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Tell us ‘Will price guarantee get buyers buying?’
February 15th, 2008, 4:30 pm · 29 Comments · posted by Jon Lansner/O.C. Register columnist
Most buyers purchasing a brand new home must wait from three to six months to get their keys. At a time when median new home prices can drop as much as 26 percent from one month to the next, that can be a mighty big obstacle to signing a deal. Why buy a $750,000 new home that’s going to be worth less than $600,000 when you move in?
So a handful of homebuilders have been offering price guarantees designed to take the worry out of buying. Under one plan, offered by Los Angeles County-based KB Homes and Ryland Homes, the buyer pays less for his or her home if the model’s base price goes down before escrow closes. Under another, offered by Newport Beach-based Capital Pacific Homes, buyers can back out of the deal if the appraised value of the home a month before closing is less than they’re paying.
Jeff Collins’ story on price protection programs will appear Sunday in the Register’s Marketplace section and online HERE. Builders told Jeff that guarantees’ goal is to get balky buyers off the fence and up to the negotiating table. But none of the so-called “price protection plans” is being offered in Orange County — at least not yet.
Capital Pacific’s program (ONLINE FLIER HERE), running through Feb. 28, is being offered on just seven projects in the Inland Empire and one in Lancaster. Ryland (PRESS RELEASE HERE), which doesn’t build in O.C., included the guarantees in a nationwide sales event that ended Jan. 27 (although a spokeswoman said they’ll still provide the guarantee to buyers who request it). KB Homes, which has four developments in Orange County, will offer its first price protection plan in the area at its Clementine condo project in Placentia at the end of February and will expand it throughout the area that includes San Bernardino, Riverside and San Diego counties within 90 days. KB’s North Los Angeles division began offering price protection plans in January and will continue it through May (PRESS RELEASE HERE).
February 15th, 2008 at 6:53 pm
$600,000 dollars get you next to nothing in Orange County and California”
2 bedrooms luxury condos in high rise towers.
30 years old stucco box
3 bedrooms in a nice neighbors.
mortgage slavery and high property taxes for the next 30 years.
You are lucky to have a job in 2008.
February 15th, 2008 at 7:02 pm
We just stopped the liar loans so I guess its time for another gimmick.
Giving the builder full control of the base price is another realtor scheme designed for the ignorant.
This is price protection for the builders only.
The only price protection buyers will see is by watching prices continue their steep decline.
Countrywide says foreclosure rate at new record
Foreclosures and late payments rose in January to the highest on record, reflecting the nation’s deepening housing and credit crunch.
The foreclosure rate for the 9.02 million mortgages on which Countrywide collects and processes payments roughly doubled to 1.48 percent from 0.77 percent a year earlier, and rose from December’s 1.44 percent.
Delinquencies rose to 7.47 percent of unpaid balances from 4.32 percent a year earlier, and 7.20 percent in December. Countrywide services $1.48 trillion of home loans.
Countrywide also said it funded $21.9 billion of home loans in January, down 41 percent from $37.1 billion a year earlier, and 6 percent from December’s $23.4 billion.
February 15th, 2008 at 7:25 pm
“the buyer pays less for his or her home if the model’s base price goes down before escrow closes.
“the appraised value of the home a month before closing is less than they’re paying.
Yawn. Big friggin’ deal. The time frame of these so-called guarantees is so short as to be irrelevant.
Now if builders or any seller were offering a three to five year price guarantee, THAT would make a phenomenal difference. In fact, Mrs. HB Bear and I would buy tomorrow.
Only problem, of course, is that builders know that would be a fool’s game and we just have to wait until prices hit near-bottom.
On the other hand, maybe they could hedge their risk by buying some options on the S&P CaseShiller index for the period of guarantee. Realtors could do the same. Just imagine the sales volumes with guarantees like these.
February 15th, 2008 at 9:06 pm
If I’m a potential buyer (I’m not) and I see these price guarantees, I might think to myself, “Boy, that sounds like a good deal.”
