Is a Developer’s Incentive a Good Deal

Developers generally offer incentives because they need to get pre-sales in what could be a slow or oversupplied market, which in turn enables them to get a project up and running. Offering incentives is a marketing tactic.

The problem for buyers is that they could end up overpaying for a property and then having issues with obtaining finance because the valuation does not match the contract price.

The incentive is usually offered in lieu of reducing the purchase price. So, if the developer offers to pay stamp duty or give a $30,000 car, buyers might feel like they’re essentially paying $30,000 less for the property, but they’re paying the price on the contract which could be too much as the incentive is built into the price.

If you buy a property for $500,000 with a $30,000 incentive, you might think you’re paying $470,000, which is probably its true market value, but you’ve still contracted to buy the property for $500,000.

When the valuers acting for the lenders assess whether they will give you finance, they don’t take the incentive off the price – they look at the contracted price and the valuation must come up to par for a buyer to get finance. The problem is that since the property is probably worth less the valuation, it may not be high enough for the bank to lend to you.

Put simply, valuations can fail to stack up because the property is only worth the price minus the incentive, but you’ve contracted to pay the full price.

It should also be remembered that the incentive received is not transferable, so that if the buyer looks to on-sell in the short term, he risks suffering a capital loss until(if) the value increases above the contracted price.