Sorting out real estate promotions: how do you know if it's a good deal?

For some time now, apartment buyers have been encountering a variety of promotions and benefits from real estate developers. At the same time, due to the decline in the volume of transactions in the industry, developers and contractors are offering a wider range of options, from financing terms to reduced index-linking, specification upgrades, creative promotions from customer clubs, tenders, and more. Alongside the advantage for potential buyers, who can get much more today, this is exactly the time to be careful. It is important not to confuse a "big discount" with a "good deal". A promotion is a way to present a deal, but one must always remember that this does not necessarily mean the final price is attractive. So how do you know? In this article, we will try to answer this question.

Erez Cohen, a real estate appraiser, starts with the basics — the price of the apartment — and explains that in a period of many promotions, buyers should first look at the value of the property, not the size of the discount. According to him, "The big number that appears in the advertisement ‘a discount of 300 thousand shekels’ is not necessarily the most important figure. Before getting excited about the size of the discount, one must understand what the price of the apartment is after the benefit, and mainly how it compares to similar apartments." Cohen continues, "In a period when we see more and more promotions and benefits from developers, a discount of 200 or 300 thousand shekels sounds significant, but the real question is what the price of the apartment was initially and what its market value is. A buyer should check how much similar apartments are sold for in the project and in the area, and not settle for the price presented to him as the original price before the promotion. In addition, one must look at what is received for the price. The location of the apartment, the floor, the air directions, the parking, the storage room, the specification, and the delivery date are part of the value of the deal. Sometimes the benefit does create a good deal, but sometimes it mainly changes the way the price is presented. Therefore, I would suggest that buyers ask themselves a simple question: if they didn't call it a 'promotion', would I still think this is an apartment worth the price I am paying for it? If the answer is positive, there is a better basis to move forward. On the other hand, this is definitely a period when buyers have more ability to negotiate. One does not need to settle for the discount the developer offers. One can examine the entire deal and try to improve also the payment terms, the index-linking, the specification, or other components. The goal is not to get the biggest promotion, but to reach a price and terms that reflect the true value of the apartment."

Not just the price of the apartment. Also the price of money

Let's move on. Even if the final price of the apartment seems attractive, one must examine how the purchase is financed. Promotions, such as payment installments, payment deferral, or subsidized interest, can significantly ease the buyer's situation in the short term, but it is important to understand what they mean for the deal as a whole and for the repayment over time.

Shalom Amoyal, head of the credit department at Bank Jerusalem, tries to sort things out. "In a period when we see more promotions and benefits from developers in the market, it is important for buyers to look beyond the headline and examine the full financial picture. From the perspective of the mortgage system, we meet quite a few buyers who focus on the price of the apartment or the benefit offered to them, but do not examine the significance of the deal structure for the total financing that will be required of them along the way, together with the monthly repayments for the total financing. The sum of the subsidized interest, payment installments, payment deferral, or reduced index-linking can be significant, but they must be examined in relation to the total price, the required equity, the timing of payments, and the cost of financing over the life of the deal. Therefore, before rushing to close a deal because of an attractive promotion, it is worth understanding what the real economic value of the benefit is, and what it means for the family. Buying an apartment is one of the most significant financial decisions a household makes, and therefore it is correct to examine it not only through the question ‘how much am I paying for the apartment’, but also ‘how am I financing it and what will be the price of the financing over time, and in addition how will this affect the conduct of the household and the way the family manages its finances throughout the life of the loan."

According to Amoyal, "We recommend that buyers examine their repayment ability in advance, leave a safety margin for unexpected developments, and understand how possible changes in interest rates, the influence of the index, or income might affect the monthly repayment. Precisely in a period when there are more options and promotions, a wise financial consumer is not necessarily the one who finds the biggest benefit, but the one who knows how to compare deals and choose the one that suits his economic ability even on the day after the purchase."

Dr. Bella Barda-Barakat, an entrepreneur and expert in real estate investments, also addresses the issue of promotions. According to her, "A discount is not a figure, it is a statement about timing. When a developer gives up hundreds of thousands of shekels, he is telling something about himself, not about the apartment, and therefore one must read every promotion in three tempos. The short tempo, cash flow and the pressure of the lending bank to close sales percentages by the end of the quarter, is what creates the headline. The medium tempo, the developer's financing costs and the interest rate cycle, determines whether the discount will remain on the table in another year. The long tempo, the supply that will enter at the end of the decade and the demographics of the neighborhood, determines who your buyer will be on the day you want to exit. He who sees only the first, buys a discount; he who sees all three, buys an asset. Above them operates a layer of consciousness, and in it lies the bulk of the money. ‘Interest at the developer's expense’, ‘20/80’, ‘reduced index-linking’: these are not financial products, but framing frameworks, which shift the attention from the final price to the feeling of accessibility. He who controls the vocabulary of the deal, controls the deal. The only test that breaks the framing is translating every benefit into one number, net price per meter in today's terms, compared to deals closed on the same street. Then the promotion stops being a story and starts being a deal, and one can ask the right question: not how much did I save, but what does this signal to me about the next 24 months."

Don't be shy to negotiate

Since we are in a buyer's market, one of the significant changes for apartment buyers is bargaining power. In periods when demand is high and apartments are sold quickly, the buyer has less ability to influence the terms of the deal. When sales rates slow down and there is more inventory, the situation can change.

