5.06.08 - Builder Hopes to Hook Home Buyers with Price Guarantee
- Contra Costa Times

LIVERMORE — In the housing industry builders and buyers have been at a stalemate. Who wants to buy when the price might go down? And while builders need to sell their homes, they also needed a way to convince buyers. So in this game of chicken, builders have pulled off the road and are offering price guarantees to sweeten the deal.

While other builders like KB Homes and Taylor Morrison will lower the price of a home if it sells for less to someone else before the close of escrow, other companies are going further to get people off the proverbial fence.

Signature Properties, based in Pleasanton, has a few communities with the Live Secure program, or a two-year price guarantee, including two in Livermore and others in Concord, San Pablo, Richmond and San Francisco.

"We've been doing a lot of research and people are not wanting to make a decision," said Linda Kime, vice president of sales and marketing for Signature Properties. "And we had to address what is it that would relieve people's fears of buying a new home?"

Kime said that most would-be home buyers were afraid of price declines. "So we offer a two-year guarantee, if they sell their home for less than they purchased we will refund that difference to them," she said.

There are some restrictions to the deal. The price guarantee only works with a home sale within two years, if the local office is still open and offering the same home plan and provided the seller can supply original paperwork, which has the resale price.

"We believe the homes will hold the value pretty well and after the next two years, I think we will find some recovery in the marketplace," Kim said.

According to the California Building Industry Association, permits were pulled for 2,964 single-family homes statewide in March, down 63 percent from March 2007. Homes prices have also gone down, more than 18 percent year-over-year in Alameda County, DataQuick Information Services Inc. reported. Prices have gone down from 4.4 percent in Marin to 26.9 percent in Contra Costa counties.

The reality of the situation may have created the environment for an unusual marketing ploy different from attempts to create urgency for buyers.

"We know the market sucks. The questions is what are you going to do about it?" Pacific West, a Reno, Nev. builder writes on its Web site, www.whattheheckareyouwaitingfor.com. The builder, which has homes in El Dorado Hills and the Central Valley, is guaranteeing if the price drops before the last home sells in the community, it will issue a check to the buyer for the difference — even if it's two or three years later.

"I mean even at the end of two years and you have no equity, you can still get a check," said Taylor Cohee, vice president of sales for Pacific West Companies.

Although some experts were skeptical of the claims, others are curious about the outcome.

"If they're serious, that would be a big plus for the economy," said Stephen Levy, an economist and director of the Center for the Continuing Study of the California Economy. "It's one of the major reasons keeping people from buying."

Levy said that tighter credit standards are also keeping people from buying, but those that are qualified are in no hurry to buy when the price may go lower. He said a builder than guarantees prices until spring of next year will be the "market test" for the industry.

Jed Kolko, a research fellow at the San Francisco-based Public Policy Institute of California, said that while the price guarantees could encourage sales, the risk to builders is low. At best it's an insurance against a small or modest drop in prices and not a big fall.

"If prices fall significantly, then the developer might not be selling homes in the community anymore or even go out of business," he said. "Then the guarantee would be worthless."

But it's unclear if buyers will be motivated solely by a price guarantee.

Pamela Puro, a Livermore school district employee, decided to downsize last October after her son went away to college. Her single-family home is for sale and her Station Square town home in downtown Livermore is scheduled to be completed in July. According to the city, Station Square. a Signature Properties development, is a 110-unit condominium project that takes up 13 buildings at the northwest corner of Railroad Avenue and L Street.

Puro decided on the two-bedroom, two-and-a-half-bath town home because of the location, and was attracted to the floor plan which gave her plenty of storage and a bathroom on the main floor so guests don't have to travel upstairs. While the Live Secure program was an added value, she said she bought the home because it made sense for her.

"It sounded nice, but I was really already going down that road," she said.

Barbara E. Hernandez covers real estate.