Quote of the day: Deep discounts and auctions

Several readers have asked us about the possible consequences at buying distressed properties or homes at auction. Here’s some advice from one developer, via a new press release:

We have all seen the ads for big discounts on new condominium units. Some are up to 25% and in some cases equate to over $100,000. The auctions announce very low minimum bids and the opportunity to buy at a bargain. These offers have generated huge traffic and some sales. The question should not be how big a discount but is buying under such circumstances a wise choice. Like all complex questions, the answer is that it depends.

At first blush buying a condominium unit for less than the previously asked for price sounds great. Certainly if one can buy the same car as someone else but for less, no one would hesitate. The warranty, service and quality of both cars are the same, only for less. The same does not apply to new condominiums. The first question is why the prices are being deeply discounted. Were the units overpriced to start with? Is the building in jeopardy of being foreclosed on by the construction lender? Is the developer’s construction loan expiring soon? Are there not enough sales in the building so that buyers can get mortgages? These are the most likely reasons for the deep discount and auction courses of action. But a condominium unit isn’t like a car.

Buildings that are troubled may turn out fine but there are risks. Today’s deep discount may be deeper tomorrow, so that the great deal you thought you had, isn’t so great. Buildings with falling prices may find it hard for individual units to receive an appraisal for the price under contract. Assessments on the unsold units may not be kept current by the developer or lender leading to special assessments. Mortgages may be hard to get depending on the percentage of units sold and the level of completion of construction. Unsold units may be leased turning the building into a rental feel and making refinancing difficult. There may not be anyone around to finish punch list and warranty work.

There certainly may be cases where buying a unit in the deep discount or auction building makes sense. The key is to check out the building, developer and circumstances carefully. If you think about it, it’s not ultimately the price paid for the home, but first and foremost loving the home and building amenities, the monthly payments, having an enjoyable buying experience and maintaining or increasing the value over time. Now is a great time to buy a new condominium, just shop wisely.

– Alan Lev, president and CEO of Belgravia Group, explaining his company’s promise not to cut prices on new homes without delving into full-on sales pitch territory.

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