If I have a brain, however, I might think, “Sounds like these guys are desperate. Doesn’t sound like prices are going to go UP any time soon. Maybe I’ll just wait and let prices go down more — you know, my very own price guarantee program.”
But then again, brain power hasn’t had such a great showing these last couple of years.
So, heck yeah, these guarantee programs will turn the housing bust right around. Go Buy! Go Buy! Never a better time to buy OR sell a house!
February 15th, 2008 at 9:35 pm
Builder have been trying price guarantee programs in Tampa, Florida where I am for some time with limited success. I think that it might get a nervous buyer off the fence (I have actually seen it.) But I’m not sure that statistacally it improces the builders numbers…
February 15th, 2008 at 10:16 pm
hell no.. its a blatant show of desperation… the slime is starting to
spread to the “prime” loans… no area will be spared…
http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/02/13/cnusa113.xml&ref=patrick.net
February 15th, 2008 at 11:39 pm
Yep. All those desperados are just sittin’ on the fence, hankerin’ to pony-up and buy one of those houses no one else is buying just as soon as it’s a sure-fire no-lose deal.
“No, Honey, I don’t really think we should either, but they will lower the price if after we buy no one else buys.”
Now let me understand, was this an offer by BK Homes —oooopppss, no, that’s KB Homes, sorry.
Just trying to figure who would want to live among people foolish enough to go for this convoluted hype.
February 16th, 2008 at 7:58 am
The kind of price protection that these builders are doing does not protect against the base price going down after close of escrow. I bought a Ryland Home and even though my base price was lowered $29,000 just before I put my deposit down, in less than a year, and about 18 days after I closed escrow on 1/18/08, the price was lowered again by $9,000 on my particular style of home.
At first I asked for a “refund/rebate” until I found out from a very experience title insurance/escrow agent from the sale of our previous home that new home builders really should not do that. The subprime debacle has caused the government to suspect any seller of homes that gives a refund (to help their paid customers, I believe) which may or may not affect the appaised value that the loan was based on.
I blogged about my experience in three posts at:
http://www.brokerblogger.com/brokerblogger/2008/01/ryland-homes-sa.html
http://www.brokerblogger.com/brokerblogger/2008/02/will-ryland-hom.html
http://www.brokerblogger.com/brokerblogger/2008/02/ryland-homes-an.html
February 16th, 2008 at 1:00 pm
Yeah, right! Better read the fine print on that deal.
February 16th, 2008 at 1:34 pm
What is the existence of the price protection plans telling you? It is telling you that housing price is nose-diving. They can protect the price today, but they can’t protect it tomorrow. If you don’t think it carefully, you will be definitely a victim of this scheme. It’s a law that price will continue to go down.
I am a potential buyer, I am on the fence, and I am bullish. I think I will sit on the fence for another 5-7 years only.
I know if I bought today, the rent from my tenant wouldn’t be able to cover the morgage, tax, HOA, maitainance, etc. and I don’t want to bleed.
February 16th, 2008 at 2:22 pm
Well since all comments seem to be from one POV, I’m going to go in a different direction. While I don’t disagree with all of you… I see it from a slightly different angle. The thing is, housing is not just a commodity. If it were, then sure - you could go ahead and indefinitely delay your purchase. But not seeing any value in this plan is like saying groceries are too expensive these days, so you’re just not going to buy any until prices come down - all the way down - even if it takes years. That is just not realistic. Ya still gotta eat. You still have kids to feed. Life still goes on.
February 16th, 2008 at 3:27 pm
SoCal,
That’s a really great analogy
Got any more like that?
February 16th, 2008 at 4:08 pm
SoCal,
Bad analogy…..
You can rent a really nice home in a really nice area. The home I rent is still much nicer than the home I could buy right now….. and there you have the disconnect.
You can’t rent nourishment.
