Inside Home Builders

Articles about home builders and new construction.
There are 11 articles written on this subject. The most recent 10 are listed here:

Builder Desperation? Agent Incentives Annual Builder List New Construction Resources Home Builder References Buying New Construction

Conformity. What is it and why does it matter? Giving Up Big Deposits on New Homes Marquis Custom Homes in Raspberry Falls Builders Offering Incentives Home Builders Sweeten Incentives

You will find a complete Index of Articles by Category and by Month in the Archives.

May 3, 2007

Conformity is an interesting concept and one that I have not seen talked about in the Blog world. Here's the basic definition as provided in "the Language of Real Estate" by John W Reilly:

Conformity

1. An appraisal principle of value based on the concept that the more a property or its components are in harmony with the surrounding properties or components, the greater the contributory value.

2. The concept that maximum value is realized when the four agents of production (labor, capital, management and land) are in economic balance.

We see this principle in action everywhere. That's what "planned" communities are all about and what justifies the existence of home owner associations (HOA's). Almost every new development is planned to be in harmony within its confines supplemented with community amenities such as common areas, parks, recreation facilities and, often times, compatible retail centers.

So, the question is: What happens when an economic event, such as the building of a non-conforming home within a community that is otherwise in balance? I found the following article a couple of months ago on the Inman News Website that pinpoints the answer. Here is an excerpt:

Future neighborhood construction may hurt resale value
Factors that could scare off buyers
Monday, February 12, 2007

By Dian Hymer
Inman News

It doesn't take much to throw a buyer off track. Prospective sellers should keep this in mind as they prepare their home for sale. It's easy to concentrate on making your home look good but overlook other factors that could impede the sale.

Fear of the unknown will send buyers running in the opposite direction. For example, you may take pride in the fact that your home is located next to a vacant lot. There's no building adjacent to yours to obstruct the view or the quality of light.

From a buyer's perspective, the feature you relish might be a serious drawback. What if someone builds a monstrosity next door that blocks the light and diminishes the view? Many buyers will pass on a house like this and keep looking, particularly if there are many other homes on the market. Buyers who aren't dissuaded might require a price concession to compensate for the expected loss of value once the house next door is built. (emphasis added)

As a buyer, it is important that you and your agent perform due diligence to ascertain what future plans may be and what the local rules are controlling development and how strictly they are followed. As an agent I have two perfect examples of when good intentions may have negative economic impact:

• Builder constructs custom home home for his own family. A community in a local area has large lots (greater than an acre), no HOA and no restrictions on building other than county requirements. Builder buys a 2 to 3 acre lot with some woods, builds a beautiful custom, three level home with about 6,500 square feet of finished space. The problem: the neighborhood is what I call very "eclectic." The surrounding homes range from 20 to 30 year old ranch style homes, log homes, to colonials and everything in between (including run down shacks).
  
  Now the subject of selling this home: In a planned community, It would probably list at greater than $1,000,000. Since it was in a "non-conforming" neighborhood, It was listed in the high $800,000's and eventually sold after 9 months in the high $600,000's. Reference the Inman article above: it took a considerable price concession to attract the right buyer. This situation was brought back into "economic balance." There was a price at which a buyer overlooked the non-conforming nature of the area and focused on the bargain to be attained. This may not have been bad for the builder in this case because he minimized development costs by building it himself. Did he maximize value? Maybe, maybe not. Depends on his original objectives and motives.
• Conforming neighborhood with an undeveloped private lot. This neighborhood consists of colonials on 1 to 1 1/2 acre lots with surrounding open space, views of the local hillsides and abundant wildlife. The existing homes in a subsection of the development (not completely built out) range from about 3,000 square feet on two levels to the largest at a bit over 5,000 square feet on two levels. The homes in this subsection were built in the mid 1990's and incorporate architectural style of the area and building designs of the time. A range of home sizes but, conforming nonetheless.
  
  The empty lot, purchased from the original developer as an investment, was sold to a private, boutique, custom home builder. The builder proceeds to construct an 11,000 square foot home (on three levels) of an architectural style that does not fit the neighborhood. Blatantly non-conforming. Homes in this neighborhood sell for $600,000 to slightly over $1,000,000. The new home is listed at over $2,000,000. What's wrong with this picture?
  
