In a press release on September 8, and detailed in the Sun Times today, local developer William Senne (also the Broker/Owner at Property Consultants Realty) slams other developers for their price reductions, and how “panicky” discounts hurt the marketplace.
Mr. Senne seems to be reacting to recent sales promotions like these and names Smithfield Properties by name in his press release:
Your Guide thinks this sounds like someone crying over spilled milk, and offers several reasons why price adjustments are sound business decisions.
In example after example, it is demonstrated quite clearly that you can inspire sales by playing with price. Think of pricing as a throttle: if you want to go faster, drop the hammer on pricing and more sales immediately follow. This of these examples and try to argue that these are poor decisions:
- Cash for Clunkers: 700,000 car sales in less than 2 months.
- Groupon – the website where businesses pitch crazy discounts to large quantities of self selected consumers. Success stories include 1,269 pairs of blue jeans sold on June 8, and 4,913 Annual Memberships to the Art Institute of Chicago!
- If you need a Real Estate Example, you need only look as far as @properties development R+D 659, where over 115 condos have been sold since the announcement of dramatic price incentives.
Sounds awful, doesn’t it?
Your Guide also takes exception to another assertion by Mr. Senne that buyers will find themselves in substandard units in a building that lacks a viable condo association.
To the contrary: I find that selling units to actual home buyers is the more desirable alternative to developers facing tough decisions in this marketplace. Too often developers choose one of two other options leaving condo buyers frustrated to financially ruined. Those choices include:
- The developer retains control of the un-sold condos and rents the units. With a building half-full of renters, and the developer in control of a sizable percentage of ownership, owners face financial uncertainty when the time comes to sell their homes. Strict lending guidelines make it virtually impossible for a new buyer to get financing on a condo in a building where one person owns more than 10% of the association. Add to that the transient quality that the new development acquires as a rental property rather than as a stable condominium building.
- The developer stubbornly refuses to react to the market; steadfastly holding on to pricing that is clearly out of touch, and eventually loses the remaining units in foreclosure. Worst case: you need only drive by the Lincoln Park Lofts, formerly The Ashton Lofts located at the corner of Ashland, Fullerton and Clybourn. Two poor home buyers purchased and moved in two years ago, and after the developer’s remaining units were foreclosed upon, were stuck living in an empty building with no other neighbors to help pay or care for the crumbling building.
The only validity to Mr. Senne’s argument is that previous buyers are hurt by the price reductions. We can’t argue there. It’s not fair for the prior buyers to bear the burden of the lower prices. But those lower prices are not the fault of the developer, they are a function of the marketplace. To ignore the reality is to simply kick the can down the road.