Builders offering price guarantees to lure buyers

Posted by: Prashant Gopal on May 7, 2008

Builders have been heavily discounting prices hoping to lure buyers back to the market. Prices for brand-new construction in some communities are very tempting and even comparable to bank-owned foreclosures, which sell in “as is” condition.

The problem for builders is that many buyers these days feel that a bargain in real estate is a moving target as prices continue to fall. Some builders, such as Shea Homes and Reno-based Pacific West
Companies
, are addressing the issue by offering price guarantees of up to three years, the San Jose Mercury News reported. That means if a developer drops the price for a home like yours before the last home in your subdivision is built, you can collect a refund for the difference.

Residents in the Thornton Grove Estates in Hamilton Township, Ohio might have benefited from such a guarantee. Some Thorton Grove residents recently complained to reporters at WCPO-9 News that new homes in the development are selling for about 20% less than they paid a few years ago.

“To take a $60,000 hit on a house that I bought three-years ago – it just isn’t right,” resident Kevin Bardsley told the television station.

Reader Comments

Mark

May 7, 2008 6:22 PM

Isn't Kevin a bit whiny? He doesn't share profit with builder when home price goes up so why should the builder share his pain when house price goes down?
Can you collect the difference if your builder goes bankrupt?
Builder will be giving away incentives like HOA/closing cost/prepaid gas card in order to lure buyer if they really do the guarantee.

Brian R

May 7, 2008 9:39 PM

Please. Scenario 1: After builder issues those guarantees, prices continue to fall. Buyers attempt to collect, but builder, having fallen on hard times (surprise, surprise), ain't got the dough to cough up. Scenario 2; Same as above, except that after builder issues the guarantees, builder dissolves the corporation which issued the guarantees, and forms a new corp. (Some builders form a corp/LLC for each separate project.) Also as with scenario one, buyers attempt to collect on the guarantee, but given that the guarantor is deceased (as in dissolved), buyers collect instead anger, disgust, bile. So, all aboard the "G"(uarantee) train.

Scambuster

May 8, 2008 4:55 AM

Home builders offering price guarantees for 3 years is a big scam. Why? because the developer must drop its prices before you can collect the difference. A honest and genuine offer of price guarantee is to base the price on "comp" prices in the housing tract during the 3 year period. If an earlier home buyer has to sell at a lost during the 3 year period, that house price is the real market price not the one the developer decided to sustain. This scam offer is equivalent to a price guarantee from a car dealer who promise to rebate the difference between his new car sales price and the initial price of your 3 year old car. In a recession period, that price difference is negligible. However, the difference between dealer's new car price and market sales price of your 3 year old car is substantial. See the difference? See the scam? Remember, what is the biggest scam in the California? It's real estate,real estate, real estate.

Wes

May 8, 2008 8:27 AM

Developers have been playing that ineffective game for a long time here (in Tampa, FL), but price doesn't matter when your buyers cannot get loans and cannot pay cash.

Pete Kusnick

May 9, 2008 9:18 AM

Price guaranteed for the time it takes for the ink to dry. The builder is in Ch 11.

kevin Bardsley

November 14, 2008 3:03 PM

This is in response to Mark. I'm ( Kevin) not being whiny. Until you have all the facts you should not make statements like that. When a builder like Ryland wants to dump all their existing lots at a discounted price of $60,000+, that effects not only our neighborhood, but the whole community. People who have paid a fair market price can not sell their houses. We all realize the state of Real Estate, but to add to it with a FIRE SALE makes no sense, and hurts the home owners. Do you think Ryland is selling these homes at a loss, I think not, they are still making their money, at the current homeowners expense.

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About

BusinessWeek editors Chris Palmeri, Prashant Gopal and Peter Coy chronicle the highs and lows of the housing and mortgage markets on their Hot Property blog. In print and online, the Hot Property team first wrote about the potential downside of lenders pushing riskier, "option ARM" mortgages and the rise in mortgage fraud back in 2005—well ahead of many other media outlets. In 2008, Hot Property bloggers finished #1 in a ranking of the world's top 100 "most powerful property people" by the British real estate website Global edge. Hot Property was named among the 25 most influential real estate blogs of 2007 by Inman News.

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