February 16th, 2008 at 10:10 pm
pdu and mav,
Thanks for the replies. I am sorry you did not find any parallels in the analogy. I’m wondering if you guys have any kids. If you are into home-buying as an investor, that is one thing. But if you have a family, then you have different needs. It is not so easy uprooting a family even if it’s from a rental to a purchase even within the same location. Everything takes more effort. In an ideal situation you could bounce from rental to rental, seeking out the best deal in the best location. But, that isn’t very practical for most people with responsibilities, which makes up a lot of us. So, if you want to provide a stable family home your choices are to buy and slightly overpay (which becomes less significant if you are looking to be in the home 20 years from now) or rent while being at the mercy of a landlord who you can only hope will fix things promptly and correctly the first time around, and hand over thousands of dollars that you will never see again. I have rented and it’s not as glamorous and care-free as some make it out to be. Homeownership isn’t either, but it does have its perqs.
I am not saying this price guarantee program is the perfect solution and the right thing for everyone, but I think it’s a step in the right direction and better for some than others. It greatly depends what stage of life you are in.
Thanks for reading. I enjoy the spirited discussion on this board.
February 16th, 2008 at 10:27 pm
SoCal….
You come across as a nice guy, but I still see no parallel at all with your convoluted analogy between the need for food and the need to buy a house…..unless your income depends on people buying houses so you can buy food.
One caring about their family has nothing to do with buying a house — more to do with not putting the family at risk by buying something someone tells you you need to buy regardless of the financial risks involved.
For what it’s worth I raised kids and rented through the last downturn. The only negative was when the landlord had to sell after we were there for 6 years and the value dropped 30%. And, yes, I had renegotiated the rent down 10%. Found another in the same school district with no trouble.
Glad I didn’t lose the 30%.
February 16th, 2008 at 10:40 pm
SoCal78 Says, PDU, MAV, Jake and the rest are “Investors” who are looking to make a quick buck with little effort. The effort they do expend is her on this blog talking down the market. Their objectives are very different than the average family who buys for the long haul. They cry the loudest for affordability for the common man/first-time buyer when they are anything but. They are attempting to line their pockets and everyone can see right through them. Don’t waste your time arguing with these losers.
February 16th, 2008 at 10:52 pm
shockg….
I hope you look at this blog like the rest of us……
pure entertainment…..
this is more a waste of money/time than anything else.
unfortunately, i think your situation is a bit different, sorry…
February 17th, 2008 at 3:51 am
Since my 2/16/08 says when I look at it: “Your comment is awaiting moderation.”, I just want to say that buyers of all kinds need to recognize that Real Estate values, or lack of values, are localized. North Carolina and South Carolina are doing much better than the rest of the country. That said, potential buyers read the national news that doesn’t distinguish in publishing information about that truth.
I did just buy a new home, and I looked at both the possibility of continuing downward prices after about a 10% drop in the base price of the home I bought, and the financial/psycological needs to move to the area of the country where the overall cost of living is much lower than where I came from, and where a good friend of mine recently moved to. The key is to evluate the overall motivations of why you want to move vs. the possibility of continuing downward price in that specific area.
Personally, I don’t believe an article that said that there is a 56% chance that prices will be lower in two years in my general area. From my 30 years of investing in Real Estate I have seen extreme negative and positive projections of R.E. prices. The two things I keep in mind is to realize that extreams in publishing are what increase readership, and to never underestimate the greed and physological reasons why people buy R.E.
February 17th, 2008 at 10:49 am
I allmost fell of the toilet laughing after reading about this fix. The rental and resale market are allready in there.
February 17th, 2008 at 11:55 am
shockg -
Didn’t you buy at 900K the end of ‘06?
That makes you the investor, and not a very smart one, but certainly explains your plaintive cries for all to buy now.
You suggesting me being an “investor” only shows how disconnected you are. My expectations are a further price drop and then many years of languishing prices as real estate remains out of favor for years.
So far on this blog you have shown yourself to be the resident knucklehead.