  It makes absolutely no logical or economic sense. The builder in this case has every legal right to build what the county will allow. But, the consequences, perhaps unintended, could be devastating on the community. Does a $2M home in a neighborhood of homes with values averaging less than a million bring up the value of the whole. I think not. In fact, it may have the opposite effect. Could the HOA representing this neighborhood have a say in what could have been built on this lot? It could. Unfortunately, the HOA is not yet controlled by the homeowners. It is still controlled by the original developer. Somehow the county should have had a say besides zoning and building code. The original developer of the community should have had a say as they controlled the HOA and this had to pass "architectural review." The builder of this home needed to look at his plans, look around the immediate neighborhood and come to the responsible conclusion that his plan was economically "out of balance." No wonder builders have such a poor reputation in general. I suspect that economic balance will be achieved and somebody is going to be financially disadvantaged.

In the first case of a non-conforming area, the individual builder is totally responsible for his own decisions and the financial consequences.

The real question in the second case is: Should there be and can there be strict oversight and control of building in planned, conforming neighborhoods? In my mind, there should be better controls because the actions of one has a potential economic impact on many. I'm not sure it can be (or could be in this case) because ordinary citizens were not involved nor had responsibility to review the actions that impact their living environment. Counties and towns go to great lengths to protect the character of its "historic districts" and rely on significant oversight of proposed expansion and redevelopment within those areas. The same principle should be applied to planned, conforming developments as well. Maybe this is just a one off case that got out of hand because of the circumstance. So be it. The bottom line, as I see it, is no one used any common sense in allowing this to happen and the individual was not exercising any social awareness or consideration of his actions on others. I am not an advocate of legislating to protect an individual from making poor choices. I would advocate protecting the many from the impact of individuals making poor choices.

There are cases where very old neighborhoods go through redevelopment because the land value far exceeds the improved value of existing homes. In these cases, redevelopment can have a positive economic impact on existing owners. The theory here is highest and best use. More about this in a future article.

Comment on Conformity. What is it and why does it matter?. Follow this article is off. More articles like this one filed in: Buying & Selling Real Estate , Case Studies , Home Builders , Market Value

May 6, 2006

On the front page of the Washington Post business section this morning is an article about new home buyers walking away from their deposits to get out of this market. In the Metro region cancellations are up over 100% from this time last year (5% to nearly 13%). Deposits can be tens of thousands of dollars plus 50% of the price for upgrades. On a million dollar home with a 7.5% deposit and $100,000 in upgrades, the loss to walk away is on the order of $125,000. It appears the two biggest issues as reported are:

• Builders are lowering their prices and buyers who wrote contracts several months ago see values declining, and
• Rising interest rates are causing some buyers to wonder if they can really afford a new home.

I can agree with the analysis but they leave another important fact out of the article: new home buyers usually have a home to sell to extract equity for the purchase. Homes just aren't selling for what they did several months ago and are sitting on the market much longer. If you can't sell, you can't buy. New construction contracts always favor the builder and they rarely, if ever, consent to a home sale contingency.

Builders are less than sympathetic and will take a buyer to court to force the sale. Angry buyers are seeking legal help to get some or all of their money back. Nobody wins.

Read the full article here.

Comment on Giving Up Big Deposits on New Homes. Follow this article is off. More articles like this one filed in: Home Builders , In the News , Market Conditions (with charts)

February 26, 2006

Pam and I attended a Marquis Custom Homes brokers open last Thursday in Raspberry Falls. There are four spec homes available for near immediate occupancy. The models are:

• The Sinclair: Homesite 104, Offered at $1,049,402
• The Sinclair: Homesite 174, Offered at $1,066,077
• The Glenmore: Homesite 176, Offered at $1,195,213
• The Edgewood: Homesite 184, Offered at $1,156,519

All are more than 4,000 square feet of living space on the main floors, have hardwood floors, gourmet kitchens with granite and upgraded cabinets and sun rooms. Ready for spring move-in.

Buyer's benefit: purchase with Pam or I representing you by March 31, 2006 and receive $25,000 off from Marquis and an additional $10,000 to $12,000 commission rebate (depending on model purchased) from us.

It is important to note that the builder's discount and our commission rebate is ONLY available from us if we represent you through a private sales appointment with Marquis and this must be your first visit.

Interested? Call 703-431-2145 and ask for Merv or Pam. We have brochures available. Learn about Raspberry Falls here.

Comment on Marquis Custom Homes in Raspberry Falls. Follow this article is off. More articles like this one filed in: Featured Properties , Home Builders

December 31, 2005

If you have been putting off buying that "new home," now may be the time to get a better deal. We've noticed an advertising trend by builders offering incentives to both buyers and agents alike. Up until this year, builders wouldn't even negotiate. Since about July when the market started to soften incentives started crawling out of the woodwork like a trail of ants after the sugar. The most extreme was the email ad for 6 months builder paid mortgage and 6% commissions to agents that brought buyers and closed before year end (we commented on this one several weeks ago). Here is an excerpt from an article published in the Washington Post this morning:

Facing Weaker Home Sales, Builders Sweeten Deals

Freebies Include Mortgage Help, Televisions

By Sandra Fleishman Washington Post Staff Writer Saturday, December 31, 2005; Page A01

Home builders around the region are luring would-be buyers with freebies worth thousands of dollars, in an attempt to prop up sales in a slowing real estate market.

