In order to negotiate successfully you need to have a clear understanding of the other parties position, their motivation and goals. These things will all differ drastically from a developer and homeowner.
The majority of real estate transactions are financed. In order for a bank to give out a loan they need to make sure they are loaning the money on a solid investment. This is done by ordering an appraisal and pulling comps. The best and most accurate comps for any condo building are those within the building itself. If the most recent comps in a building are all lower than a buyer's purchase price, the property will not appraise. This is especially true in today's market where we are facing tighter and tighter financing requirements.
You're question was, "If I want to buy a newly constructed condo, and he is asking for $500,000. Is price negotiable?" Like Christine said, "Price is always negotiable". However, when you are negotiating with a developer and you make price the focus of your negotiations, 99% of the time you will loose.
Let's make up a quick scenario to demonstrate why. Suppose a developer has 30 identical units to sell and he is asking $500,000 each. In the first week of sales, the developer sells 3 units and lets them go at a discount for $450k, $455k, and $465k. The bank sends out their appraiser, the condo's appraise, and they close a few weeks later. A month later, the developer sells 3 more units for $490k, $495k, and $500k. The bank issuing the financing pulls the 3 comps from a month before and notices that they are an average of $40k less. The bank sends out the appraiser, the appraiser reports to the bank that all 6 units are identical and values them at $456,000. The bank gets the report, the property doesn't appraise and no financing is given. Now the developer is stuck. The only way he can sell a unit priced higher than $456,000 is to find a cash buyer. This is why 'price' should not be your focus when you are negotiating new construction. In many cases, the developer simply cannot do it.
So.. Then how DO you negotiate with a developer???
Simple. Upgrades, Parking & Add-ons. Try to negotiate a price within 1-2% of the developer's full asking price, and negotiate the balance in the extra's. If parking is going for $30,000 and you want to purchase the condo for $470k, try to give the developer full price and have the parking thrown in free. (Assuming the parking is assigned) If you don't need parking, have him upgrade the kitchen with high end appliances, cabinets and counter tops. Negotiate for anything and everything, but keep the purchase price within 1-2% of what he is asking. That way the developer will maintain a solid paper trail for the bank and ensure that he doesn't jeopardize his return on investment for the remaining units in the development.
The key to any negotiations is to figure out and understand the other party's motivating factors and create a win-win situation for everyone.
212 E. Ohio, Chicago, IL
Be sure to use a local buyer agent to assist you. It is no cost to you. He/She will help you with negotiations, choosing options,troubleshooting and communication with the builder and represent you at closing.
Only the one(s), who's signature(s) will be on the Purchase and Sale Agreement, (or perhaps a representative--like an attorney, investor, or realtor) should handle the actual negotiation. Even when a representative is involved, the buyer still needs to be aware of what's going on with the negotiations--at least from a high-level perspective--because the buyer is the only one on the hook if the deal succeeds or fails.
While it's true that developers and home-owners typically have slightly different motivations for (re-)selling, the market determines the sales price. Keep in mind, most home-owners sell, because they want to move elsewhere; whereas, developers make their money by building homes and selling them.
Before attempting to negotiate, you should obtain the following for your market: median sales price, average days on market, amount of inventory, and the absorption rate. You can get all of this information from a good realtor. Also, note that right now it's harder to sell condos than houses, so use this fact to your advantage. Try to negotiate your purchase price to be reduced by 10% (or more) of the median sales price--but don't be too greedy. Remember, you want to negotiate a deal that's good for both parties: a win-win situation. Nevertheless, keep your goals in mind.
If the developer is unwilling to negotiate on the price, then get them to negotiate on the terms. For example, ask them to pay for the closing costs and a portion (or all) of the inspection and appraisal fees. Also, ask for upgrades, etc as Erik stated earlier. Ask for them to seller finance a portion of the purchase price, and ask for the developer to either defer or abate a portion (the first 4 to 9 months) of those payments. For more ideas on this, google for "creative financing", and work with a realtor who's handled deals using creative financing.
Christina Asad Edwards, REALTOR
2006 & 2007 Sales Masters Top Agent
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