60/40 and More…Spec Homes…How many are too many?

Building homes in 2017 is generally profitable, but I can see issues with a slowdown.  Back in 2007, new construction permits ended in a way I can only describe as abrupt. No, I’m not forecasting a second real estate crash, but there are common sense rules for most builders.  If a production builder, how many spec homes can you plan, when compared to pre-sales?   One local developer quoted 40% as their current preferred spec percentage.   The choices range from 100% pre-sale to nearly 100% spec inventory, with sales often happening prior to breaking ground.   Risk rises as you see inventory built and land purchased prior to a sale.  Earlier today, I read an email from a local builder with over $50,000 in reductions for an area, believe it or not in this market, selling too slowly.  Inventory means money is unavailable to use in the next project and even a developer/builder feels the pressure to negotiate, if existing inventory moves up.

Incentives and competition with a competitive commission rate is on the rise.   I’m speaking for my own office and negotiating commissions with owners or making a sale work for some buyers.   When would I be willing to talk about an incentive for a buyer or owner?  Before signing listing with an owner, it makes sense for me to base a rate on marketability, size of the transaction, effort required and cost to market.   I’m competitive and try to offer rates I feel match my effort and allow me to pay a competitive share to another agent/broker.

Buying New Construction?   Most production builders want agents to bring buyers and the quoted price is the same with or without a real estate agent.   It is perfectly legal for a broker to help with options, closing costs or price reduction, as long as all parties are aware, including the lender, and as long as the assistance benefits one of the parties to the transaction.   On top of builder incentives, I added approximately $3500 in broker incentives to a recent new home sale.   My only requirements…take the time to pre-qualify with a lender prior to shopping for a home and work with me if buying through an agent in this area.

Consult an attorney, but choose carefully.  On a recent title issue, I called more than one attorney, because I didn’t care for the first answer.   Learning more by paying for their time, I knew a fair bit about my chances by the time I encountered one willing to tell me, half informed in front of a home, exactly what I wanted to hear.   Attorneys won’t always tell you what  you want to hear, but there are some willing to take any case.    Go in with an open mind

By the way, Never buy a foreclosure without an attorney’s formal review of the title.   Last year, I picked up a property with a hidden issue.   Too good to be true and with limited time, I skipped this one important step.  The first mistake in 35 years isn’t bad, but I could have avoided the expense with an attorney.   I won’t go into detail, but good legal advice is the least expensive part of a real estate transaction!




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