Drop by almost any new condominium sales office these days and it is a bit like walking onto the set of Let's Make a Deal . As little as a year ago, sales agents were almost order takers. What you saw was what you got, period.
Today, developers are so eager for buyers they may offer anything from a trip to France to tens of thousands of dollars off the purchase price in cash on closing.
"Things have shifted from a sellers' market a year ago to a buyers' market today," says Michael Wilson, a principal in International Home Marketing Ltd., of Markham, Ont. "There is enormous competition for buyers."
That competition means builders have changed their attitude 180 degrees, says Barbara Lawlor, president of Baker Real Estate Inc. "They have had to become negotiators," she says. "Today many terms and conditions are up the air and can be negotiated on an individual basis.
"Just how far a developer is willing to go depends on the limits imposed by his costs and his agreements with lenders."
Anyone shopping for a new condo had best start by understanding those limits. Developers have more leeway to make deals at projects that are either completed or under construction. Until they get construction financing lenders call the shots.
Lenders want to see suites sold at prices set out in the paperwork submitted to justify the loan and they want to see at least 15 per cent of the value of suites as a cash deposit. They want to see anywhere from 70 per cent of the building already pre-sold under those conditions - maybe even more - before they even consider providing financing.
Once a building is under way, however, the need for those restrictions lessens and deals can be struck depending on what the builder is willing to accept as his bottom line.
In general incentives come in three categories: those intended to drive sales over a very brief period - as little as a single day or weekend - so a developer who is already close can reach the minimum sales figures banks want to see; those intended to spur sales over a longer period of time and those intended to move existing inventory in buildings under construction or completed.
When CityPlace and Park Place and Charlie offered $20,000 off the purchase price on closing as a single day event that was likely to drive sales to the level needed for financing. When others offered big upgrade packages or extended terms on deposits but still kept the 15 per cent minimum that was to drive sales over an extended period leading up to construction financing.
Projects offering five per cent and 10 per cent deposits are the ones trying to move standing inventory.
"The situation has caused a lot of confusion in the public's mind, I think," says Dan Flomen, a principal in TFN Realty Inc. "The best advice I can give anyone is never to buy on the basis of incentives alone. Buy based on where you want to live and how you want to live."
As a second piece of advice he says make certain whatever incentives come with that new condo do not impede your ability to get the mortgage you need. If, for example, your new one-bedroom-and-den comes with an all expense paid trip to Paris, a mortgage lender will almost certainly deduct the value of that trip from the price you paid for the condo.
"Any incentive should add to the lasting value of the suite and not take away from the selling price," he says.
While the most popular incentives with buyers this winter were cash back on closing others such as a year's worth of free property taxes and maintenance are catching on, as are rental guarantees for investors and zero per cent mortgage interest for the first year.
"All these things have a cash value," says Mr. Wilson. "And all can be used to reduce the real costs - purchase plus occupancy - of buying a new condo.
He points out that if a developer is offering an incentive package that means he has a dollar figure in mind as to how far he can go to cut what he would normally receive in revenue from each suite. The developer will not reduce the selling price but he will likely be willing to juggle all the other numbers that lead up to it.
So if the incentive package is $5,000 in free upgrades and the value of a year's worth of taxes, maintenance and mortgage interest is worth $5,000, ask for that instead.
"Everything offered has a cash value," Mr. Wilson says. "Figure out what the cash value is then negotiate so that the value of the incentive applies to something that gives you the most benefit."
One final point: make certain that when it comes time to arrange a mortgage you disclose all the incentives received, says Ms. Lawlor. "We warn all our buyers to disclose everything," she says. "Use that 10-day rescission period to sit down with your lender and go through the agreement of purchase and sale.
"The last thing you want is an unpleasant surprise on closing."