A Michigan-based company that is capitalizing on the need to help home buyers to separate from their existing homes is looking this year to triple the number of markets in which it currently operates.
Since 2003, Marketplace Homes in Plymouth, Mich., has been offering a unique service to home buyers and builders: If that buyer purchases a new home from one of Marketplace’s preferred builders, Marketplace will guarantee monthly lease payments to that buyer on his or her existing home for up to six years, regardless of whether Marketplace finds renters for their properties.
Last year, Marketplace Homes helped builders in 13 markets sell 205 homes. Ninety percent of those homes are in Michigan, and Marketplace only did one deal in five or six of those markets. “But we saw these as growth opportunities,” says co-owner Mike Kalis.
His goal in 2011 is to help builders sell 365 homes and to expand to 36 markets. Last year, the company hired two directors of national expansion, Curt Shewell and Mark Laforett, from Pulte and Centex, respectively. (Kalis once worked for Pulte, and he recently added Pulte’s former COO Steve Petruska to Marketplace’s Board of Advisors.)
Marketplace’s network already includes several regional and national builders, including Orleans Homes, Drees Cos. (with which it just started working in Nashville and Indianapolis), Lennar, Taylor Morrison, and William Ryan Homes.
“Our goal is to establish a footprint in as many markets as possible and to become builders’ preferred vendor on a larger scale,” says Kalis, who calls what his company does “cloud real estate,” because it can sell homes anywhere and manage rentals all from its headquarters location using computer technology. By working with bigger builders in multiple markets, Marketplace has been able to tap in with more relocation prospects.
“Chicago has been great for us so far,” says Kalis, who told Builder last week that he had just had initial discussions with D.R. Horton, that market’s largest builder.
Since its Chicagoland division started working with Marketplace last August 26, 80% of Orleans’ contracts there have been Marketplace-assisted buyer clients, says Brian Fink, the builder’s divisional vice president of sales and marketing.
“Marketplace has put the I-N-G back into moving,” says Fink, who has been in the housing industry 17 years. He told Builder last Friday that Marketplace had just provided Orleans with five new sales leads. “It’s created a new market, a subculture that didn’t exist before.”
Kalis says his company spends about $18,000 per month on radio ads in conjunction with what its builder network spends promoting its services. The first day that Orleans promoted Marketplace’s service on Chicago radio stations, “Marketplace got 60 hits on its website,” says Fink, who adds that his company uses “thousands” of directional signs each weekend to advertise its homes and Marketplace’s lease guarantee. And when Chicago got hit with a massive snowstorm in early February, untold numbers of people stuck in their cars for hours heard Marketplace’s radio commercial several times.
Kalis says that 95% of the existing homes it controls become rentals at a time when the demand for rental properties is growing strongly in many markets. The homeowner still pays the mortgage and property taxes until the house is sold, and Marketplace takes care of the maintenance and utility bills. Renters, says Kalis, are offered the option to purchase the house at a certain price, which price they can lock in even if they don't buy the house until a couple years later.
Monthly lease payments vary by market, but one of Marketplace’s selling points is that those payments help homeowners cover their mortgage payments on their existing homes. (Fink says that in Chicago, Marketplace’s lease guarantee is covering between 80% and 83% of a buyer’s existing mortgage payment.)
Builders pay Marketplace Homes a real-estate commission that also varies by market but is higher than what a real estate agent might charge. (Kalis would neither confirm nor deny one builder’s statement that his company pays Marketplace $20,000 commission on a $300,000 house sold through this process.) Kalis did say, though, that he’s not disposed to offer builders discounts if his company works with them in multiple markets or helps them sell a certain number of homes.
Nevertheless, Kalis is confident that “there are lots and lots of deals to be made” over the next three to five years, “especially in the more challenged areas,” such as Las Vegas and Florida, where so many homeowners’ mortgages are still underwater.
Kalis says his company isn’t interested in purchasing a home buyer’s existing home outright and then trying to resell it. For the past three years, Orleans has had a program in place where it resells its customers’ homes to investors. Fink says that investors buy about 15% of the houses they are offered.
Marketplace Homes once had a similar program, too, but Kalis observes that “the problem in a weak market is that this business has a weird way of steering you to the houses you bid too much for.”
John Caulfield is senior editor for Builder magazine.