- The Washington Times - Wednesday, November 1, 2006

As more and more buyers drag their heels making offers on new homes, local builders have begun making offers of their own. While most builders report an active market in terms of visits to their model homes and communities, they face some reluctance on the part of buyers to take the plunge and write a contract for a home.

Relying on market research to determine what is stopping these buyers from making a purchase, builders are trying different techniques to overcome the obstacles that prevent the interest from becoming an offer.

Participation in nearly all incentive programs is dependent on the buyer working with the builder’s preferred lender. Unless otherwise noted, all incentive programs mentioned in this article require buyers to obtain their financing through the builders’ approved lender.

Builders explain that this requirement guarantees a smooth settlement, saves them concern about the financial ability of the buyer to purchase the home and saves the builder money that they pass onto the buyer in the form of closing-cost assistance or other incentives.

Winchester Homes Inc. began working with focus groups in July, interviewing potential buyers, says Cynthia Herberg, director of marketing for Winchester Homes.

“We were trying to determine which incentives are most effective to encourage people to buy a home,” Ms. Herberg says. “One outcome of the focus group was that people said they were concerned that they might not be able to sell their current home, so we decided to offer a guaranteed-sale-of-home program.”

Winchester Homes, partnered with ERA/Elite Group Realtors in Fairfax, offers a structured plan that guarantees ERA will sell the home or purchase it if it does not sell.

“Ninety percent of Winchester buyers choose our Your Home, Your Way customization program, so they are very committed to the house after having chosen all their options,” Ms. Herberg says. “They want to be sure they can actually buy it. The guaranteed-sale-of-home program means that they can be certain of what their departure home will sell for.”

Another concern addressed by Winchester Homes is the fluctuation of interest rates. Winchester Homes’ lender guarantees that for the duration of the settlement process, the lender will honor the interest rate at the contract time even if interest rates go up. If interest rates go down between the contract date and the closing date, the lender will honor the lower interest rate.

Incentive programs often vary from community to community depending on how well homes are selling in a particular development or whether it is a new project or one that is nearly complete. Winchester Homes is offering a 50-percent-off sale for its customized options at many communities, believing that potential buyers will be more eager to make an offer for a home when they can afford to add a finished basement or a sunroom, for example.

At all Richmond American Homes Inc. communities in the Washington area, buyers can participate in the Buyers Advantage Program, which enables them to select from a list of options packages that are included in the price of the home.

“The number of options packages that will be included varies from community to community, up to a maximum of ten,” says Douglas Miller, division president of the Central Virginia division of Richmond American Homes. “For example, they can choose a move-in-ready package, which includes custom paint and window treatments, or they can choose an expansion package with room extensions and a finished basement.”

Richmond American has taken a two-pronged approach to its buyer incentive program, offering the options packages to buyers who can wait until the home is built to move in and an alternate program for buyers who need to move into a home that already has been built with the options in place.

“Buyers who are purchasing immediate-move-in homes can take advantage of our program, which allows them up to six months without mortgage payments,” Mr. Miller says.

Richmond American also offers closing-cost assistance in most of its communities.

When determining which incentives to offer, builders often have to determine whether their customers are first-timers or move-up buyers.

Purchasers in most Toll Bros. Inc. communities already own a home that must be sold when they are looking for a new residence.

Toll Bros. has several mortgage programs in place designed to make the transition easier from an existing home into a new home, says Laura Kudryk, marketing coordinator for Toll Bros.

“We have a guaranteed-resale program to work with our buyers to make sure their home is sold within a particular time frame,” Ms. Kudryk says. “We have home stagers who work with the buyers to help them get their homes sold, too.”

Ms. Kudryk says buyers often are concerned about paying mortgages on their existing homes as well as the new home, so Toll Bros. has a program that pays the mortgage on the new home for up to six months.

K. Hovnanian Homes builds homes in a variety of price ranges, so the company tailors its incentives to each development.

“At our condominiums, we focus on financing incentives because most of the buyers there are first-time buyers,” says Dee Minich, senior vice president of sales and marketing for K. Hovnanian. “At our active adult communities, we find that our buyers are more interested in having upgrades and other options included in the price of the home because the financing is usually not a problem for them.”

At K. Hovnanian, inducements vary from person to person in addition to community to community.

“We try to look for the hot buttons for each buyer. Every home buyer is different, so we try to give a lot of flexibility to our sales managers so they can tailor the incentive to each individual buyer,” Ms. Minich says. “Whether someone needs help with closing costs or financing or they want more options to be included, we’ll help them with whatever they need to get into the house.”