Ron Novotny, CEO and owner of the Anglo-Saxon brokerage chain and founder of Propely, an AI platform for real estate decision-making, says that buyers today have a better opportunity to compare and negotiate. "The situation in the market creates an important change in terms of the buyers. They have more ability to stop, compare, and negotiate. In periods when demand was high and apartments were sold quickly, the buyer had less room for maneuver. Today, when there is more inventory and fewer transactions, it is not correct to come to a deal with the feeling that one must accept the terms offered as they are."

Novotny recommends that buyers come to negotiations knowing their alternatives: "Check how many similar apartments are on the market, how long they have been offered for sale, what the prices of similar properties are, and what other developers are offering. The more information the buyer comes with, the better he can understand if the offer he received is really attractive and negotiate from a stronger position. It is also important not to get fixated on the word 'discount'. If the developer does not want or cannot lower the price, one can try to improve other clauses in the deal, such as payment terms, index-linking, upgrades, parking, storage room, etc. Every buyer has different needs, so sometimes better deal terms will be worth more to him than another few tens of thousands of shekels in the price of the apartment."

Novotny raises another point: "I would not make a decision just because they present a promotion as an 'opportunity that will not return'. If the deal is good, it should be good even after checking it with numbers and comparing it to other options. Precisely in a period when there is more power to the buyer, it is worth using it, not to look for the cheapest deal at any price, but to find the most suitable deal for him."

Choosing the right time for the deal

Advocate Amit Yanon, a partner in the real estate department at the S. Friedman, Abramzon & Co. firm, addresses the stage in the project where the deal is made and explains: "When buying a new apartment from a developer company, there is a significant advantage to examining the deal already at the initial stage of ‘presale’ — early sale. This is an important stage in the life of the project, where the developer seeks to create a sales momentum in a volume that will allow receiving bank accompaniment for the project, and therefore the prices and terms of the deal are more attractive, while in the later stages of marketing and as construction progresses — prices may rise and payment terms also change. At this stage, there are usually, and it is worth examining carefully, also financing promotions such as 15/85, which allow the buyer to pay a relatively small part of the consideration at the time of signing — only 15% of the apartment price, and the balance later on and close to the delivery of the apartment after a few years. Also, not infrequently, performing deals at this stage includes a very significant benefit of exemption from index-linking to the construction input index and grants a cumulative saving of not insignificant percentages of the deal price. It should be emphasized that against the background of the restrictions imposed by the Bank of Israel on payment deferral and contractor financing promotions, these benefits are no longer an unlimited tool from the developers' point of view. Therefore, when it comes to the right project for the buyer, a purchase at this stage while utilizing the above condition — creates a large and significant economic advantage for the quick buyer."

Zohar Shariki, partner and manager of the Jerusalem area at Magma Real Estate Marketing, adds on the same subject and clarifies what is worth and important to check in this context: "In the current market, which is characterized by high interest rates, fierce competition between developers, and sales promotions that have become the central marketing tool, the most important skill of the buyer is to dismantle the marketing illusion and examine the true economic feasibility of the deal. Popular promotions like 20/80 or exemption from interest and index-linking are not necessarily a direct discount from the apartment price, but rather a deferral of payments — but the meaning is that the money remains with the buyer, can yield him a return, and save him on interest and prime on the mortgage. A smart buyer does not settle for the headline of the promotion, but calculates how much it is worth to him in shekels. Another critical point is hidden in the small print — the index-linking to the construction input index. Exemption or partial index-linking may add tens and even thousands of shekels to the final price of the apartment over the years of construction, and therefore offers should be compared not by the contract price alone, but by the final price, including all index-linking and extras. The right way is to translate every benefit into an exact monetary amount, subtract it from the apartment price, and arrive at the ‘effective price’ — and thus know exactly how much the discount is worth. Alongside this, three iron rules: do not buy beyond economic ability, ensure that the mortgage repayment is stable and does not rely on optimistic forecasts, and consult with experienced and independent professionals, who are not on behalf of the contractor or the lending bank."

Mart Yudelvich, CEO of the Engel Invest company, summarizes: "In today's real estate market, where promotions and benefits have become almost a standard, the very existence of a promotion no longer necessarily impresses buyers. Many times, it is precisely the right combination of several benefits that creates real value and influences the purchase decision. From our experience in projects currently being marketed, buyers are not looking only for a price discount or a financing benefit. Precisely the removal of incidental costs, such as attorney fees, payment relief, and benefits in tenant changes, is perceived as having significant value, and sometimes accumulates to a saving of hundreds of thousands of shekels."

4 questions every buyer should ask before signing:

1. What is the real price of the apartment? Not what the price was before the discount, but how much is actually paid and how this price stands in relation to similar apartments sold in the area.

2. What is the benefit really worth? Is it a real financial saving for me, or a benefit that looks attractive in advertising, but its value for me is low?

3. How much will the entire deal cost me? One must take into account not only the price of the apartment, but also the financing, interest, index-linking, required equity, and timing of payments.

4. What else can be improved? Even if a promotion has been offered, one does not have to see it as the end of the negotiations. One can examine payment terms, index-linking, upgrades, parking, storage room, and other components.