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Builders are beginning to Face Reality...and Reality Bites!

By
Real Estate Broker/Owner with Kirby Fine Homes

 After the countless number of viewings of resale homes since January, and three negotiations with different builders, we have finally found the house for us. Yes, we are diving into new construction.

Minneapolis home prices have been steadily declining over the last year. Resale homes in the Twin Cities have been the quickest to fall, and builders have been reluctant to give in to the price reductions. We have looked the last year at new construction but were finding that builders still wanted 2005 prices. It got to the point that the best option for us was to look at resales. Well, of course months went by and we just couldn't find what we were looking for, the most bang for the buck so to speak.

Finally we checked out a couple more builders and saw they were starting to negotiate their prices. Building permits were at their lowest in years and homes have been sitting for over a year.

-one builder came down from his 2005-2006 prices as much as $75,000, but we felt his homes were still too overpriced for this market. The problem was that he purchased the land at a record price in 2004 (the farmer made a killing off this developer) and he still needed to charge high prices for the lots to make up for his purchase.

-another builder wasn't willing to pay our closing costs. On his home, if he wanted us to pay his price, then we wanted other incentives, like paying for a buy-down. But he wouldn't budge...five months later, that lot is still for sale and the builder is trying to sell off the lots to another developer to get out of the subdivision.

-the builder we decided on, just so happened to be having an August promotion on his homes in which they were giving $30,000 in incentives, $5000 for landscaping, and $7,500 toward closing costs. The key was that his homes were never massively overpriced to begin with. We found a lot we liked with trees in the back (for added privacy) and negotiated a couple more items. It was a win-win for both parties.

Amazingly, the first builder called me yesterday and said he was willing to come down another $20,000 if we were still interested. Granted we loved his floor plan the best, and the location was top notch, we had to weigh our options. Go with him for the reasons I just stated, or go with the other builder who was offering a finished basement and a nice deck (both for the same price).  Since we really wanted the most bang for the buck, we declined his offer. Our short term plan is to hold this house for five years, and then move to an area with more acreage. If we get a huge discount on adding the additional finished square feet in the basement now, then we will come out better monetarily when we go to sell. The first builder wasn't offering a finished basement or deck.

Granted we would love to wait until the spring to put a home under contract, (as we feel the market is only going to get worse for builders), we decided to go ahead and get it over with. I mean, we have been looking for 8 months and it is starting to stress us out.

So, get ready for a fun couple of months. I will be writing a series called Confessions of New Construction during the building process, highlighting things that happen and taking photos so you can see the overall process. Building this home is sure to be stressful,especially since it will be built during the winter months, but hopefully I will only have happy stories to tell, and not horror ones. So check back periodically for updates!

R. B. "Bob" Mitchell - Loan Officer Raleigh/Durham
Bank of England (NMLS#418481) - Raleigh, NC
Bob Mitchell (NMLS#1046286)

My advise here is to be very cautious dealing with any builder.  Home building is a cash flow based business and I think that the next round of negative stories that you're going to hear is about builders going belly up.  Make sure that you're down payment is with a third party and that you have some kind of guarantee that the home will be completed.

 

Bob Mitchell

ValueList Real Estate Services, Inc. 

Aug 17, 2007 04:18 AM
Christi Stewart
Prudential California Realty - Laguna Niguel, CA
Prudential Calif. Realty

Jennifer,

Congrats on negoitating a great deal.  I have owned one new home and I loved it because I could add what I wanted from the ground up so to speak.  You were very smart to negotiate the landscaping as I learned that for us, that was one of the most costly items to add to a new home.  Because I was a first time home buyer at the time and not in Real Estate, I didn't know that the backyard didn't come landscaped.  Lesson learned.  I'll look forward to your posts on how the progress is going.  I hope it works out well for you.

Aug 17, 2007 04:21 AM
Joan Whitebook
BHG The Masiello Group - Nashua, NH
Consumer Focused Real Estate Services
I would suggest that you contact an attorney to represent you if you haven't.  Also, if you are paying a builder directly - then you probably will want to aks the attorney about some type of security -- e.g. a performance mortgage in case there is a problem down the road.  Good luck.
Aug 17, 2007 04:34 AM
n d
Naoma Doriguzzi - Virginia Beach, VA
yes, good luck with everything. new construction is almost a whole other ball game when it comes to financing, so make sure you are also working with a good lender. My husband and i are also looking at new construction just because of all of the incentives they are offering now...
Aug 17, 2007 04:37 AM
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent

Bob - thanks for the advice. I don't see this builder going belly up as they are a widely known national builder and have been around for decades and decades. They are also very wise about building and don't over extend themselves, like some other builders have the last few years.

Christi - one thing I have learned from representing clients when they have decided to build new, is that you leave nothing unturned. Some builders do not give any allowance, while some only sod the front. One thing I have learned is that here in Minnesota, most city ordinances actually require the home lot be fully sodded 60 days from closing. The city has to come out an inspect the sod and make sure it is "up to code" and then give it an OK. Kinda ridiculous if you ask me.

Aug 17, 2007 04:58 AM
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent
Joan - thanks for the concern, but we don't have the money for an attorney to represent us, and attorney are seldom used in Minnesota for closings or for representation. Having represented over 10 clients who have bought new homes, I have seen quite a few things which helped us choose the right builder. I am not really too worried about the process, but then again, we shall see!
Aug 17, 2007 05:01 AM
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent

Naoma - yes, financing is a major deciding factor when buying a new home. We are going to have to put 1% down with a lender to get a 6 month lock on today's rates. If we don't, we would be taking a HUGE gamble on interest rates in 2008. With the recent ups and downs of Wall Street and the crack down on the mortgage industry, we are worried about what rates will be in six months. If rates go up above 7%, we would not be able to afford this house.

Jon - great point. I noticed that too a year or so ago. That was another reason we went with the builder. I get 3% in commission, plus a $1000 bonus for bringing myself to the table before September. And since it is my house, my company lets me keep all the commission and bonus! Need that money to buy window treatments!

Aug 17, 2007 05:06 AM
Christi Stewart
Prudential California Realty - Laguna Niguel, CA
Prudential Calif. Realty

Jennifer,

I wish Mecklenburg County had had the same policy.  I learned alot through my experience as a first time home buyer and so now I can pass on that information to my clients.  Good luck to on being  the Realtor for your new neighborhood!  Work it Girl!

Aug 17, 2007 05:43 AM
Jennifer Kirby
Kirby Fine Homes - Minneapolis, MN
The Luxury Agent
Christi - I was laying in bed last night when that realization popped into my head. I had been so busy with negotiating that I completely forgot that I will now have a new farm area to add to my marketing. Hopefully there are not any other Realtors living there, but I wouldn't be surprised if there are.
Aug 17, 2007 06:05 AM