Incentives heat up as home sales cool

As the market slumps with the approach of winter, developers entice potential buyers with perks such as luxury cars and added features

Friday, Sept. 8, 2006

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Laurie DeWitt⁄The Gazette
Mid-Atlantic Builders Inc. of Rockville builds new homes among occupied ones at Bradford’s Retreat at Woodmore North. Buyers get a discount if selling prices dip within 45 days of closing.

The Audis, patios and financial incentives that homebuilders are dangling before suddenly reluctant buyers may get even more enticing as the slumping home sales market crawls to 2007.

‘‘Builders will find every conceivable way to boost their sales” to unload inventories during the slowdown, said Gopal Ahluwalia, staff vice president for research at the National Association of Home Builders.

The U.S. Commerce Department reported that sales of new single-family homes dropped 4.3 percent from June to July. The pace of sales in July was 21.6 percent slower than a record pace set in July 2005.

Responding to the slowdown, builders are typically offering cost-free extras, such as extra landscaping, a patio, a deck or a bigger garage.

Ahluwalia said the most common incentives involve items such as upgraded flooring, granite countertops and finished basements. Next come financial plums, such as paying part of the closing costs or buying down mortgage rates.

Some builders in Maryland, where prices are holding up better than nationally, are offering luxury cars such as Audis and Lexus sport utility vehicles, said John Kortecamp, executive vice president and CEO of the Maryland Home Builders Association. Such gifts, while they may seem significant to buyers, are minor expenses to builders charging $1 million or more for a house, Kortecamp said.

‘‘I think in the spring, things will have leveled out and existing inventory will be gone, but meanwhile, builder incentives will become more prevalent,” Kortecamp said.

Builders will not want to hold onto half-completed houses over the winter, pay extra taxes on them and, most importantly, miss meeting their projected goals for the year, he said.

Kortecamp also said a price guarantee program, offered by Mid-Atlantic Builders Inc. of Rockville, is probably the first incentive of its kind in the state.

When a buyer signs a new home contract, Mid-Atlantic guarantees the buyer gets a break should prices of similar homes dip before the closing.

‘‘If the price decreases from the time of the contract within 45 day of settlement, we will pay people back with reductions in closing costs,” said Cheryl Poole, sales counselor for Mid-Atlantic’s Bradford’s Retreat at Woodmore North homes in Bowie.

The program eases the concerns of gun-shy buyers, said John Lavery, the company’s vice president and director of sales and marketing.

‘‘We found that the concern among buyers was that there might be a better deal later,” Lavery said.

The incentive ‘‘has been very well received” by the 10 homebuyers who have purchased since the deal was introduced in July, he said.

Kortecamp said builders tend to be ‘‘more creative at the higher end,” with more expensive houses carrying the biggest incentives.

Rouhi Forghani, sales manager of the Toll Brothers’ Potomac View community in Potomac, said she is still selling about one home per month in a range of $2 million to $4 million. She is offering creative mortgages, discounted closing costs and far more flexibility this year in offering buyers custom changes to the homes.

‘‘Sales are about the same as last year, one or two a month,” she said. However, ‘‘I am finding it is harder to satisfy the buyer this year, as we offer custom changes and sometimes the buyer is still having a more difficult time selling their existing home to get into the new one. That was not the case last year.”

Incentives are also being offered to condominium buyers. Builders lost ‘‘significant” confidence in that market in the second quarter, according to Ann Marie Moriarty, a spokeswoman for the homebuilders association.

As a result, she said, condo builders are offering ‘‘to buy down interest rates, condo fees and all kinds of things that people are offering.”

This month, Sharon Nugent, sales manager at the White Flint Station condominiums in North Bethesda, is offering cost-free built-in closet organizers with every home, as well as a standing incentive of paying closing costs. Prices at the Toll Brothers community range from $300,000 for a 579-square-foot, one-bedroom condo to $700,000 for a 1,400-square-foot, three-bedroom unit. She said August was one of her strongest sales months.

But overall, the condo future is not so rosy for sellers, according to a survey by Moriarty’s group.

‘‘Responding to a set of special questions, 82 percent of condo developers said they had noticed buyer resistance to current prices and, of those, more than one-fourth reported that they have reduced prices. The average price cut was 9 percent,” she wrote in an association report last month.

Even in less pricey Southern Maryland, builders are scrambling to unload inventory.

Kevin Carney, manager of the Thomas Builders of Columbia, who works in Calvert and St. Mary’s counties, recently raised closing cost discounts from $5,000 to $7,500.

‘‘These are first-time homebuyers for our homes that average about $270,000,” Carney said.

Ahluwalia, of the homebuilders association, said the national housing slump could last until next fall.

‘‘It is a sort of soft landing,” he said. ‘‘Lots of investors came into the marketplace and pushed the prices up the past few years and now prices are coming down to where they should be maybe.”