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Builder concessions - sign of the times

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Restrain

Thread Starter
Elite Member
Joined
Jan 22, 2002
Professional Status
Certified General Appraiser
State
Florida
Back a year, 2 years ago, builders had no significant concessions. If you wanted upgrades, you paid full price. No buydowns, no special financing. Now, we are seeing $0 down, $1000 move in on typical tract housing. Discounts are being given on upgrades. Of course, given that the typical profit margin approaches 25% on these homes shows that they can give these and still make a profit.

Still, it shows that the market has slowed and builders are competing for the available buyers.
 

Karl

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Joined
Jan 15, 2002
Professional Status
Licensed Appraiser
State
Arizona
Well lets see how many other areas that this is the way it is going. Here in Pinal County Arizona (4,875 Square Mile +/-) that is the case. KB Homes just pulled out of a Tract here leaving 24 Homesites vacant. They had been at site three years maybe there Construction Defects were starting to show or getting to tuff to sell. Last RE Fall saw many Storage facilities being built prior to the fall. This time seeing many Duplexes 3 & 4 Plexes being built If so easy to Buy a home Y so many rentals?
 

wyecoyote

Senior Member
Joined
Jan 15, 2002
Professional Status
Gvmt Agency, FNMA, HUD, VA etc.
State
Washington
Here we have always had some form of "buyer bonus" typically on new construction $2K to $3K. However, out driving a couple of weeks ago saw several that were in the $7K range and even one that showed $10K. We really never saw them in resales however, did pull one property up that plainly stated in the listing a $3K buyer bonus. If these are the sign of the times then we may be in for slump.

Ryan
 

Mike Garrett RAA

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Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Saw one in Denver this year where the builder in high end town home project was putting a new car in the garage.

Here the market is sooooo good...few, if any, concessions are being offered. Our major problem now is the drought.....the city just changed watering restrictions to only two days a week. I expect to see builders going to natural landscaping or Zero scape.
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Mike,
Low down payments on new construction contracts were once common in the Denver area. That is, up until a year or two ago.
The reason that they're not now is because homeowners who bought properties in new neighborhoods were getting furious at all of the 'investors' who would buy in for next to nothing, then resell as soon as the home was complete for a tidy profit.
I watched dozens of new developments where the same home would be bought and resold numerous times, but nobody would ever actually move into the place. The builders would progressively bump up their new home starts with prices set to compete with the abundance of resales in order to keep the development continuing. End result was the illusion that home prices were escalating quickly in that development, when in fact a disproportionate number of those buyers never really intended to live there.
When the profit margin for the 'investors' to resell immediately upon completion of the home became too small to bother with, they'd simply walk away from their contracts with very little loss. The builders ended up with homes almost completed that no longer had contracts, so they'd try to quietly sell them out at discounts. In spite of attempts on the part of the builders to 'hide' these transactions, neighbors do talk, and only the appraisers who ask more than the usual amount of questions will figure out what's really going on. This infuriated the true homebuyers in the neighborhood. Imagine what it must be like to discover that numerous houses on your street that are similar to yours are being sold by your own builder for thousands less than what you paid.
Plenty of naive investors who didn't see how the game was played bought in too late. They're the ones who are now making mortgage payments on empty houses with 'For Sale' signs in the front yard and wondering where the 'boom' went. Little did they know that it was just a grand illusion. I know plenty of people who made a small fortune buying into the 'low down' developments. All are Realtors, and some of them made well over a hundred thousand dollars doing nothing more than timing their moves and getting out at the right time. I also know that several of them are moving on to greener pastures.
Heads up to all of you appraisers...take note if you start to notice a very large percentage of owner/realtors buying into new developments.

Builders have finally wised up. You won't see very many 'next to nothing down' developments anymore. A significant number of 'investors' won't play the game if they have to put some serious cash on the table, and the end result appears that only true homebuyers are stepping up to the plate. They're buying the upgrades and they know that their neighbors are as well. As a result I suspect that those builders are seeing more profit in their own pockets because they're not competing head-to-head with fly-by-night buyers.

The dust is settling here, and it's easier to tell what and where the 'true' market is.
 
Joined
Jan 13, 2002
Professional Status
Retired Appraiser
State
Florida
Good story Dee Dee. I'm hearing all about this here now for only the past few months. I do believe it's too late in this game for investors to do much of that here now. Of course, a lot of investor wannabes will get hurt along the way.

The Real Estate biz reminds me of a bunch of carnival barkers right now.
 

Mike Garrett RAA

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Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
So I see, especially in my neighborhood. Moved into our new house in February and immediately noticed all the "for rent" signs. Seems investors purchased about 20% of the total inventory. VA/FHA is so common here you seldom see anyone putting more than 5% down...cept for us with our $100,000 down payment from the sale of our condo. Add to that the military and high tech people who move constantly and the neighborhhood is in a constant state of flux. Such is life!
 

Dee Dee

Elite Member
Joined
Jan 16, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Pamela,
Perhaps this is why I persist in believing that there has been a housing bubble in the Denver area.
The winners were clearly the investors who got in and out within the first couple of years of the boom.
The most difficult part was doing permanent loan appraisals for eager buyers who were convinced that they had bought into a development that was a gold mine. When new developments would announce they were opening up, people would literally camp out at the sales office to be among the first to buy into them. All the resale statistics indicated that homes in those divisions were rapidly appreciating and in high demand, but upon close examination too many of those homes were under construction contract or being resold immediately by investors. True buyers (those who actually planned on living in the homes) thought that if such a high number of real estate brokers were interested then it MUST be a great deal. They didn't see the flip side and the consequences that could occur as a result. The local media and everyone with ties to financial and real estate related industries popped the champagne bottles and kept the party rolling.
The kicker is that, as an appraiser you can see what is going on, but if the sales are legit (willing seller/willing buyer), there is no choice but to value the homes according to the sales data, so the myth of prosperity for all is perpetuated.

When appraisers on this forum mention that new housing is going ballistic in their area and that business is booming, I can't help but wonder if it's a true market. What many don't realize is that real estate markets can be played out in an almost identical pattern as the dot coms were. If the homes aren't owner occupied there is no true substance to the market...it's little more than flying paper and illusions of wealth backed by numbers that appear to be statistically accurate.
What are all those newcomers to the area doing for a living? Is there a solid job base outside of working in financial, real estate and building trade industries, or catering to those who hold that type of jobs? When the dust finally settles the real winners will be gone to greener pastures to start the next boom, or comfortably retiring in their trophy homes with money in the bank. Average Joe will be left behind and wondering where the party went.
 
Joined
Jan 16, 2002
Builders in my area wouldn't give their own mother a free door knob.
They'll kept boosting values until the gold rush is over and simply leave
town with tons of $$$, while everybody else is holding the bag.
 

Mike Garrett RAA

Elite Member
Gold Supporting Member
Joined
Jan 14, 2002
Professional Status
Certified Residential Appraiser
State
Colorado
Looks like my last post didn't post so here it is again.

Richmond American Homes opened a new filing in Claremont, a lower median priced neighborhood. The offered five (5) lots for their lower priced 2 story home. People started lining up the night before and camped out over night to get one of these lots. My client was first in line and got her pick of the lots first. The second person in line, a woman from Denver took the remaining four (4) lots. The people in line behind her nearly rioted!
 
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