Buying a New Home & Builder Slashes Prices Later - what to do before & after?

O

oc-conservative_IHB

New member
<p>I am in the market for a new constructed home and was wondering what to do before and after if this happens (ie. the builders slash prices significantly below your price but you haven't yet closed escrow which is holding your deposit). Thought this would be useful for others especially given market conditions and we are mid-year.</p>

<p>Before signing - ask the builders if they give compensation or will regotiate the price. but mostly likely they will say no for obvious reasons.</p>

<p>After signing - threaten to walk away from deposit? will that be enough incentive for them to lower the price?</p>

<p>Anyone have experience with this or have better insider knowledge on what to do?</p>
 
Awhile back I recall Ara Hovnanian saying that he was getting a lot of buyers who were renegotiating at the closing table, and indicated that they were, in fact, renegotiating the price. Of course, you have to be willing to walk away from your deposit, which in some cases could be as high (or higher) than $50K.
 
I think this scenario is one of several reasons why builders have not drastically lowered prices to move homes... Sure, it happened at Lantana and previous homeowners who bought in earlier phases protested. The builders may fear that homes that are about to close may back out if they slashed prices. If they're smart they'll time there price reductions after a set of homes in the phase close escrow, then drop the price, at the expense of the previous homeowners who just closed. The other phases still in construction still have time to see how the market plays out.

<p>

However, I'd rather lose $50K than overpay $100K for a home that'll likely lose even more value, and even be hit with higher property taxes.

<p>

If they won't budge on the price, then I'd start asking for the builder to pay for all closing costs, pay for the remainder on the upgrades, 1st year of property taxes, 1st year of HOA dues, paying for points against a lower fixed rate loan from the builder. I think there could be lots of ways to be creative in how they play the numbers, if there's enough incentive to cover any loss of value.

<p>

We're in the same situation, looking for a new construction home, but hate to "lock" in a price when a home is likely to depreciate by the time it's built.
 
<p>Eva - Interestingly enough, I heard a similar story of KHov. My relative purchased a townhome, and their gave her money back at the time of close. I don't believe she really mentioned it to them. I don't think it was a matter of being generous, rather it was probably "hush" money.</p>

<p>Bubblegum - I know. It's sad, in that previous buyers in our location bought in the $1.2-$1.5M range, and the new range is now $950k-$1.1M. I don't want to get caught in that same spiral, obviously. But your other ideas of what to ask for is useful, thanks.</p>

<p>In my case, the deposit may be around $30k. </p>

<p>It's a tough one. Our only true negotiating power is adding existing inventory to their supply of homes and raising their cancellation rate. How much do these companies <em>not</em> want to do that? Does the deposit of $30k-$50k mean enough to them, or would they rather not have a completed $1M+ home back on the market.</p>

<p> </p>
 
<p>This happened to me, it started 11 months ago. I had put down an initial 5k at the signing of the purchase contract. Then a month later the price dropped 100k! I went back and re-negotiated. Surprisingly, the builder gave me the new lower price. 4 months later, as the project was mid way through. I had a change of heart and decided to back out. My reason I had given the sales rep. was "financial hardship". Of course, the sales rep. never forwarded the cancellation request to corporate. So 1 month after I'd cancelled, I kept checking my mail box and no refund check.</p>

<p>A thing to remember is the deposit is not in the builder (seller) hands. Hence, I called escrow and instructed them to not release the fund. I asked them to relay to the builder corporate office that I will contact a lawyer and put a lien on the property until my fund is returned. After months of phone calls and email, I finally got my money back. The whole ordeal was very stressful.</p>

<p>I have to say I was very lucky to get my money back. I knew that signing the purchase contract months prior. Legally I was stuck with the purchase. Knowing this, when I asked for my money back. I try to be as polite as possible. The builder could have easily not return my money.</p>

<p> </p>

<p> </p>
 
OC,

<p>

I don't think any builder wants a $1M home to be sent back near closing time. $30-50K isn't going to cover their losses on the sale. They're now carrying the cost of that house (albeit, at a much lower rate), but it is losing money every month it sits. If you backed out, they would naturally have to adjust prices to where their current phase is selling. A friend of mine is looking at some Toll Brothers homes in Moorpark. They have these "quick-homes" for sale (eg, buyer backed out, it's ready for move-in) and the sales associates were quick to note they'd entertain offers, even $100K+ less than their asking of $1.5M

<p>

Rising interest rates is more of "risk" factor for me, a couple of more interest rate hikes, and we're going to be seeing 7+ APR's and rising, which would also put even more downward pressure on price, as affordability will be even further out of line with income.

<p>

I think cancellations are going to be quite high over the next year, as assumptions people make when upgrading are no longer valid 6 months into the future...

<p>

The equity you thought you'd have to put into a new home drops by $100K+


The home you need to sell in order to move the equity into the new place hasn't sold.


Interest rates you thought you'd get at 6.5% APR is now 7.5% APR.


The builder's aren't re-negotiating in price.


<p>

I didn't think builders were at the level of reducing 1.5M homes to 1.1M, THAT's a pretty good drop, most builders seem to drop $40-75K at a time... and then make a huge deal about the huge discounts they are now offering..
 