February 17th, 2008 at 4:30 pm
PU, No i did not buy at 900K at the end of 06. If I remember correctly you admitted to being in the business in the 70’s. So that likely puts you in your 50’s to 60’s. If your not an investor I can’t understand why you spend so much time arguing on bubble blogs about housing prices. You clearly have an agenda and are highly motivated.
February 17th, 2008 at 5:05 pm
Ya think they would sell if the prices were not so outrageous? Ya think? Knock, knock, knock! Hello!!!
February 17th, 2008 at 10:31 pm
shockg/ROC/Pebbles,
Your comment; “If your not an investor I can’t understand why you spend so much time arguing on bubble blogs about housing prices. You clearly have an agenda and are highly motivated.”
I understand there are many things you can’t understand. You’ve made that clear to all.
Look in the mirror, think about what you post, — then you might understand.
You malign and insult any and all who feel this is not the time to buy.
I strongly disagree with you. If your ill-advised “advice” was followed by anyone this past year that would be a shame.
I find your public meltdown fascinating, (believe it might be karma), but hope to see you rise to the level of being able to acknowledge that your proclamations and predictions have been wrong.
I don’t expect it.
I believe you’re incapable of ever admitting mistake or error — even to yourself. That is the reason for your continual changing of names you post under. You are so weak and so wrong that you slide away and reappear as another.
It’s actually a little sad.
February 18th, 2008 at 8:40 am
I’m a real estate agent. I’m an investor. What’s wrong with being that? I wish there are more people buying. I wish the price is going up. Too bad it’s not. The price is in free fall. Sales are so few. I wish I could see the light at the end of the tunnel. Too bad all I can see is pitch darkness.
February 18th, 2008 at 9:15 am
the light at the end of the tunnel is that it’s a great time to sell right now.
prices are going to drop an additional 20% and then stay flat for a while.
if you can find a knife catcher it’s a great time to sell and get out
February 18th, 2008 at 10:58 am
lets take a moment to have right facts. For the last 7 years price went from 200,000 average to 700,000 in most of home meaning reflecting about 300% gains. Historically 5% average it should be 250,000 in generous manner. This accounts for the inflation and other factors. Now if most of us were not home owners at the 200, 000 price and lot of us were renters, what make any body think that with the reduction of so called interest rate and capping the limit on loans will have people buy homes in hordes.
Data is only thing which should drive the picture not emotions and rhetorics. There were about 40 % renters in OC , when credit was cheap in 2005, now it is anybody guess. Bottom line is you buy and you pay.
How will I , me or you shall pay for the dream home , with salaries and down payment we have collected over years, is anybody guess. But the fact of matter is it is long haul for us. Prices are astronomically high with salaries paling the expenses.
May God help us all.( In analyzing data. )
February 18th, 2008 at 12:11 pm
Has the world gone mad? Are they all in denial?
I am a potential home buyer. Yet I’ve seen prices rise from 250K to 900K in my area.
Guess what? I cannot afford to buy now. prices need to drop to levels where we can actually afford to buy. Somehow, all the pundits ignore this fact!
Prices need to drop (a LOT) before we buy.
February 22nd, 2008 at 2:57 pm
It won’t stop the house from depreciating after the move in and it won’t give people 20% down to buy in the first place. This problem is only a very small part worried buyers with the bulk being worried lenders not approving anyone to buy without lots of cash in hand.
March 4th, 2008 at 9:22 pm
Prices do not need to drop to levels where you can afford to buy nor do they have to level off to the historical ratio of income to home value, necessarily, because in the end, supply and demand rule the day . . .but on a local level. Meaning, what matters is the supply of available homes in a specific locality or neighborhood relative to the demand for homes in that same neighborhood. For example, if a certain company that pays very well and is hiring by the thousands moves into Mountainview, then the value of homes will be driven up and never necessarily come down to where you can afford to buy (in Mountainview and all of the comfortable surrounding areas).