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. :)