Builders Push Buyer Incentives as Sales Slow

October 14, 2013

With home sales starting to slow, builders are giving buyers more incentives to purchase. Some are going so far as to offer tens of thousands of dollars in cash incentives as well as free home upgrades. 

The rising cost of new homes — some markets have seen prices soar by double-digit percentages in recent months — and hikes in mortgage rates have deterred many buyers. Builders are trying to lure them back by agreeing to pay closing costs, part of the down payment, or offer a discount on a buyer's mortgage rate for a year or two. Some builders are also tossing in some free upgrades, such as appliances, blinds, premium flooring, or garage door openers, The Wall Street Journal reports. 

Nearly 30 percent of sales managers at 150 home builders nationwide say they increased their use of incentives in September, up from 14 percent who said the same a year ago, according to a monthly survey by Wells Fargo Securities.

“Everybody’s giving more incentives today than they were in the summer,” says Mark Ward, managing partner of ForeverHome LLC, a home builder in Raleigh, N.C. The builder, for example, agreed recently to cover $4,000 in closing costs and swap out carpeting with ceramic tile and hardwood flooring at no additional cost for a buyer of one of its $295,000 homes.

Another builder, Houston-based David Weekley Homes, is offering up to $20,000 in incentives to buyers who purchase a home in the Tampa, Fla., area by the end of the year. 

Some builders aren’t even waiting for customers to ask for incentives and are advertising giveaways upfront, says Kendra Cooke, a real estate professional with Bob Parks Realty LLC in Brentwood, Tenn. 

While incentives can generate sales, builders also must be cautious about how many freebies they throw in, since it lessens their profit margins. 

"As the market goes through minor gyrations and corrections on a road to a broader recovery, we think that we will have to use incentives on a select basis," says Stuart Miller, CEO of Lennar. 

Source: “Home Builders Boost Incentives, Upgrades as Sales Sag,” The Wall Street Journal (Oct. 13, 2013)

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