By Wyatt Kash. One of the marvels of a free market economy is the extent to which marketers keep rolling out ever more tempting ways to get cash-strapped consumers to buy things they otherwise couldn't, or shouldn't, afford. The flurry of "no money down, zero payment" deals this past holiday season is a case in point. What's surprising is how many companies embraced these offers for big ticket items this past year, including new housing.

Veteran sales and marketing executives will rightly argue that these kinds of promotions have helped sell furniture for years. Still, few might have predicted the domino effect automakers unleashed in 2002 by blasting so many "no money down" promotions into virtually every television home in America. Retailers and suppliers in many ways had little choice but to mimic these offers, not to mention eye-opening extended dating terms, just to keep sales from eroding.

While housing has had a long history of creative financing, lenders and even most sellers have historically shunned no-money-down deals. The premise has always been, people who risked none of their own -- or their family's -- cash in a new home were too risky to lend to. And if concern for human nature didn't kill that kind of offer, mortgage lenders did.

That's started to change. Thanks to the efforts of a number of organizations which have cleverly found a way to secure down payment "gifts", and a change of policy heart in 1998 at the Federal Housing Administration, at least 17,000 Americans each month are now able to buy a home with no money down. The programs owe much of their genesis to a Sacramento, Calif., real-estate attorney and minister, named Don Harris, who founded a non-profit group called Nehemiah to give prospective buyers the down payments they need. Nehemiah recoups the cost by later collecting matching contributions from respective home builders plus a small fee from the seller. The concept gained momentum when the FHA agreed to guarantee the mortgages.

What began as a way to help aspiring home buyers who lacked the means to make their first down payment has escalated into a small industry of similar non-profit groups -- including Ameridream Charity Inc., Neighborhood Gold, and Partners In Charity -- which by some estimates, now accounts for 3 percent of U.S. home transactions. Nehemiah claims it has helped 130,000 home buyers in more than 5,000 cities secure down payment gifts, according to a recent report in The Wall Street Journal, which in itself gave new visibility to this emerging market.

Photo: Katherine Lambert

Increasingly, the "$0 Down, $0 Closing Costs" approach is helping big builders, including KB Home, of Los Angeles, move a growing number of entry level homes in markets such as Denver, where unsold inventories are reportedly twice those of two years ago. Atlanta-based Beazer Homes also is among big builders that credits the ability to work with gifting organizations as a means for reducing the sales cycle. Surely, some will argue that these kinds of deals are but a deceptive way around well-founded financial risk management mechanisms, that the "gifts" are just another cost of doing business, and that they also have the effect of stealing from future sales. That's not to mention the higher potential risk of defaults.

But in a marketplace where competition ultimately defines which companies survive, it would seem accelerating sales is inevitably better rewarded than living with soft or declining sales. And more often than not, if margins suffer, innovation will come to the rescue.

Wyatt Kash



Wyatt Kash makes his debut as Big Builder's Editor this month. He has followed the housing and home improvement industry for 20 years prior to joining Hanley-Wood.

Published in BIG BUILDER Magazine, January 2003