FACED WITH HIGH LEVELS OF INVENTORY and contingency buyers and a sluggish resale market, builders are becoming increasingly creative in helping customers sell their existing homes.
Some builders, such as Indianapolis-based Davis Homes and Nilson Homes of South Ogden, Utah, are using guaranteed-sale programs, which promise to buy the customer's house if it doesn't sell on the open market before their new home is ready. Cathy Epps, director of Davis' Home Guarantee Co., says that about 70 percent of the homes in its program sell on the open market, which is excellent for Indianapolis, where 50 percent of the homes listed don't sell.
Most of Davis' contingency buyers opt for the program because it lets them lock in their price, lot, and interest rate, Epps says.
“Your house is going to sell for whatever it will sell for whether you're in the program or not,” she says. “In today's market, you don't know what the next six months will hold. It's a big safety net.”
Nilson Homes started its guaranteed sales program about five years ago when the Ogden market was slow. “We had so many people coming in who wanted to start a new home, but we'd have to sit on their contracts for three to four months because they were contingent,” says sales and marketing director Jed Nilson. “It was a way to turn contingent buyers into ready, willing, and able buyers.”
Many people initially balk at the stipulation that Nilson Homes will pay 12 percent below the market analysis price, Nilson notes. But they embrace the concept once they understand that virtually every home sells within the typical four to six months it takes to complete construction—and by being a non-contingent buyer, they can lock in the price of their new home.
“They're already going to get 6 percent less with a Realtor commission, and once they pay the seller's closing costs and often the buyers' closing costs, we're only about a 2 percent difference,” Nilson says. “People who will take the time to think it through jump on it,” he says.
Other builders stop short of promising to buy the house, but offer plenty of other help. John Laing Homes, for instance, has the House 2 Sell program. The builder teams up with the resale broker in the market whose listings get the highest sales price compared to listing price and the shortest number of days on the market. That person is designated as John Laing's contingency management professional and gives the prospective buyer advice on what needs to be done to sell the home and a value range for pricing. If the buyer agrees to the pricing, John Laing accepts them as buyers with a 30- to 60-day contingency—and gives them lots of help to sell the house.
“A decorator will give them decorating ideas; a handyman will do little paint touch-ups; and there's a landscape team that would go out, if needed, and do landscaping,” says Patrick Higgins, vice president of sales for John Laing Homes. “At the end of the day, we'd like their home to look just about like our models look.”
The program has helped John Laing Homes reduce the number of contingency contracts, Higgins says. “Before, we were accepting contingencies where 50 percent or more were not converting,” he says. “We had less optimism in our backlog because there were overpriced contingencies. Now, the only contingencies we're going to take are the ones that are priced correctly within the market ... . We may be accepting fewer contingencies, but the percentage that is converting to sales is higher.”
Consumers like the program, Higgins says, because they know they have a true picture of where the market is and what they need to do to sell their house. “When it does work for customers, it works very well,” he says.
William Lyon Homes San Diego sends out a Realtor to a buyer's existing home to make suggestions on how to sell it more quickly, and then incentivizes the buyers to follow through. “The broker may say, ‘The house needs this and this,' and we'll say, ‘We'll give you additional incentives at closing if you show us you did those things to sell your home faster,'” says Kathy Courtney, director of sales and marketing for William Lyon Homes San Diego. Or, the builder may offer to pay a portion of the Realtor's commission—$5,000 to $10,000—to help buyers sell their homes faster. William Lyon also has increased its commission to real estate brokers, “because if a person is working with their broker, they really want to buy a house,” Courtney says.
Many builders, such as Pulte Homes, are offering buyers the assistance of home staging services to make their existing houses shine. Pulte buyers in about 10 markets are eligible for a credit of up to $2,000 to work with a stager to improve the appearance of their homes, says Pulte spokesperson Melanie Hearsch. Common suggestions from staging professionals include clearing out clutter, depersonalizing the home by removing family portraits, taking down window coverings to let in more light, rearranging furniture to make rooms look larger, and making sure it's spotlessly clean.
Learn more about markets featured in this article: Indianapolis, IN.