Stephen G. Kliegerman
President of Development Marketing
To entice brokers in a slowing sales market, marketers of new developments in New York City have started offering payment incentives, including raising broker commissions beyond the traditional 3 percent threshold.The incentives offered depend on a development and its pace of sales. "It's very subjective," said Michael Shvo, head of the Shvo Group.
Shvo says his firm continues to generally pay 3 percent commission to agents who bring in buyers. Some firms, however, are upping the commission ante, largely because of a slowing sales market. Manhattan apartment sales dropped 3.5 percent from the first through the second quarter of 2006, according to appraiser Miller Samuel, and were down year-over-year by double-digit percentages.
"Good products and products that are selling are paying the old commission," Shvo said. "The products that can't sell, that's where they're raising commissions. There are projects paying all the way up to 6 percent in commission -- that's the only way they can attract brokers. It can almost be an act of despair."
Projects raising broker commissions beyond 3 percent include 200 Chambers Street, the Capri on East 55th Street, and 4 West 21st Street, according to marketers.
Other recent broker incentive changes have involved more than a simple increase in commission. Some projects, including 555 West 23rd Street and the Hudson at 225 West 60th Street, have staggered commission rates for brokers to encourage multiple sales in the projects.
"Let's say, for example, a developer was offering a 3 percent commission to brokers who sell in the building," said Stephen Kliegerman, director of project marketing at Halstead Property. "But if you sold two units, you got 3.25 percent on both of those deals. If you sold three units, you got 3.5 percent."
Some newer developments are also now paying brokers more money up front, even before deals on fresh units close. Developers, for instance, will pay a percentage of a commission upon a signed contract.
"For a broker," Kliegerman said, "this is a tremendous incentive because brokers are all commission-based. In these new developments, where you have a project that may not close for 12 to 24 months, a broker would typically be waiting all that time to get his or her money. So, having an opportunity to get paid sooner certainly gives a broker more incentive to show a new development versus a resale."
While such incentives are good for brokers in a slowing sales market, they aren't necessarily happy news for developers -- or their marketers. "If you get to that point," said Shvo of offering greater payment incentives, "you really know that you're in trouble."
Tuesday, August 01, 2006