Anxious home builders pile on incentives

Beyond incentives

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."

Incentives alone often aren't enough to close a sale, however. National builder KB Home (KBH, news, msgs) 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, a real-estate agent 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."

• Video: Buying a home? Think freebies

Builders generally 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 Keller Williams Realty in Austin, Texas, 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, said 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.

Show me your best deal

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, Jones says, "are getting concessions of between 5% and 10%" of the house price.

Also, have a pre-approval 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 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," Rivers says.

Orleans Homebuilders, based in Bensalem, Pa., for instance, has knocked nearly $200,000 off the price of some already-built million-dollar homes in Richmond, and it 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 like this."

This article was reported and written by Jeff D. Opdyke and Joseph De Avila for The Wall Street Journal.

< previous |  1 | 2 |