Japhet Custom Homes

[banker]

Originally Posted by els565

I'm really shocked that KB didn't even counter your offer.

Yeah - we really liked the neighborhood - The Quarry at Iron Mountain - and had they even countered a little bit we would have probably signed a contract. But as long as they are asking for $10,000 in earnest money they need to do something to show they are working to give the buyer the best deal they can. On a $325K house - $5-10K incentive is nothing...

Makes you wonder what their game plan is...

[kevcrawford]

That's not how builders work. If they wanted to do that, they'd just mark the price at $360,000 and then negotiate down to $335,000 to make you feel like you won. Builders know their cost to build the home and they just put the percentage they need to make on top of the building costs. It's not like they're losing money by holding the lot with nothing on it, so they've got no incentive to take less money.

[Eleanor Rigby]

It's not like they're losing money by holding the lot with nothing on it

But they're still paying the carry on the loan for that lot. So, they are indeed losing money on an empty lot with nothing on it. The more lots they get off the books, the better, from a builder standpoint, especially in this market. I guess they're not quite that desperate yet.

[kevcrawford]

True, but the taxes they're paying on the lot to hold it are only a fraction of what the taxes on a spec home are. When builders buy a tract to develop, they buy a huge tract and subdivide it. The loan they have is on their entire development. Their business doesn't depend on selling that one lot.

They'd have to hold a lot for many years to even come close to it hurting. A production builder may adjust prices from time to time, but you'll never see them negotiate a dirt build. If they do, it's only because they've marked the price up very high to make you feel like you've negotiated them down. If they adjust pricing, it's because the cost of materials has gone up or down. The percentage they need to make on a build is always going to be the same.

If a builder ever gets so desperate that they need to sell their lots, they'll just sell them to another developer or builder. It'll never even hit the market.

[dendox]

If a builder ever gets so desperate that they need to sell their lots, they'll just sell them to another developer or builder. It'll never even hit the market.

truer words have never been spoken. My wife worked for a very large production builder for four years before making a switch. They typically only care about their margins and if your offer doesn't meet what they are looking to get per unit - don't bother.

They look at it as though they will sell a house on that lot for their margin at some point. If it is to you - great for you. If it isn't to you - they don't care. Would the individual salesperson like to make the deal - sure. But that is so they get their numbers for the month and their comission. The builder on the other hand - no way. They want their margin - plain and simple.

When they get close to hurting - they will never sell the lots individually. Look at Alamo Ranch. Pulte owned all of that initially. When they figured out the market was changing and that they would never be able to sell all of the homes - sold the rest to other builders. KB did that with the first iron mountain community. They couldn't sell worth a crap there - so what did they do? sold it to Pulte.

sorry to get off on a tangent.

[banker]

I had heard that KB started what is now basically a Pulte community across Hardy Oak from the Quarry at Iron Mountain. How many lots were developed by KB? It seems most of the houses in there are Pulte.

To your point about the margins - I understand that. But what about incentives that they give from time to time. When they aren't offering them - what then? It seems they happen during specific times - like in the summer as most people don't want to move their kids mid school year - so it takes a little more to get them to build. That is part of their margin. So when they (production builders) aren't offering incentives - it seems like there would be even a little room to negotiate. A token amount at least.

[dendox]

KB did start that neighborhood. When you drive in - the first street on your right was where there model was (I think the fourth or fifth house was it). They developed something like 20 lots. Not very many. They were having a hard time - or so I understand it - getting the SA people to go for a 300k KB. Most people were still under the impression that KB built crappy homes. That perception is changing - hopefully for the good - and they decided to take another stab at it - across the street.

The incentives come and go based upon national forces. As I understand it - the national big wigs (this means that this is a national builder - not just s local group) has an agenda. San Antonio has been the hot market and have not not needed a lot of incenitves in years past. Now that all of the markets are slowing down, they need to sell more homes to hit their benchmarks throughout the company. This is why the offer the incentives.

When they aren't offering them - there should be some wiggle room. Some will wiggle more than others. Some won't at all. I understand your confusion - and think it is based in large part to the disparity between how the matter is handled between the different builders. I will tell you that the very end of December and the beginning of January are typically when the builders are hurting the worst for sales. A lot of builders don't close their fiscal year until the end of JAnuary. Needless to say - the market is slow in Dec and Jan because of holidays, weather, pending income taxes, etc. They do what they can to drum up sales - and that usually means incentives.

However, these are typically only on homes that can be closed by end of fiscal year.

I feel like I am rambling now - so I will shut up. If you have any more questions - fire away - and I will do my best to answer. I know a lot given the fact that my wife has now worked for three large builders here in SA. But I admit - I don't know everything.

[banker]

KB's fiscal year closed on November 30th...so we are now in 2008 as far as they are concerned. For those that have actually looked at new construction these days - KB's higher end product is actually very nice. The homes in the Quarry are incredible. A coworker purchased one a couple of months back. It has a three car detached garage and is just fabulous inside. The layout and features are very very nice.

I will try again to make another offer - this time asking for less - some time at the end of December. I really like the quarry but want some thing in exchange for the $10,000 earnest money. A little wiggle room is required for them to get my sale.