselors puts the number of unsold condos at 1,326 this year, and that doesn't count any units that are currently under contract but might go back on the market due to default. So there are going to be plenty of units waiting to be sold, with developers who are eager to sell. Even if incentives aren't advertised, don't be afraid to ask because many developers will offer them on an individual basis.

One of the biggest possible incentives that developers and buyers play tug of war on is parking. With the extremely limited amount of parking spaces, especially downtown, it is a big issue. Depending on the location, a single parking space in a heated, secure garage can range in value from $35,000 to $65,000 with a few both higher and lower variations. Parking spaces at homes or condos in suburban areas are less of an issue, but can still be a deciding factor. Even if free parking isn't included, you can often get a reduction in price.

There are developers who are firm on not offering incentives though. In some luxury high-rises like the http://www.bestchicagocondos.com/pre-construction-condos/chicago-spire.html the demographic targeted by the marketing team isn't concerned with free upgrades nor is financing a concern. The condos are sold on the merit of the luxury building alone, the location or the design and prestige of living there. Other developers feel that incentives can lower the value of the condos. They want their units to retain value and not offer incentives that make units sold towards the end of construction seem worth less than those sold at the start of pre-construction.

Generally though, it is still a good time to negotiate for incentives in whatever type of home you are interested in buying. Depending on what is important to you, be it parking, free assessments or marble tile, you can probably find a seller who is willing to work with you and make a deal.
About the Author
Paula Cherrist writes articles about pre-construction condos for Best Chicago Condos.
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