Building A New Home vs. Buying An Existing Home (Part 3): Now Is The Time For Steals & Deals On New Construction

Over the summer, I ended up fielding a lot of questions from clients about the pros and cons of building a new home vs. buying an existing one, especially in light of the very tight market of existing homes available for sale. The number one question invariably is "Which is more expensive, building or buying?" Almost always, the answer is building a new home is more expensive than buying an existing home - EXCEPT for once a year, and that time is the 4th quarter. Every fall, publicly-traded and large private builders cut the prices of their inventory or "spec" homes to make way for building new spec homes in the spring.

A "spec" home is a home that a builder constructs speculatively without a specific buyer attached to it and then sells when it's complete. Builders build spec homes for a number of reasons, but the main reason is to showcase different house plans beyond just their model. Typically spec homes represent one of the builder's most popular house plans and include their most popular features. Builders front the money to build these specs themselves, so their motivation is high to unload them before the next building season so that they can free up some of their capital to build new specs in the spring. Thus comes my favorite time of the home-buying season: Spec Season.

I have seen builders who would never budge on price for their new construction homes wheel and deal like no other time of the year when fall rolls around. Right now, in our marketplace, builders are discounting their spec home prices anywhere from 8-12%. Add in the projected new home price increases for 2020 of 15%, and now you are talking a 23-27% savings by buying a spec now vs. building next year. That's a huge savings.

So, if you've been kicking around the idea of building a home in the next year, I highly encourage you to consider buying a spec this fall. And always, always, always have a licensed realtor represent you in the transaction. Experienced realtors know a lot of the concessions that builders have given or will give that aren't published and won't be offered by the builder's paid salesperson. It doesn't cost you a dime to have a real estate professional represent you, and contrary to public opinion, builders do NOT pass on any savings to you for foregoing professional representation.   

If you aren't sure where to start with your new home search, be sure to check out our website at www.theeliterealtypros.com. You can set up a new home search by neighborhood. Or, feel free to call us at 317-660-5045, and someone from our team can help you find a list of spec homes available in your area.

Building A New Home vs. Buying An Existing Home: The Breakdown (Part 2)

It's been a busy summer so far, and I haven't had much time to post lately, but this theme of building new vs. buying existing continues to pop up with our clients, so I thought I'd take a few minutes to post some additional comments on the topic.

We've already established a few basic truths about building vs. buying in my last post, but at the end of the day, the only thing that really matters is whether building or buying makes better sense for your needs.

 
So in the vein of Jeff Foxworthy's "You Might Be A Redneck" series, I offer the following for your consideration, and if these scenarios fit your situation, then "You Might Want To Build."  

1) If you can't find any houses that meet your needs/wants in the existing housing market, then...You Might Want To Build.

2) If you're not in a hurry to move, then...You Might Want To Build.

3) If you are locked into a lease but want to buy now, then...You Might Want To Build.

4) If you absolutely, positively want a basement, then...You Might Want To Build.

5) If you want to live in a specific "hot" or fast-growing area, then...You Might Want To Build.

6) If you are self-employed and are going to use only the income from your self-employment for getting qualified for a home loan, then...You Might Want To Build.

You may be reading this and wondering why I am saying some of these things. The answer is simple.There are valid and significant reasons for building vs. buying if you fit into any of these scenarios, and I'd be happy to share them with you if you drop me a line at my contact info below. Enjoy the rest of your summer, and happy house-hunting! 

Chris Camperelli is the Team Leader for The Elite Realty Pros Brokered by eXp Realty and can be reached at chris@theeliterealtypros.com or at 317-710-5019.

The Law Of Unintended Consequences

Throughout history, man/woman has always thought that he/she could build a better mousetrap, and throughout history, he/she has been (mostly) right - but not without incurring some unintended consequences along the way. And many times, the unintended consequences have yielded bigger problems than the problem that the better mousetrap was designed to correct.

Case In Point: The current bevy of class action lawsuits aimed at NAR and various brokerages for alleged anti-trust violations. The stated aim of these coomplaints is to help consumers by eliminating MLS's cooperative commission structures. The lawsuits all cite to lower commissions paid by sellers in Europe as support for their positions. However, there is one glaring omission that doesn't get mentioned in any of these lawsuits: The Statistics on Housing Discrimination in Europe.

A 2019 study* of housing discrimination in Europe conducted by George Washington University reached the following conclusion: "Housing discrimination is widespread in Europe." And while the study cited to various potential causes for this, there is one huge correlation that wasn't mentioned - housing discrimination tended to be higher in countries where the buyer typically paid the buyer's agent's commission.

