New construction (Christmas: sales, real estate, rent)

[cricketfan]

With all the talk about the huge inventory of unsold homes, builders are still going gang busters with new construction particularly in planned communities. Which is okay as long as there are buyers for these new homes. However, I find it strange that as soon as some of these homes are completed a "Home Available" sign goes up, which means they are not being built to order. Does it make any sense for a builder in this market (e.g. Woodside Homes) to build a home to some arbitrary spec with the hope of attracting a buyer?

I guess you could say they already own the lot but there could hardly be a tax-related reason to put a house on a lot without a buyer.

[JagFan27]

It could be that someone put down a down payment to get the house started, but then couldn't get a mortgage.

[cricketfan]

Originally Posted by JagFan27

It could be that someone put down a down payment to get the house started, but then couldn't get a mortgage.

Not in this climate, Jag. Mortgage pre-approvals come first before they start digging, or else builders are getting rich with retained down payments.

[travelingfood]

1. maybe they want to finish building so they can get out of the market.
2. cost less to build now.
3. some people want to have a ready built and new home to buy in that community.
4. throw in a lot of free upgrades to sell the house.

[jackaroo]

Also depends on how new the community is. Buyers like to see the product, so builders will build spec homes in the hopes of if you build it, they will buy it.

[riveree]

Originally Posted by travelingfood

1. maybe they want to finish building so they can get out of the market.

I'm totally guessing, but it sounds pretty likely that they just want to get it over with .

Another thought I have is that they are building them in hopes that an investor snatches up the home (who will then rent it out).

[FLPL75]

Originally Posted by JagFan27

It could be that someone put down a down payment to get the house started, but then couldn't get a mortgage.

Originally Posted by cricketfan

Not in this climate, Jag. Mortgage pre-approvals come first before they start digging, or else builders are getting rich with retained down payments.

Actually even though someone can have "pre-approval" there could be things that happen between pouring of the slab and closing where the homeowners circumstances change and they no longer qualify

Also you may see some where the folks started building in anticipation of a job transfer and it falls through.
This happened to us when we thought we were being transferred to Atlanta.
We had a new home being built and when the company had a merger the promotion was kept here ( I couldn't of been happier )
So the wonderful home we were having built became a "spec" home
lol I guess we made really good choices because it sold in 1 week after we canceled the contract.
Oh and due to a "loophole" and my mortgage background we got our earnest money back

[cricketfan]

Originally Posted by Karla with a K

Actually even though someone can have "pre-approval" there could be things that happen between pouring of the slab and closing where the homeowners circumstances change and they no longer qualify

Yeah, but isn't it customary to have a contract predicated on securing a mortgage? That would be the prudent thing to do. In the event the lender denies the loan, all bets are off and you get your down payment back. Otherwise I don't believe the company you signed the contract with is obligated to refund your down payment. And on the part of the builder it can't be good business sense to start pouring concrete before all the financing is in place. Unless that unsecured down payment is part of the builder's strategy.

[FLPL75]

yes most contracts require mortgage approval with in a set timeframe

However a lot of things can happen in the 8 to 9 months it takes to complete the house so the mortgage can close

Now getting your earnest money back depends on what is written in the contract. It may say something along the lines of should something the homeowner does to cause the loan not to be approved at reviewed ie; going out and running up credit card balances or going out and buying a new car or even buying new furniture it my throw off the DTI ratio and cause a problem with getting the loan closed they don't have to refund the earnest money.

That is why it is important to have an experienced Realtor or Real Estate attorney review the contract before it is signed.

Many folks do not realize that you can have your own Realtor with new construction they think they have have the folks in the sales office handle everything
Of course most of the folks in the sale office won't readily share this because they don't want to pay out the 3% to the buyers Realtor

[ShakenStirred]

Originally Posted by cricketfan

With all the talk about the huge inventory of unsold homes, builders are still going gang busters with new construction particularly in planned communities. Which is okay as long as there are buyers for these new homes. However, I find it strange that as soon as some of these homes are completed a "Home Available" sign goes up, which means they are not being built to order. Does it make any sense for a builder in this market (e.g. Woodside Homes) to build a home to some arbitrary spec with the hope of attracting a buyer?

I guess you could say they already own the lot but there could hardly be a tax-related reason to put a house on a lot without a buyer.

Here's what you have to understand cricket...the builders you refer to are publicly traded, and their volume of building typically coincides with the end of their fiscal year. As the end of their fiscal year approaches, they HAVE to be concerned about shareholder value. Inventory on new spec homes is relatively low right now, about a 6 month supply. This is going to increase however, and by about October, the supply is probably going to go back up substantially. As one builder I work for put it.."If there is any chance of it being sold between now and October, we're going to throw it in the ground."

I don't agree with the practice, but I understand it...you have to try and please the shareholders or the BOD will lose their jobs. Anyways, for me, it makes a nice runup right before the Christmas season, and then we can relax during that period.

There are also some other factors as well....It has been rumored, and I have no proof to support it, just heresay, that Lennar, for example, is building everything they have left as fast as possible and then they are going to pull out of town like Centex has done. Whether this happens or not remains to be seen, but the fact is that this market does not have the sales volume to support the number of National and Regional Builders that are trying to make it in this market. That's why it's very important for someone having a new home built, or buying a new home in a new neighborhood to be very careful, or they could end up in an orphan community like so many you see these days.

Centex, Levitt & Sons and Transeastern Homes were all precursors of what has yet to happen, and there will be more to leave town, and all of us in the industry have placed our bets and are sitting back watching to see who is next. The rumor mill is entertaining to listen to, but no one really knows for sure. Centex came as a shock to all.

One theory I have is that some of the more solid builders like Pulte and KB Homes may be adding inventory to fill up the community, make it more attractive to buyers, and hence make it more difficult for their competitors to sell homes, thereby driving them out of the market faster. But that's just a theory. Being in the industry, it is certainly interesting to go through all this and learn the things we are learning. The sad part is the number of contractors going out of business because of all this, but in reality, many of the so called "fly by night" contractors who skirted the laws and so forth, are getting flushed out of the market, which in the long run is a good thing for consumers and businesses who go about things by the book!!