In the retail world, price guarantees are common -- you buy a new television at a retailer, and the company will guarantee the price for a period of time. In today's marketplace, potential home buyers are nervously waiting on the sidelines, scared that a new home or condo could lose further value. Many builders have looked at ways to implement price guarantees that might ease these consumer concerns. But so far, they haven't found a model that works.
The Morgan Group, a multifamily builder based in Chicago, is trying something that just might serve as a model to its competitors. In the steady Indianapolis market, which typically sees appreciation of only about 1 percent per year, Morgan is testing a new plan to guarantee that its condos will not lose value after three years.
"If you buy from us, we will guarantee the value of your purchase," said Todd Mullen, vice president for Morgan, at Thursday's "How to Turn Around a Stalled Multifamily Project" seminar at the International Builders' Show in Orlando, Fla.
At the end of the three-year period, if an independent appraiser determines that the value of one of Morgan's condos dropped, the company will buy them back at the original price. The buyer will have 30 to 60 days to determine if they want to sell the home back to Morgan.
Mullen admits his company's plan is a bit of gamble, but thinks it will succeed because the Indianapolis market isn't volatile. Although the area's homes don't gain much value, they rarely lose value either. Mullen admits, though, that Morgan wouldn't implement such a price guarantee program in its hometown market of Chicago, which is much more volatile than Indianapolis.
"[The price guarantee] is not going to work in every market," Mullen added.
Even if the condos do go down in value, Mullen thinks it would only be a few thousand dollars. And, he's skeptical that buyers would go through the hassle of moving again just to recoup that money. "A lot of people don't want to go through that again," he said.