<p>If the thought of prices falling over the next 6 mos. - 1 year concerns you that much, you shouldn't sign the contract in the first place. There typically are no guarantees that the builder won't reduce prices in future phases. And usually they stamp this in bold print on every pricing sheet they hand out (not to mention that it's among the numerous reps that you'll sign off on when you open escrow).</p>

<p>In this market you will see builders requiring much more than the old $5k deposit, likely b/c they know the market is not hot enough for them to immediately sell your house to someone else if you walk.</p>

<p>That being said, builders cannot afford to take the decision to reduce prices lightly, because it damages their reputation and results in prior buyer backlash (and also makes them look foolish for underestimating demand). So I think a lot of the time you won't even know that a buyer in a future phase release essentially paid less than you because, while their house was priced slightly higher than yours, the builder may have given him/her $100k in free upgrades to close the deal.</p>
 
Does anyone know why CalPac specifically is so stingy about incentives? Most of the other builders appear to offer better incentives from time to time but I still have not seen anything appealing from CalPac. Their Portola Springs product does not seem to be moving any faster than anyone else's. On a side note I've found their sales staff to be the least friendly and the most disinterested in making a sale. I don't get it. I also feel their deposit requirements are overly inflated in comparison to the other builders...
 
<p>Bubblegum - I agree. It will get very interesting and hairy at the end of this year again as in 2006. However, at the time, when builders did price reductions at the end of 2006, for many of them they were initial price reductions. They hadn't done them before. Now at the end of 2007, if the builders I am looking at were to reduce prices <em>again</em>, that would result in pretty significant off peak prices since there will now have been multiple price reductions.</p>

<p>Marty - "If the thought of prices falling over the next 6 mos. - 1 year concerns you that much, you shouldn't sign the contract in the first place."</p>

<p>Ya think? Unfortuneately, life isn't so cut and dry as I would wish sometimes, and it's the gray area that prompts discussion here. I'm willing to buy now on some select homes that have come down in price a good amount. However, I'm pretty sure prices will be pressured at the end of the year, so I just want in on those price reductions so to speak. </p>

<p>So, I'm willing to give the impression to the builders that I will walk away from my deposit (and I actually am willing to do that if prices fall significantly) and give them back the house in order to negotiate for further price reductions even though the house is in escrow. I'm just wondering what strategies & tactics some have used or heard of in this type of negotiation.</p>

<p> </p>
 
oc-conservative:





In the case of our home (Stonetree Manor), we've been given what Laing calls their "Peace of Mind" pricing. If the price of subsequent phases drop before escrow closes, we automatically get the adjusted price.





I think we're stuck if the prices drop after we close.





-OCR
 
<p>OakCreekRenter - that's awesome - "Peace of Mind" pricing. I'll have to check to see if Laing is doing that for my community.</p>

<p>I'm not sure about other builders, but Laing is making it harder for buyers to back out - financially, that is.</p>

<p>At Belle Cliff, the deposit is $45,000 at time of signing the purchase contract (which is within 48 hours of the Phase release). Next, is the structural options, the cut-off date for which has been less than one week after the Phase release. Belle Cliff requires that you pay for the structural upgrades in full. That's right - 100%. Then, you have cut-off dates for other options - countertops, cabinets, mouldings, built-ins, electrical stuff - roughly every month for the next few months. Each time you order these options, you have to put 20% of the total price down. </p>

<p>So, that all adds up pretty quickly! For example, a potential future neighbor in the community has already funded over $100,000 into their escrow account and they haven't even gotten to any of the option cut-off dates yet. That $100,000+ was just for the deposit and structural upgrades!</p>

<p> </p>
 
<p>Belle Cliff are $1mil + homes. What they're doing isn't uncommon for new high end homes. If you ask me, it's smart on their end to require these deposits. </p>
 
OCR,





It just occurred to me that this may be one of the reasons the Portola Springs' builders aren't budging that much. Their current phases still have inventory so in order not to piss off the recent buyers, they're waiting to complete that phase before making any major price adjustments. FYI, that's what we've been doing.





Just a thought. I do understand the whole TIC resistance and stubborness to price adjustments. Fortunately for us, this is just delaying the inevitable and creating a backlog of inventory flooding the market.
 
<p>Oh, I do not think that it's wrong for Belle Cliff to require that amount of deposit and percentage of options. My point was just that it makes it relatively harder for buyers to back out because they'll be losing all of the deposit and upgrade money. </p>

<p>Incidentally, however, the builder has been maintaining the prices. In fact, the prices increased on average $15-20K per Phase.</p>
 
<p>Laing_Lies,





Just curious, I know people who have good experiences buying a home from John Laing homes. Is there a particular story behind your screen name? </p>
 
<p>Sportsfan:</p>

<p>It's a long story. But, Laing basically will not provide the same type of services for it's "VIP" buyers, AKA employees, to non-"VIP" buyers, even though you'd think they would go above and beyond to try to sell homes considering that we're in a down market. Giving special priviledges to it's employees is one thing, but lying about it is another. </p>
 
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