Car Dealer Tactics on the New-Home Lot
Monday, October 8, 2007
Won-Ki Choi and his wife Janice had their eye on the townhouse at East Market at Fair Lakes for some time. But the $536,449 price tag was much too high for them.
Then they saw a newspaper ad from Ryland Homes: For two hours on a recent Saturday afternoon, the Calabasas, Calif.-based builder would sell 140 homes in the Washington area at a discount, through a silent auction.
The minimum bid for the 2,068-square-foot Fairfax County home was $429,999. Won-Ki Choi wrote his name down minutes before the auction was scheduled to end at 3 p.m. He was the only bidder.
"This is your lucky day," Jerie Wolicki, a company receptionist, told him amid applause.
When the housing market began to weaken, builders responded with incentives such as money toward closing costs and low-interest loans through their mortgage arms, but they did so without cutting their base prices. Faced with a glut of unsold homes and canceled contracts, builders are now turning to tactics typical of car dealerships and department stores. What's even more unusual is that the deals are often accompanied by deep price cuts, which builders had been reluctant to do up until now.
"It's a little odd thinking of homes being sold that way," said Dean Baker, co-director of the Center for Economic and Policy Research in the District. "You think of a sale for coffee or laundry detergent, but not really for a home."
Craftstar Homes recently had a "Luxury Home Clearance Sale!" where customers could win a vacation and up to $110,000 off an already-built house. Buy a Ryan Home and get "employee pricing," or 10 percent off the purchase price up to $35,000. At the Sterling at the Metro, a condominium community in North Bethesda, buyers got $50,000 off the price or toward closing costs last weekend.
"It's one gimmick after another," Baker said.
But the buyer should beware, housing experts say. The sales typically come with conditions, disclosed in the fine print, such as use of the builder's lender. And in the case of the auctions, buyers can often negotiate the lower price or incentives even if they don't make the decision that day.
Still, said Chris Longly, public affairs manager for the National Auctioneers Association, such sales are the fastest-growing sector of the auction industry. "We're seeing more of it every day, especially this particular type of auction where builders are choosing to go to auctioneers to help them liquidate the properties," he said.
If it all seems a bit desperate, there's good reason. Sales of new homes dropped nationally in August to an annual pace of 795,000, the lowest level in more than seven years, and the median price dropped 7.5 percent from a year earlier, the Commerce Department recently reported.
And the tightening of credit from a rise in foreclosures, especially among risky borrowers with adjustable-rate mortgages, is expected to push even more potential buyers out of the market. The foreclosures are also likely to add to an already-bloated inventory.