ON JUNE 1, HOLIDAY BUILDERS launched a monthlong sales promotion covering virtually all of its houses, built or presold, in Florida, where buyers who plunked down a deposit received a card entitling them to free gasoline for a year, a $2,000 value. Within the first eight days of the campaign, Holiday's Web site got its highest number of hits ever.
Kris Ellis, Holiday's director of marketing, notes that customer traffic at Holiday's sales offices had been “very slow” before the promotion and says this incentive would have been a success had it increased traffic by 25 percent, which it did, according to company spokeswoman Jennifer Youngblood.
Compared with what builders in other markets have been giving away this year, Holiday's incentive was decidedly modest. Still, like many builders, Ellis hopes that incentives in general are needed only as stopgaps, a shot of adrenaline for a lethargic market. But as inventories for new and existing homes pile up, as foreclosures rise, and as buyer demand levels off, builders are not only raising their antes by offering more generous mortgage buy-downs, discounts on options and upgrades, and lower prices; some are making incentives permanent arrows in their promotional quivers.
“The industry is in a period of adjustment right now, caused partly by the pull-back of investors, and I don't know anyone who knows where all this is going to land, or when,” says Jon Jaffe, COO for Aliso Viejo, Calif.–based Lennar, which has reduced prices on unsold inventory in certain markets nationwide.
Incentives invariably invite buyers to wonder about a home's real worth versus its price. And some builders fear that they're conditioning buyers to expect these sales inducements, as they do when they're purchasing a car. That might explain why so many builders are framing their incentive packages in terms of adding “customer value.”
What constitutes “value” depends on whom you're selling to. In Orlando, Fla., Hovnanian Enterprises' Cambridge Homes division ran a promotion in May that offered buyers their choice of a 5 percent fixed-rate 30-year mortgage (if they went through Hovnanian's mortgage and title companies), options and upgrades worth tens of thousands of dollars, or a Mini Cooper automobile, which retails for around $20,000.
“We're seeing things that we haven't seen in years, maybe even ever,” says Rosemary Messina, vice president of sales and marketing for Daytona Beach, Fla.–based ICI Homes, which so far has used incentives sparingly. “Where do you draw the line?”
Builders in Denver—where incentives have been common for a decade—must be asking themselves that question too. In June, Concert American Homes launched a “Sweet 16” promotion with savings of up to $30,000 on 16 condominiums in Aurora, Colo., that ranged from $154,146 to $229,221 before the sweeteners, which included stainless steel appliances and larger windows. A mile from Concert's communities, Centex offered up to $40,000 in incentives on its homes.
“Recent [incentive] activity is far more aggressive,” observes David Bubes, Concert's director of sales and marketing. “It might even be described as a war.”
VARIED ENTICEMENTS During his 25 years in the business, Adam Lubow, president of Pleasanton, Calif.–based sales and marketing consultancy Praedium, has seen every variation on incentives, from car giveaways to lavish Hawaiian cruises. Historically, incentives rarely become part of a builder's regular marketing program, he says. Nevertheless, builders are apprehensive about the current trend.
Learn more about markets featured in this article: Orlando, FL.