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5.06.08 - Builder Hopes to Hook Home Buyers with Price Guarantee
- San Jose Mercury News
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
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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. Reach her at 925-952-5063 or
bhernandez@bayareanewsgroup.com. Read her Bay Area real estate blog,
Property Lines, at www.ibabuzz.com/propertylines.
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