Builders coming off a terrible year are keen to ring up sales early rather than wait for fall
POSTED: 12:30 a.m. HST, Mar 13, 2011
LOS ANGELES » The spring home-selling season is under way, and homebuyers have more leverage this year to get price discounts and other perks on new homes than in years past.
It's the busiest time for homebuilders, which means they are under less pressure to lower prices. They typically reserve the best bargains for the fall, when they look to thin their slate of unsold homes.
But this year is different. Homebuilders are coming off their worst year in almost a half-century, and that means builders are hard pressed to rack up sales sooner rather than later.
"In a normal year, I would tell you, you have a better shot buying off-season" to get a lower price, says Stephen East, a Ticonderoga Securities analyst. "This spring ... they're being aggressive early on."
Builders are counting on spring sales to hoist them out of their doldrums after seeing new-home sales sink last year to 322,000 homes a 75 percent drop from their 2005 sales peak.
High unemployment, tighter bank lending standards and uncertainty about home prices have kept many buyers from entering the market. Builders also face heightened competition from resale homes and a glut of sharply discounted foreclosed properties.
The industry got help last spring from a temporary federal tax credit aimed at stoking home sales, but this year it's all up to builders to woo buyers.
Many are offering a wider range of incentives, such as upgrades on appliances, cabinetry, flooring and other home features.
Some also will throw in money to help reduce the size of buyers' mortgage payments.
Builders such as Shea Homes are offering houses on larger lots, giving buyers a bigger backyard at no extra cost. "We're also giving a lot more standard features with a home, particularly energy-saving features," said Rick Andreen, president of the company's Active Lifestyle Communities unit.
Homebuilders favor including thousands of dollars in bonus amenities and other upgrades to lowering prices because that can hurt their profit margins.
That's because when builders offer to include nicer kitchen counters, for example, they've negotiated a deal with manufacturers to get them at a significant discount. That translates to a bigger value at less cost than it would be to give homebuyers the same value in cash.
During a recent sales promotion held by Toll Bros. Inc., the builder's suppliers threw in upgrades on cabinets and Kohler fixtures, among other features.
Sharp discounts on the price of the home itself also can result in lower property appraisals, which can have a ripple effect on home values and undermine builders' ability to raise prices.
Still, builders have been quicker to drop prices this spring on some homes, particularly those that are already built and ready to sell.
In the November-to-January period, the median price of new homes declined 1 percent nationally, according to a survey of builders conducted by John Burns Real Estate Consulting.
"It was very clear that by mid-February the builders were already discounting," said Jody Kahn, a vice president at the firm.
Builder PulteGroup Inc. advertised a weekend-only deal for a house outside Sacramento, Calif., last week. The three-bedroom, two-bath house was originally listed at $309,990, but the builder reduced it 6.5 percent to $289,990.
"Depending on the community, there might be certain homes that are inventory and they want them to move, and so you are going to have more success in finding an incentive for that specific home," said Jacque Petroulakis, a spokeswoman for PulteGroup.
Many builders prefer to start construction on a home only once they have a buyer, but sometimes transactions fall through and the home sits empty. Having too many of those unsold homes becomes a drag on builders' balance sheets, particularly in a market with falling home values.
Large builders tend to offer different deals from one market to the next. A development in Phoenix, where builders are under intense competition from foreclosure sales, for example, might offer discounts, while a community by the same builder in a healthier market, such as Seattle, might not.
This spring, some of PulteGroup's communities are offering incentives that range from $5,000 to $40,000 in value, Petroulakis said.
Some of the incentives include washer, dryer, fridge, blinds, landscaping and money that buyers can put toward closing costs or to cover moving expenses.
Builder CBH Homes isn't making a big push to offer incentive packages or sales promotions this spring, said Holly Haener, director of sales and marketing for the Meridian, Idaho, company.
CBH, which has homes priced from about $90,000 to $250,000, tries to keep prices in line with foreclosures, its biggest rival for buyers these days.
"There are homes that come on the market that are just so low there's not a whole lot you can do," Haener said.
BUYING TIPSLOS ANGELES » Homebuilders are eager to rack up sales this spring, and many are offering incentives and even some price reductions on homes.
So how best to find a good deal on a new home?
While homeowners looking to sell their property might balk at an offer that is too low and pull their home off the market, homebuilders have money invested in land and construction costs and can't afford to just sit on the homes they build.
With a little research, anyone considering purchasing a newly constructed home can improve their chances of negotiating a better deal, says Michael Corbett, real estate expert and author of "Before You Buy! The Homebuyer's Handbook for Today's Market."
When considering an already-built home, Corbett suggests buyers find out how long ago the home was built and how many residents are living in the development.
Another essential step is to check the price at which comparable homes in the development sold, but ignore transactions that are more than 60 to 90 days old. It also is important not to put too much stock in the price of other, similar homes in the development that have yet to sell.
To structure an initial offer on a newly constructed home, one must weigh the recent comparable home prices, how many homes are left to be sold in the development and how long the home has been unsold.
But definitely make an offer that is below the asking price, Corbett says.
If the house is listed at $400,000, try going in at $375,000. However, if recent comparable sales at the development have gone for $350,000, for example, then the buyer should make an offer at that level or below. And if the development has 30 empty houses, that's a good indicator the bid should go even lower.
"You really negotiate three times," Corbett says. "When you make the offer, a counteroffer and after the inspection."
Among other tips Corbett recommends:
» Even though a new home often comes with a guarantee, pay for a home inspection so you avoid any repair surprises.
» Get a real estate agent or lawyer to assist with the transaction.
» Don't be fooled by model home staging tricks, such as smaller-scale furniture, glass tables and doors removed from their hinges in interior rooms — tactics often used to make the home look bigger.