Comstock Homebuilding Cos. Inc.’s communities appeal primarily to first-time or early move-up buyers, says Bruce Labovitz, chief financial officer for Comstock.

“We’ve been offering 100 percent financing programs forever at our communities because we know it can be a stretch to make that first home purchase,” Mr. Labovitz says. “We’ve been including plasma-screen televisions in some of our communities for the past few years, but that’s really just part of the product we offer. We also offer a certain amount of incentives from project to project, and we give our salespeople a lot of flexibility to decide how they will use these incentives.”

Comstock also decided to take an approach different from the standard incentive: “One of our biggest programs lately is to offer to pay for a certain number of months of condominium fees,” Mr. Labovitz says.

Comstock’s salespeople can determine on an individual basis if a buyer needs cash for closing costs or condominium fee assistance so that the buyer can qualify more easily for a loan.

Many buyers share a concern that they will buy a new home and then have others in the development sell for less even before they have completed the settlement.

Mid-Atlantic Builders Inc. offers buyers a “lowest price guarantee” to assuage their fears.

“We’ve had a lot of traffic and interest at our communities, but we were concerned that converting this interest into purchases was slow,” says John Lavery, vice president of sales and marketing for Mid-Atlantic Builders. “We discovered that a lot of potential buyers were concerned that they weren’t getting the best deal.”

The Mid-Atlantic Builders program works by determining a net price for a home at the contract signing, based on the base price, closing costs and options minus any incentives. If the net price for a comparable home drops between the contract date and up to 45 days before the settlement date, Mid-Atlantic will automatically reduce the price of the home for the purchasers.

Mid-Atlantic also offers savings of up to $35,000 to $50,000 to buyers in credits for options and closing costs, depending on the community.

“The dynamics of this market are frustrating,” Mr. Lavery says. “It’s a great time to buy, with interest rates still low, incentive programs and plenty of inventory, but the momentum just isn’t there for buyers. Our programs seem to be helping to get the buyers to make an offer.”

At Equity Homes Inc., several programs are in place aimed at “getting past [buyers’] concerns to get people off the fence,” says Lee Nelson, Equity’s marketing coordinator.

“We’re offering our guaranteed lowest price on to-be-built homes so that buyers can get the lower price if it changes between writing the contract and 30 days prior to settlement,” Mr. Nelson says. “On our immediate-delivery homes, we will guarantee the lowest price right up to the settlement date.”

This lowest-price-guarantee program does not require the use of an approved lender, although other Equity programs do depend on the buyers obtaining a mortgage through an approved lender.

Equity Homes offers a buy-down program to make mortgage payments more affordable for buyers, with a 4.25 percent interest rate for the first year, a 5.25 percent interest rate for the second year and 6.25 percent interest rate for the remaining years on a 30-year loan, Mr. Nelson says.

“On our immediate-delivery homes, we’re offering six months without mortgage payments for our buyers,” Mr. Nelson says. “Based on the home being purchased, Equity will pay up to six months of mortgage payments so that people don’t have to be concerned about carrying two mortgages.”

For Virginia buyers, Equity Homes has partnered with a licensed RE/MAX real estate agent to guarantee the sale of their current home. RE/MAX will buy the home if it doesn’t sell within a certain time period. Equity is working on arranging a similar program in Maryland.

At Craftmark Homes Inc. communities in Maryland and Virginia, loan officers for the preferred lenders are trained to tailor loan programs to meet the specific needs of each buyer.

“Our sales managers know what they can and cannot do for each product at each community,” says Tom Moran, vice president and division manager for Virginia for Craftmark Homes.

“In some of our older communities where we own the lots, we can contribute more to the closing costs or buy down a loan,” he says, “but in some of our newer developments, we have less flexibility. Buying down the interest rate for a year or two, increasing the closing-cost assistance or finding another way to help lower the monthly payments are all possibilities.”

Not all builders are convinced that incentives for buyers are necessary. Craftstar Homes Inc. consistently offers $6,000 to $12,000 in closing-cost assistance, but the company does not focus additional programs to bring in buyers.

Craftstar Homes’ division manager Curt Adkins says, “In general, I don’t really believe in incentive programs for buyers. I just think it’s better to price homes right from the beginning.

“If you look at the real estate section, some of the ads look like ads for Target or Wal-Mart,” he says. “I just try to remember that we have existing homeowners and existing buyers who have made a commitment to our community and that we need to respect their investment.”

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