Pulte Homes Inc. is offering a 42-inch television, free heat for six months or a $5,000 check for window coverings to some buyers. Ryan Homes will finish the basement free. NVHomes will throw in a golf club membership in some developments.

"Incentives are definitely on the rise," said Kenneth Wenhold of real estate research firm MetroStudy. He estimated that since July, when the market began to soften, buyer traffic at new-home projects has fallen off 30 percent and so have contracts. "With all the inventory, buyers now have more choices." ...

The number of homes for sale in the Washington area has more than doubled since last November, according to figures from the area's multiple listings service. The last time the Washington region had this many houses for sale was the late 1990s, before low interest rates and a growing job market fueled the years-long boom in home sales.

During that boom, even while houses and condos sold as soon as they came on the market, builders sometimes offered limited year-end deals. They have also routinely given buyers a break for using approved lenders or title companies. But those incentives were nothing compared with what's going on now.

Among the deals showing up in ads and sales offices are upgrades to gourmet kitchens, six months of mortgage payments, a year-long lock on interest rates and tens of thousands of dollars toward closing costs. Many of them have been promoted as year-end or holiday specials.

In the Washington area, incentives can amount to as much as 5 percent of the sales price, according to Daniel Oppenheim, an analyst with Banc of America Securities. One problem for builders, he said: Investors who bought recently are reselling to cash out.

"All of a sudden the new-home builder is not only competing with the resale market but with the exact same home they just completed," Wenhold said.

Read the full article here.

It is reported that over 25% of the new homes homes sold in this region the last two to three years were bought by investors looking to make a quick profit. There are an abundance of these homes now on the market by those that couldn't get out soon enough. Bad news for sellers. Good news for buyers. Many of these can be had at a steep discount.

Comment on Builders Offering Incentives. Follow this article is off. More articles like this one filed in: Home Builders , Market Conditions (with charts)

November 11, 2005

Jim Duncan, my Blogging friend at www.realcentralva.com commented on my last post referring to this article in the WSJ. Thanks Jim.

Comment on Home Builders Sweeten Incentives. Follow this article is off. More articles like this one filed in: Buying & Selling Real Estate , Commissions , Home Builders , Market Conditions (with charts)

Great News for You: 6% Commission*
Good News for Your Clients: 6 Months Free*

I receive emails from the real estate agent and builder community advertising the homes they are marketing. I received this one (click to view) a couple days ago with the headline above. That's right. 6% commission to me if I can sell one of their homes and 6 months free to home buyers (I assume no mortgage payment). There are three caveats:

• Purchase contract signed by 11/30/2005 and
• Close by 12/31/2005
• Buyer must use their lender

These homes appear to be ready for occupancy. We are seeing lots of incentives to buyers (and agents) everywhere in the region. This one is the most extreme. These homes range from the mid $600's to over $1 million. If you follow our thinking on a regular basis, you know how we feel about agent incentives. We don't think it is right.

So, here's the deal: anyone out there that wants to buy one of these Stanley Martin homes as described and you can meet the time constraints, we will share half, or 3%, of the commission with you as a rebate at closing! Now that is a buyer incentive. You have to call us before you visit Stanley Martin.

Comment on Builder Desperation? Agent Incentives. Follow this article is off. More articles like this one filed in: Buying & Selling Real Estate , Commissions , Home Builders , Market Conditions (with charts)

September 22, 2005

On September 17, 2005 The Washington Post reported on the J.D. Powers annual satisfaction survey of new home builders in the Wasington D.C. Metro area.

Centex, Pulte, Winchester Top Survey

J.D. Power Measures Satisfaction of New-Home Buyers

By Sandra Fleishman
Washington Post Staff Writer
Saturday, September 17, 2005; Page F03

The most satisfied new-home buyers in the Washington area last year were customers of national giants Centex Homes and Pulte Homes Inc. and of Bethesda-based Winchester Homes, according to a survey released this week.

The three companies tied for first in the annual survey by J.D. Power and Associates, a California research group best known for its rankings of car buyers' satisfaction.

Arlington-based IDI Group Cos. was next in the rankings, followed by Frederick-based Ausherman Homes, a division of the Drees Co. in Kentucky, and NV Homes, a division of NVR Inc. in Reston. The survey covers only builders that closed on sales of 150 or more homes in the market.

