Selling homes effectively against foreclosures has become many a builder’s quixotic quest in the last year. Buyers want a bargain, and with the median price of existing homes standing at $172,400 versus $217,400 for a median priced new home, builders are having a tough time making the sale.
But there are ways to do just that, according to speakers at the International Builders Show in Las Vegas on Tuesday, who suggested a number of strategies for competing with REOs.
1. Welcome buyers who have tried to buy a foreclosure. They will appreciate your attention because they have likely had their “hearts broken” multiple times by the homes that got away, as moderator Carol Ruiz of Red Rocket PR in Culver City, Calif., who shared how her own daughter has unsuccessfully tried to buy a foreclosed home. “For a first-time buyer to buy an REO is a steep task,” agreed John McLaury, senior director of sales at KB Home Nevada. “It is not uncommon for real estate agents to write 20 contracts” in pursuit of such a sale, only to have the bank fail to respond. Such properties also frequently sell for significantly more than the bargain prices advertised, he added, which also frustrates would-be buyers, who might like to hear how new-home pricing would be different.
2. Educate buyers, particularly first timers, about the extra costs associated with REOs. “The first-time buyer is really focused on the monthly payment,” said Lisa Jackson of John Burns Real Estate Consulting in Irvine, Texas, who noted that fixing up a foreclosed home can cost tens of thousands of dollars, depending on the state of the home. First timers may not be able or want to handle those variable expenses, in contrast to the fixed—and knowable--monthly cost of owning a newly built home.
3. Build new homes that offer buyers flexibility. This could include unfinished basements or bonus rooms as well as future specialty spaces such as a wine room or tech center that a buyer can add later as finances permit. “We lost flexibility when the market started climbing, because we just built it all in,” noted Kerrin West of Studio 81 International in Folsom, Calif. “Sometimes you might want to buy something because it has potential.”
4. Include a single-story floor plan in your lineups. As builders rework home plans for the new economy and perhaps even rezone approved plans, many lot sizes are getting smaller—and so are the homes. As you downsize the square footage, though, don’t drop all the options for one-level living. “We cannot forget we have a very strong senior market out there,” said West. If you just can’t fit a one-level home on your smaller lots, make sure you offer a master-down option with a bedroom on the first floor, according to West.
5. Build homes with energy-efficient features. That doesn’t mean going for the highest LEED certification available—it means incorporating items such as tankless water heaters or Energy Star products. “If your home doesn’t have [Energy Star appliances], that’s just foolish,” West said.
6. Show prospects how they can live in your homes with online digital tools. Home buyers today want and expect more than lifestyle photos of happy families in living rooms, according to West; they want to know how their couch might look and fit. Consider adding virtual three-dimensional tours of your newest plans or interactive online furniture arrangement tools.
Alison Rice is senior editor, online, at BUILDER magazine. Follow her live tweets from IBS 2010 at @freshbrewedit.