Home builders keep the incentives coming

By Melissa Wirkus

Regular residential home owners are not the only ones who are having trouble selling in the slowing housing market; big home building companies are feeling the effects as well.

Home builders, who have a surplus of homes available, with not nearly enough buyers, are turning to special incentives and promotions to lure-in buyers.

These incentives include everything from upgrades on kitchen appliances to gift cards for house ware stores.

An October 13, 2006 article by John Spence of MarketWatch.com, “Home builders up ante to lure buyers,” looks into the different incentives, promotions and discounts that many home builders are now offering to stand out above the competition. “Large home builders are dangling out more incentives to reluctant buyers as the roof caves in on the U.S. housing market. To entice customers, companies are serving up deals that include a free pool, a fancy kitchen or even a new car. But real-estate brokers say all buyers want is a cheaper house.”

“In September about 77% of home builders were offering some sort of sales incentive in response to spiking inventories, compared with 58% a year earlier, says Gopal Ahluwalia, staff vice president for research at the National Association of Home Builders.”

While some home builders are offering trips and cars, others are offering help with payment, such as paying for closing costs. Now, well over more than half of all home builders are offering some sort of incentives, and this is because it costs a lot more to stand out amongst so many other companies that offer similar homes.

“Delores Conway, director of the Casden Real Estate Economics Forecast at the USC Lusk Center for Real Estate, said builders in California have gotten more creative with incentives. Aside from new cars, some have been offering to pay to have a stager come to the previous home to help improve its appearance to enhance the sale value.”

“‘The good news is most builders have recognized the market has softened and they've stopped building,’ she said. ‘The buyers' expectations have changed a lot -- they're afraid of buying at the high point of the market, so they feel it's to their advantage to just sit and wait.’”

But most analysts and experts agree that what are most valuable to potential buyers are discounts on the actual price of the home. Many people who are looking for a new home don’t care about a Palm Springs weekend getaway or a lease on a used car.

Buyers want to see the incentive in the form of a discount on the price of the house, but many companies are still reluctant to drop prices and would rather offer gifts.

“‘They'll give you anything to sell the home,’ said Edward Maddox, a realty agent at Keller Williams Realty Southeast Valley. ‘It's 180 degrees from last year.’”

“Yet Maddox and some other brokers said simple price discounts pique buyers' interest more than gimmicky marketing incentives such as a free washer or dryer. ‘Most buyers are focused on lowering their monthly payments, and a new car doesn't help with that,’ Maddox said.”

These incentives will only continue, and probably get even more competitive until the glut of homes is off the market and things begin to return to normal.

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