- The Washington Times - Friday, July 27, 2007

Changing times call for changing measures, especially for builders and sellers competing for home-buyer dollars in a slowing market. Whether it’s a decorator’s allowance from sellers, a finished recreation room from a builder, or the promise of a new car from both, buyers today have plenty of incentives to choose from when they think about buying a home.

When homes sold in a matter of days, incentives were unheard of. But now, incentives have replaced the waiting lists and sellers competitively bidding on homes, as was often the case in the strong 2003-2005 seller’s market.

As inventories of available homes have grown, price- and nonprice-related incentives have moved from tantalizing to generous. Buyers have found new bargaining power.

“When you have a switch from a seller’s to a buyer’s market, it is absolutely mandatory for the seller to have the house in picture-perfect selling condition and to offer as many incentives as they can to beat out the competition,” says Jill Landsman of the Northern Virginia Association of Realtors.

Ms. Landsman says that homeowners are offering big-screen televisions, pool installations, closing costs and even what she calls “driveway jewelry” — cars, even pricey ones like Jaguars.

Just the same, new home builders are using promotional incentives to draw potential buyers to their communities in hope of boosting sales.

Housing analysts say that builder’s incentives are usually about 2 or 3 percent of the sales price, but in some markets the incentives are up to 5 percent.

Steve Mellman, director of economic services for the National Association of Home Builders, says builder incentives have definitely increased. A recent survey shows that in June, 56 percent of new-home builders were including options such as granite counters or upgraded kitchen cabinets at no charge. Only 40 percent of builders were doing so as recently as December 2005.

For example, Ryan Homes’ Beechtree community in Upper Marlboro is offering $30,000 in options and $20,000 toward closing costs for new contracts. Drees Homes Co. in Maryland and Virginia is offering buyers half-price options up to a total of $40,000.

“There is so much competition out there, and everyone is offering the same thing,” says Tracy Eacho, sales counselor for Ryland Homes’ subdivision, the Vineyard, in Clinton. She says the incentives change monthly.

“Currently we are offering a finished lower level with a full bath, a choice of a wet bar or theater room and $30,000 in closing [costs],” Ms. Eacho says.

While the incentives have helped increase traffic, Ms. Eacho says that it remains a very competitive market.

Richmond American Homes Inc. is allowing prequalified buyers in select area communities to get the process started with just $5 in an earnest money deposit.

“I am finding that everything is negotiable,” says Michelle Vessels of Long & Foster Real Estate in College Park. “Inventory isn’t moving as fast, and builder incentives can include a finished basement, morning room, sunroom, closing-cost credits or credits toward upgrades.”

Techniques have gotten creative. Some builders are taking advantage of the warm weather and hosting neighborhood festivals centered around their model homes or sales centers, complete with moon bounces and face painting for children and raffle prizes for adults.

This month, Centex Homes enticed buyers with a weekend of food, fun and prizes for visitors to its sales centers. In addition, the company advertised one free option of the buyer’s choice, free window treatments up to $10,000 and discounted home prices.

Some real estate agents have attracted potential buyers with raffle tickets for visiting their listings. One agent had an open house for six of her homes on one day and promoted her open house event by raffling off a cruise vacation at each of the homes visited.

Savvy agents aren’t left behind in this seller’s market. Ms. Vessels says that both individual home sellers and home builders are offering closing bonuses to selling agents.

“I have seen everything from $500 to $10,000 being offered as a selling bonus to agents,” she says.

While the offers vary, real estate agents say the best incentives are monetary.

“Closing costs seem to be more appealing because it limits the amount of cash the purchaser has to bring to the table,” says Ms. Vessels, who adds that sellers are paying about 3 to 6 percent to help defray closing costs.

Ms. Landsman agrees that anything that helps lower the cost of the house is the most effective incentive of all.

“When it comes to closing costs, it’s important for the seller to be as generous as can be,” she says.

While a big-screen television may not help toward the mortgage, she says, if a buyer is choosing between two equal homes, he or she may pick the one with the television.

Back in December 2005, Mr. Mellman says, some 33 percent of builders were paying all or some of the closing costs. This June, however, the level was 45 percent.

In another NAHB survey, on the effectiveness of incentives, 70 percent of the builders responded by saying that they are somewhat effective, and 10 percent called incentives “very effective.”

Even in the best of times, incentives have been used. Mr. Mellman says, “They don’t help solve everyone’s problems.”

“The way to sell a house is by improving the features on the house,” Mr. Mellman says.

Ms. Vessels says homes that are properly priced, below market value, will sell faster.

“It doesn’t matter what the seller may be offering,” she says. “If the home is overpriced, it isn’t going to move.”

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