New construction incentives

[Greg Parker]

It's just a curiosity on my part, but what sort of incentives are folks seeing for new construction across the country?

I just did a $400k house which had nearly $80,000 in incentives when all was said and done. The buyers got every conceivable upgrade for free, an incentive for using the builders mortgage company a lot reduction (I call shenannigans there.... One lot is no better than another in this development), and a price reduction since the house is late.

Still, 20% seems exorbitant to me...

 

[STEVE COOPER]

Cash value.

The true value of that home is if you went in and asked for a model match without any incentives, offering to pay a cash price. That should be in theory the true estimate of the house. But in answer to you question, I have seen 50k in so called concessions, rebates, gifts, hoa fee reductions, cars (no joke) etc... for downtown condos. Eventually all these concessions catch up with the seller and lender and buyer...maybe even the appraiser.

 

[McPheeters]

I just completed a report in an area of high end houses where one of the Active Listings in the Subject's development included this marketing remark: "Buyer will recieve a Hummer from ABC Homes with purchase of home" The MLS photo shows the vehicle in the driveway of the new house. This particular area had a huge Market increase during the past several years......and went flat about 10-12 months ago. The Builders will do anything right now to sell a house.

 

[Restrain]

New home concessions for $250K homes routinely run $20-30K. The result is that, given that appreciation is flat to 2% annually, the buyer is generally upside down for years unless they put 10% or more down. It's not unusual for someone in a home 1 year old to be upside down 15-20% because of the concessions and marketing of the builder.

 

[Ross (CO)]

....and, how about a year later when that same homeowner decides to sell and movw away. Should they be obligated to leave the Hummer in the garage so the next owner has the benefit of its use ? Huh ? Of course not, how silly is that ? Oh, but wait, it gets even better. How about 6 months after buying the h/o decides to pursue a HELOC....and finds out then that he doesn't have as much true equity as he thought ! Sure, that second appraiser who discloses the details of the original purchase will be the scapegoat and recipient of unwarranted ridicule.

An even greater disgrace bestowed upon the public will be how that $400K transaction gets recorded in the MLS after the closing and within the county's records. The AVM'ers of the world will surely snag onto that $400K sale "price" and notch-up once again the noted unreliability of the use of that sale in some automated, alternative valuation calculation......and the muck will only get deeper.

One had better be sure to thoroughly research and disclose all the freebie, incentive, give-away, monket business when you take on those new-construction appraisal assignments. For the life of me, I am still amazed, that anyone really thinks that they need to have new construction appraised at all ! Oh, well. Be equally astute to politely deflect the offering of builder-provided new-home sale comps ! To heck with the noted "contract price" and one's unfortunate bind to be certain to not disappoint.....and to find agreement via opinion-of-value that they are in line with each other.

Whatever it takes......whatever it takes, for the new-home gig to create a higher appearance of "what houses are going for" in that certain market area. I took a voluntary leave-of-absence from serving that industry over 3 years ago when I realized that I needed to always carry a shovel with me each time I went into a model home sales office to seek needed information.

 

[Otis Key]

It's going to get worse as the markets really start to slow as we move towards the new year. I wouldn't be surprised to start seeing 2 Hummers in the offerings.

 

[Mike Garrett RAA]

Was listening to KHOW (Denver station) this morning. Several commercials from Pulte and DH Horton offering a free trip to Italy if you buy in the next 30 days. Guess the 52" plasma tv and Lazy Boy recliner wasn't getting the job done. Oh yeah, forgot to include paying off the buyer's credit card debt and $5,000 in buyer's closing costs.