Perks, Price Cuts Become More Lavish
As Developers Grow Increasingly Desperate;
Would You Like a Pool With That?
By JEFF D. OPDYKE - Wall Street Journal
With the housing
market looking increasingly frail, home builders and real-estate
agents are going to new extremes to attract buyers, dangling lavish
incentives and slashing prices.
Here are some tips for getting
concessions from home builders:
a finished home: Builders want these off their books.
a preapproval letter: This shows a builder you have
financing already in place.
quickly: Wrap up a purchase within 30 days; builders want
to sell before the next bank payment is due.
contingencies: Don't make your purchase contingent on
selling a home or finding financing.
offers advice for getting discounts on brand-new homes.
In Boca Raton, Fla.,
Gordon Homes is offering to pay two years of property taxes and
insurance -- worth as much as $150,000 on houses priced as high as
$2.5 million -- for buyers of completed homes at its upscale Azura
development. In Richmond, Va.,
Orleans Homebuilders Inc. is offering "Sizzling Summer Sale
Savings" that include as much as $100,000 off the cost of upgrades
ranging from granite countertops to a conservatory. And in Medford,
Ore., Diane Adams, a real-estate agent, is offering to pay four
months of mortgage payments on the $975,000 house she and her
home-builder husband constructed on 20 acres near Crater Lake.
"I'd also negotiate a
lower price, too," says Ms. Adams, an agent with Re/Max
International Inc. "I just want this house off our books."
Across the country,
the theme is the same: Home builders and home sellers are juicing
their efforts to unload single-family homes. Among other things,
they are offering buyers cash discounts of as much as 20%, throwing
in a pool and agreeing to finish basements, garages and other spaces
at a cost of several thousand dollars -- incentives much richer than
builders were offering as recently as six months ago, when the
downturn didn't look as bleak.
Since then, home
builders have been hit hard as rising mortgage delinquency rates
have made lenders much more reluctant to issue new loans, causing
home prices to fall and inventories of unsold homes to rise. In
June, new-home sales had fallen more than 40% from their peak two
years ago, and more than half a million new houses -- nearly eight
months of supply -- sit in inventory, according to the most recent
report from the National Association of Home Builders. Contract
cancellations, meanwhile, have hit nearly 30% for some builders.
Things may not get
better for a while. The National Association of Realtors said
yesterday that new home sales this year were likely to fall 19% from
last year, worse than its previous forecast of a 17.7% drop.
Many builders never
expected the housing market to fall this far. Now they're struggling
with empty land, too few buyers and an inventory of finished homes
that have been sitting empty for months -- and some are growing
desperate to free the cash locked up in their real estate by
enticing the dwindling number of buyers. The latest survey taken by
the National Association of Home Builders indicates that 56% of
builders are now offering incentives, up from about 45% a year ago.
And those incentives
are growing bigger. In California's San Diego County, Chris Heller,
a real-estate agent with Keller Williams Realty, says that until
about 18 months ago, builders had little reason to offer incentives.
Today, he says, "buyers are asking for the moon, and they're often
Mr. Heller says that
on houses in the $700,000 range, his clients are typically scoring
multiple concessions totaling as much as $80,000. Generally, that
includes a price reduction, an agreement to pay closing costs or
upgraded flooring or appliances -- or a combination of all three.
Builders in the
greater Dallas-Fort Worth area have also been struggling to move
homes and are using incentives more freely. "They are giving stuff
away here," says Kenneth Cox, a real-estate agent with DFW Urban
Realty in Dallas.
In suburban Dallas,
incentives on single-family homes abound, including price reductions
of as much as 20% and free swimming pools. Steve Wall, president of
builder Wall Homes Inc., says his company is knocking as much as 18%
off the list price for inventory homes in the city's northeast
suburbs. For other homes yet to be built, the builder is offering
free blinds, a free covered patio and 50% off upgrades, up to
$20,000. "It's more competitive than this time last year," Mr. Wall
This trend toward
more-generous incentives is "likely to intensify," says Mark Zandi,
chief economist at Moody's Economy.com, citing a growing inventory
of new homes, an oversupply of pre-owned homes on the market and "a
glut of homes that are a year or two old that investors bought as
rental property that have never been lived in, and those investors
are now trying to sell, too."
often aren't enough to close a sale, however. National builder KB
Home says that in May, it was offering to pay $5,000 toward closing
costs on already completed, or "inventory," homes, up from $1,000
about a year ago, "but we find that these kinds of incentives don't
generally work that well," says a spokeswoman. Rowena Emmett, an
independent Realtor in La Canada, Calif., says that during Southern
California's last downturn, a client offered home buyers a new
Porsche, "but that didn't work."
try to avoid outright price markdowns, in part because it angers
prior home buyers who don't want prices in their subdivisions forced
down. These days, though, builders increasingly resort to price cuts
"because it's all about avoiding bankruptcy for some," says Gene
Rivers, a Keller Williams agent in Tallahassee, Fla., where builders
are offering incentives and price markdowns of as much as 15% of the
purchase price on $300,000 and $400,000 houses, double the level of
a year ago.
Certainly, not every
market is struggling. Dianna Kokoszka, a vice president at Austin,
Texas-based Keller Williams Realty, says homes in hot markets such
as Austin still receive multiple offers, making incentives
unnecessary. In other markets, pockets of strength may still exist,
particularly in popular neighborhoods. Jim Napier, president of
Napier Realtors ERA, in Richmond, Va., says an agent last week
listed a house for $600,000 in a desirable subdivision, "and it sold
in two days at the list price, all cash."
Still, in much of the
country, it's a buyer's market. And the savviest buyers are using
that to their advantage.
Lummie Jones, a vice
president at Napier Realtors, says the best deals go to those who
buy inventory homes, can close within 30 days and who have no
contingencies in their contracts, such as the need to sell another
house or find financing. Those buyers, Ms. Jones says, "are getting
concessions of between 5% and 10%" of the house price.
Also, have a
preapproval letter in hand, which indicates that a lender is ready
to fund your mortgage immediately up to a certain amount, "and tell
them to show you the two or three best deals they have," says Mr.
Rivers, the Tallahassee agent. Certain houses -- even identical ones
-- can have different carrying costs because one needed a special
foundation or took longer to build. "That's the house the builder
wants off his books first," Mr. Rivers says.
based in Bensalem, Pa., for instance, has knocked nearly $200,000
off the price of some already built million-dollar homes in
Richmond, Va., and is offering an additional $20,000 reduction for
buyers who buy inventory homes before Labor Day.
For buyers short on
cash, builders are offering as much as $10,000 to help cover costs,
which can help buyers qualify financially for the home.
In markets such as
Denver and Seattle, builders are increasingly willing to pay agents
substantially larger commissions -- as much as 4% of the home's
sales price, up from 1.5% or less -- to help unload inventory homes.
In turn, some agents are returning some of that money to builders to
lower the home price to help buyers qualify for the house.
"Don't be afraid to
negotiate for as much as you can these days," says Judy King, a
Seattle-area Re/Max agent. "There's a lot of flexibility in a market
--Joseph De Avila contributed to this article.
Jeff D. Opdyke at