Charlotte Communities and Real Estate: The Problem With Builders...Part I

The Problem With Builders, Part II

As you know, I do love to sell new Charlotte homes-- they account for about half of the Charlotte real estate market-- as I said in Part I, I have a strong preference for Inventory homes or spec homes, sold at a discount. And we are always looking for great Charlotte communities, communities with pools and other amenities. What I am interested in is value. Around here, those best values are found in quality communities, in near to completion Inventory or Spec homes, as builders frequently make deals on these homes. They discount these because their profit is literally running out of the house, like sand in an hour glass, profit they can never get back.

Building from scratch, it is easy to "over-option" the house at the design center- "The granite is great, tile is better, and hardwoods on the first floor all make sense. The only time to upgrade lighting is now, isn't it? And we need the 3rd floor. The extra bath? Yes we need that too." I hear this all the time. It is not uncommon for upgrades to add 50, 60 or $70,000 to the price of the home. But the builder isn't telling you one important item: the builders lender will finance you but the next lender may not. Said another way, the options are here for your enjoyment, don't count on them for resale. In the worst case, you buy a home, lose your job and need to sell. If you paid retail, and you have a lot of options, your home may not sell or appraise for what you paid for it. What's worse? Many builder's business model requires them to sell options.

Only one builder acknowledges this publicly, it is in the form of a statement made part of the contract. Read this carefully to understand its full meaning:

"When you purchase options in your home, you should purchase them with the understanding that ,while the option may add functionality or enjoyment to you, they may not influence the appraised value of the home. Our policy on options is straight forward; our business model does not depend on option profits." (Italics mine)

The above builder who must remain nameless, includes most of the common options, making option purchases truly "optional." His communities appreciate very, very well, and this is one of the reasons.

Happy Buying!

The Problem With Builders...Part I

I love to sell new homes. There is something about them... like a new car they feel great. Maybe it's a throw back to my youth, where I got my start with real estate, selling tons of new homes on a site in Germantown, MD that most considered "too far" out. Today it is like downtown! Yes I love to sell new homes.

Charlotte is the 9th largest new home market in the nation... Pulte, Ryan, Shea, Orleans, Toll Brothers, Wieland all the national builders are here. Yet a new puzzling and disturbing thing happened this past week from a major builder. The "house" lender did not fund the deal for 7 days after the closing... for the uninitiated, my buyer lived in the house for a week, and didn't own it. How did they do it? It is the symbiotic relationship the house lender has with the builder, and a disregarding of good business real estate practices, combined with a jittery lender hold lots of sub-prime paper. But it DID close.

But that is not the biggest problem. By far, the biggest problem is that New Home Builders generally get way too much money for their house. Once you've added options, sometimes $50,000 or more, you can be way, WAY, above market price for your home. worse, many of these builders depend on Option Sales to make their profits, so they are selling options all the time. The downside is that it may take several years for your house to be worth what you paid for it. The flip side of course is that if you have to move in say a year, you'll take a bath on it.

This contributes to foreclosures when folks have to sell and can't get their money out. It's compounded of course when they used the easy credit of old to help people buy homes they couldn't or shouldn't afford. And it means you've given the first several years of appreciation to the builder. They created a market, it felt good , and you bought. I am to the point where in most of these communities I recommend only buying inventory- already built homes- these are typically available at market prices.

Another major problem is bad lots. Every community has them, and the builder would like you to take it from him. These lots are, by most definitions, dogs. Yet they have to sell them. So here is how they do it. They only release so many lots at a time. Then, as they near the end of that "phase" (a totally artificial precept)they create urgency to sell the last of the lots, by telling you, "There are only two left in Phase I"--they don't mention they are the ugly ducks, the runts of the litter. And people buy them. I train my buyers agents what to look for-- it is their job to be sure it is some other persons bad luck, not one of our clients.

What do these lots look like? They may be entry lots, first ones in--these will ALWAYS be less valuable and harder to sell. Why? Because everyone in the community has to pass that way, everybody will want to be further back. This is why so many models are first in, loaded with features and at the end, they are sold at a discount. Either that or pre-sold to an investor early on at lower prices. Thy may back to the road, the bigger road, or some other obstacle/feature difficult to see on a plot map.

Still I love new homes, but I love getting my buyers deals on inventory homes even better! If that means occasionally getting into a fight with the builders, so be it.
Just part of the job. :)

Charlotte Home Prices...Full Steam Ahead!

Charlotte Home Prices UP, no Bubble!

While most of the country worries about falling prices in real estate, a few markets have been unaffected by the non stop Bubble talk. No amount of doom, gloom or rising interest rates have slowed the growth in Charlotte, NC.

Good news travels fast. Barron's noted our first quarter growth in Charlotte at just over 7%, third in the nation. Our numbers on residential single families are even better with the our 1st quarter 2007 sales at an average of $226,998 vs the $209,987 of a year ago, an 8.1% increase. Average cost per sf increased by the same 8% and Days on Market (DOM) rose just 10% to an average of 93 days. And we had "velocity" too, a 5.7% increase in the number of units sold. Average square foot prices were just over $110 for the 1st quarter of 2007, up from $102 just a year ago. A very healthy Charlotte Real Estate market remained that way through the first quarter of 2007.

But that is only part of the story-- whenever you hear an average, its worth looking at the parts, and we did that too. And comparing the differrent areas produced many surprises. Our study compares the following regions: Myers Park, Dilworth and South Park, I called it InTown. South Charlotte begins at Southpark and Fairview, and sweeps south to the Union County border, roughly between and including Matthews and Ballantyne. Close-in Union County is the area that is adjacent to Mecklenburg County, with towns like Wesley Chapel, Weddington, Waxhaw and Marvin. The last area, the fastest appreciating one, is to the north, beginning at the lower Lake Norman Area- Huntersville, and including the larger lake area from Cornelius and Davidson all the way to Mooresville and Denver.

It was no surprise to see the intown area of South Park, Myers Park and Dilworth exceed the average by almost 30%, more surprising was the strength of the northern suburb of Huntersville, and the lake area, appreciating at more than 50% above the entire region's average. Perhaps the most surprising were the results from Union County, the 8th fastest growing county in the nation with the very popular communities of Wesley Chapel, Weddington, Marvin and Waxhaw, what I call close-in Union, just adjacent to Mecklenburg County. These prices held steady, well below the region's average. Perhaps the huge number of new home communities in Union have held prices down?

The shocker here is Union County, has the lowest rate of growth over the year. What explains it? That will require some research, but a guess is the abundance of new homes and new home inventories has kept prices in check. It will be interesting to see the affects of the sewer moratorium there... In another study we found Ballantyne, a very popular neighborhood next to Union County, had only risen 2.8% in 2006 by average sqare foot pricing. Another interesting note is that the Days on Market increased regionally by almost 11%-- but DOM decreases in most of our more popular neighborhoods above. Future studies will break these numbers down further and look at Condominiums and Townhouses across the region.

I've said for years that Charlotte has grown the old fashioned way- adding jobs, and adding families voting with their feet for a better standard of living here-- that trend continues, and I look forward to talking about some of the challenges this very steady growth means for the area. I'll have more details in the future.