I noticed that many builders have inflated their abstract pricing on their inventory in order to offer better incentives and offer ‘dramatic’ price cuts so that buyers feel like their getting great deals when they buy a new home.
I recently sold a home in the Village at Centennial near the Denver Tech Center where the builder was offering the same home at $505,000 even though they hadn’t sold a home like it for more than $450,000. In fact, the majority of the similar home sales were around $425-$440k. This method has helped the builders maintain their net in the face of foreclosures appearing on the market. In fact, it actually helps keep the lenders from pricing their homes to low. The BPO (Broker Price Opinions) usually include price of homes that are currently for sale. So even though the foreclosed homes are trashed out, they are priced just under what the builder will accept new. And of course, the buyers leave like they’re getting a great deal.
I talked to the sales rep in the office about their current inventory and he admitted that he had the ability to move as much as 15% off of the list price depending on the ‘read’ he got off of the customer. That’s the sort of thing that doesn’t bode well for the current homeowners that may have paid too much. Especially when they get in a need to sell situation like a job change. It also tells me that most unrepresented buyers are like deer in headlights when they walk into the sales office.
Funny part is, most buyers still fall for the ‘base price’ system where they hook you with a lower price while showing you a better product in the model. They then either raise the price or act like their giving you a deal by offering you incentives in upgrades.
When a builder is offering $50,000 in upgrades, it makes you wonder, how did they arrive at that number?