As we all know, one of the biggest reasons the Seattle condo market has been struggling to get into a higher gear is buyer concerns around seeing prices drop after they purchase a unit. In an effort to overcome this problem, some more innovative condo developers have been experimenting with price protection programs.
So how exactly do these programs work? Well, it’s not quite as simple as a low-price guarantee you’re used to seeing at some electronics stores or other retailers. Part of the reason is every unit is a little different so if you buy a really nice water view unit and the unit across the hallway facing another building sells for 20% below the original list price, it may be unique to that unit or the original pricing for that unit may not have been as realistic as the list price you paid.
To address this problem of comparing apples to oranges, some developers try a fruit basket approach. They group units in baskets and if the sum of the overall closing prices of all the units in the basket sell for less than the sum of the overall list prices, you may be eligible for some cash back. Notice I say “may” since if you got a great discount (e.g., you were one of the last buyers and the market deteriorated since the first buyer’s purchase), you won’t be eligible for any help since you were the one who got a great deal. Similarly, notice I use the word “some” for cash back since you don’t get the same deal as the last guy but you get an average reimbursement equal to a total discount off list equal to the entire basket’s discount (as opposed to the best deal the last guy got).
See the table below for an example where the entire basket experiences a 6% discount but the last guy got a 16% discount. The first guy doesn’t get 16% reimbursement but he gets a 6% discount which is the average for the whole basket.
So what does all this mean to the interested condo buyer?
- Ask if the developer offers any kind of price protection. (Most don’t but a few in Seattle did offer price protection at some point such as Olive 8 and Trio).
- Make sure you run the numbers and don’t assume you will be 100% covered if prices drop.
- Don’t buy only because of price protection; if you buy, buy because you want a long-term investment or residence and love the condo and feel the price is fair.
Hope this helps!
( If you’re a buyer and are eligible under a price protection plan, are you successful in getting the reimbursement? We would love to hear your story.)
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