Centex scored a high of 122 points. Van Metre was 10th at 113 points and Toll Brothers was 18th at 88 points. 100 points is equal to the national average. Refer to our guide on buying new construction.

Comment on Annual Builder List. Follow this article is off. More articles like this one filed in: Home Builders

April 9, 2005

I recently posted my article on buying new construction. The National Association of Home Builders publish many useful guides on buying new construction, custom build, remodeling and more. A good resource for the new home buyer!

Explore NAHB consumer resources here.

Comment on New Construction Resources. Follow this article is off. More articles like this one filed in: Home Builders

March 29, 2005

We recently posted a new construction disaster tale from people we met the other night. The builder remained anonymous. We have our own experiences having bought several new construction homes (we will hold those for now). We recommend buyers of new construction get references on builders among other important steps. What better way than posting your experience right here, the good, bad and ugly. It should develop into a rich repository of reference material. So, post away! We will add the category after your entry. If we don't have it in our category list, we'll add it. Be candid but hold the profanity...

Comment on Home Builder References. Follow this article is off. More articles like this one filed in: Home Builders

March 27, 2005

An agent experienced in new construction should represent you when buying. Builders do not operate in your best interest and you will not get a price reduction if they do not have to pay our fees. However, you must have your agent with you from the very first visit. Many agents (including myself) can give you a portion of the compensation a builder pays to be applied toward closing costs. The amount depends on the price range of the home, the amount of work involved supporting you and how much the builder is paying agents that bring buyers.

Here are the 13 things you need to know before buying new construction:

(1) Pick a reputable builder. Many enjoy good reputations. Make sure you compare and ask for references from other clients. Visit the neighborhood and talk to future neighbors. Our experience can help.

(2) There is usually very little room to negotiate builder contracts in a seller's market. There will be a hefty deposit required including a percentage of the cost of options you buy. Incentives may be offerred if you use the builders preferred lender and/or title company. In addition, builder sales people cannot commit to anything. If they do, get it in writing. Conversely, in a strong buyer's market, builders are very willing to negotiate to include discounted or free options, price and lucrative mortgage terms (if you use their affiliated mortgage company). Be careful of this last one though, an offer too good to be true usually is.

(3) To the extent possible, make sure you know all your options and cost estimates before you ratify a contract. Add-ons after contract will cost more and could influence the delivery schedule. Important elements to consider are window options (type), bricking the whole house, wiring for smart homes (telephone, internet, audio and video), heating and air conditioning upgrades and appliance options.

(4) You might want to consult an architect and/or a professional decorator to help you. Always be thinking resale. Potential future buyers might not think highly of your special modifications.

(5) When your home is completed, it will not look like the model home. Builders employ professional decorators for their models and spare no amount of creativity (and expense). Decorating makes builder homes sell.

(6) The builder will not commit to a specific delivery date, but rather an approximate range of dates for your home to be completed. There are just too many variables in the construction process. You need to be flexible as you will probably only get a two to three week notice and that occurs when the local government grants the builder an occupancy permit.

(7) Expect unfinished work when you close on your home. The builder usually has a certain period after closing to complete all the finishing work.

(8) It is usual for builders to use subcontractors to do the work. The quality of workmanship depends on the experience and skill of the subcontractor and the construction supervisor. Construction supervisors cannot catch every mistake made during construction as they are managing the build of several homes simultaneously. You will have a chance to remedy these.

(9) The single most important recommendation we can make is to hire your own inspector to assist with every walkthrough at various stages of the construction process. This will be an added expense but worth it for the peace of mind that you have an independent observer working to detect major mistakes and poor quality. Some builders don't like this but insist upon it.

(10) Expect delays. These are unforeseen and include weather, subcontractor and material shortages, and may include overly optimistic schedules by the builder.

(11) Expect issues after occupancy. These are normal and usually minor in nature. It will take the builder some time to get to them all. Any major issues will usually be attended to quickly (severe leaks, appliance failures are examples here). Builders offer a one-year construction warranty and a homeowners warranty covering appliances and major systems.

(12) Before or during the final walkthrough, be sure to inspect the grading around the home and mechanisms to channel water away from the downspouts. The biggest issue causing basement leaks or moisture has to do with improper grading and not properly channeling water away from the house.

(13) Finally, there will be many questions and concerns during the process. Always put questions, requests and complaints in writing and be sure to copy the highest levels in the company you can find so you get the proper attention. You always need a document trail.

In summary, builder references, an independent inspector and a knowledgeable REALTOR® are a few of the important elements assuring your success and satisfaction when buying new construction.

Comment on Buying New Construction. Follow this article is off. More articles like this one filed in: Home Builders