Wednesday, June 20, 2007
A Sherlock Holmes Kind of Hunt
I was driving in from a swim at Thetis lake yesterday when I heard an advertisement for Reflections on the Zone. The radio add differed from the print: the price for the radio one was $344,900, print is $334,900. Anyway, the catch is that for the first 12 months your mortgage payments are cut in half (on a 0 down, 40 year amortization plan). Clearly this deal is aimed at FTB's.
PB over at Victoria's Truth wrote about this on Sunday and some discussion took place in comments. Anyway, long story short, the radio add really got under my craw and I knew I wouldn't get it out from there until I figured out just how the sellers were going to pull this off. The discussions provided some questions, but no answers were found.
Was this kind of sales tactic some new relationship with financiers? Were we going to see banks get into the "buy now, do not pay for 12 months" Brick game? The tactic has obviously had remarkable success in the electronics and furniture world. Is this just a logical extension into real estate marketing? Never mind that car manufacturers haven't caught onto this in any big way.
So I did some digging. I talked to some people. I peered around corners. I lifted rocks. I followed some leads. I got lost. I sat down exasperated. I did what all great men do when they need some help: I turned to the brains of the operation and said "Ms. HHV, what should I do?" Her answer was so brilliant it defied odds of simplicity: "how 'bout you give 'em a call? Now stop bothering me at work."
And like all good detectives I hid my true-voice with the sound of crinkling paper and asked my question: "Just who is paying the difference in mortgage payments during that excessively cheap first year?"
The answer surprised me. As it turns out, there is no great conspiracy theory. The Bank isn't involved at all. And you aren't deferring those payments either. Here's how it works: you go get your mortgage based on an agreed upon purchase price. In this deal, it's either $344K or $334K or somewhere around there because, of course, each unit has a different sticker price. Anyway, the developer then gives you a discount, but not in the form of a discount, rather it's like a cash back financing option, except it's not really cash.
You get somewhere in the neighbourhood of $9K-$11K, again depending on agreed upon purchase price. You can get them to cut cheques to your bank for mortgage payments bringing your's down to that magic advertised $995/month or you can get some combination of cheques to the bank or credits at furniture stores or even credit card credits (maybe you can collect the airmiles and get a free trip too!). You still have to qualify for the purchase price: $334,900 plus GST = $354,994, which means you need an income of just under $83,000 and no other debts.
So what do we think? I actually respect the chutzpah underneath the brains behind this scheme. S$&%, you got to give 'em credit for creativity. If you make your money selling RE, you don't want to reduce your prices. At the same time, when the competition heats up, as it obviously has in the local condo market, you have to attract buyers, and, well, money talks. So this scheme satisfies two criteria in that conflicting scenario: buyer's get their discounts, and RE market watchers see that prices did not go down.
Is the scheme deceptive? Sure. Is it ethical? I suppose that depends on who you ask. We don't call the sales tactic unethical, rather the problem lies with the reporting of the sales price. I'm sure your complaints to the VREB will end up in the recycling box. It's a good thing we have new media to make sure the truth gets out there.