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LA builders offer incentives as home sales slump

By Mike Wheatley | January 17, 2019

Builders are increasingly offering buyers incentives in order to help sell their homes, with promotions including paying the closing costs, buying down mortgage rates and even straight discounts, which is a move they’re normally reluctant to make.

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“We are really working a little bit harder to get people in the door and to get people excited,” Mark Mullin, a real estate professional who sells new homes in the L.A. area, told the Los Angeles Times. “These are things [builders] were not having to do a year ago.”

However, the concessions are still fairly small compared to a decade ago, though they are growing. For example, 23 percent of builders in the Los Angeles area lowered their listing prices in December, in addition to offering buyers money for upgrades, according to a recent John Burns Real Estate Consulting survey. In comparison, just 4 percent of builders did so one year ago.

But some 43 percent of builders were cutting prices in 2010, which shows they’re doing better than they were during the last throes of the Great Recession.

Normally, builders will prefer to offer incentives such as new amenities or cash for upgrades rather than cut prices. That’s because they don’t want buyers who’ve already signed a contract while the home is still being built to later back out when they see the prices slashed.

For example, development company Planet Home Living in Newport Beach, California, was selling units at $809,000 but not getting the traction it desired for its townhome-like units. In November, it slashed the price by $10,000 and added upgraded flooring, which would have cost buyers an extra $20,000. But so far, buyers are still not jumping at the discounts. Builders say they don’t expect to drop prices further.

Builders have seen sales slowing for several months. KB Homes, Toll Bros., and other homebuilders reported a drop in sales in the last quarter. Builders and real estate professionals say a jump in mortgage rates in 2018 and more than six years of price increases led to the slowdown. Some buyers “are waiting for reassurance that we are not in a crash,” Mullin told the Times.

Meanwhile, some homebuilders are readjusting their pricing expectations. “We took prices beyond the realm of reality,” says Grant Keene, chief executive of WJK Development, a luxury builder in Huntington Beach, Calif. The company tried unsuccessfully to sell single-family homes for up to $2.2 million—10 percent higher than the previous per-square-foot record for the area. “It made consumers balk,” Keene says.

Mike Wheatley is the senior editor at Realty Biz News. Got a real estate related news article you wish to share, contact Mike at [email protected]
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