So let's play the "What If" game for a minute, and let's say the class action lawyers are able to convince a judge that the MLS structure violates anti-trust laws and that buyers should have to pay their agent's commission. Now, let's use a hypothetical couple: First-time home buyers, minority, with no additional funds to afford to pay a buyer's agent to help them. Let's go ahead and make them military veterans who were counting on 100% VA financing to buy their first home. Now, I ask you: What agent is going to work with a buyer client that can't afford to pay them?

Then, on top of that, let's throw in what the listing system would look like if the MLS's are disbanded: Pocket Listings, Private Sales, Exclusive On-Line Listings (that will require a fee to access of course), etc. Now tell me how, without the benefit of a real estate professional to guide this hypothetical couple through this new Wild-West of the various listing services, how is this hypothetical couple going to be able to buy a home, let alone have access to all of the homes in the marketplace in order to make a good decision?  The answer is, they won't.

Now, let's look at the sellers' side of the equation, and let's use a different hypothetical couple: an elderly couple on a fixed income that wants to downsize, monetize the equity in their home and move someplace warmer. Now let's put them in a hot buyer's real estate market where there is lots of competition among home sellers. The sellers that can afford to throw in a buyer's agent bonus or offer to pay the buyer's agent's commission will see more activity, less days on market and/or higher selling prices. The elderly couple on a fixed income can't afford to offer any of these perks, and because the new standard will be for buyers to pay for their agents, this couple will end up losing out to sellers who can. What is now an even playing field for buyers and sellers will become an uneven one and will ultimately shut out an entire segment of homeowners and buyers from the marketplace. Tell me how this is better for anyone? 

Bottom Line: Disbanding the MLS cooperative commission structure will end up disenfranchising an entire segment of the U.S. population, lead to a rise in housing discrimination and will only end up benefiting a few law firms and a few listing platform companies when it's all said and done.

Note: Before you start typing your comment about all the things that are wrong with the current system for buying and selling real estate, let me duly acknowledge all of its flaws. This article is not about what's wrong with our current system, it's about the unintended consequences of these lawsuits should they be successful. Thanks for reading!





*Hilary Silver & Lauren Danielowski (2019): Fighting Housing Discrimination in Europe, Housing Policy Debate, DOI: 10.1080/10511482.2018.1524443

Building a New Home vs. Buying an Existing Home: The Breakdown (Part 1)

If there is one eternal question that I have never seen answered in my 27 years in the real estate business, it's this one: Which is a better investment - building a new home or buying an existing one?

It really comes down to a series of personal preferences and needs, which is why the question can never be answered. However, there are a few "truths" about building a new home vs. buying an existing one that haven't changed over time, and hopefully these will help you if you happen to be in the buying market. (Note: Because this article is Part 1 of a series on this topic, the following list is by no means comprehensive, so please stay tuned for more later.)

Truth #1: Building a new home is almost always more expensive than buying an existing home. 

This may not always be immediately apparent when you start the home buying process. However, as you move through the process, some "hidden" costs start to appear. When all is said and done, the new home almost always ends up costing more than what a buyer could have purchased in a comparable existing home. 

Some of those "hidden" costs are the fees associated with using the builder's affiliated vendors (e.g. their mortgage companies, title companies, etc.) that don't show up until the closing. Often times, these fees are more expensive than if you had competitively shopped them, but when you buy from a builder, you are usually required to use their vendors. 

Another "hidden" cost is options. Builders, much like auto dealers, advertise their homes at their starting prices, which is another way of saying base price. Often times, the most popular features or hottest trends in new homes are not standard features included in the base price but instead are options that increase the base price of the home. This is where a new home starts really starts to get more expensive than buying an existing home. Because one of the most compelling reasons to build is that you get to build your house just the way you want it, the trap is that you start to think that EVERYTHING has to be just the way you want it. And that mindset can get very expensive very quickly.

I have watched many clients over the years get caught up in the excitement of going to a builder's design studio and selecting options for their new home. Before they knew it, they had added $30K, $40K, sometimes $50K in options because they just had to have ______.  (In full disclosure, my wife and I built a new home a few years ago and had to stop ourselves several times from going over the cliff as well. It's very easy to do.) Related to the hidden cost of options is the "promo." Builders periodically will offer promos of giving away a basement or a bonus room, but what starts out as a "free" basement quickly mushrooms into a $10,000 price increase because adding more than one electrical outlet is an additional cost, lighting is extra, etc. This leads me to the next "truth" about new construction.

Truth #2: It's easy to lose money on building a home if you don't know what you're doing.

I have had to have many difficult conversations over the years with sellers who built a new home in a subdivision a few years earlier and then needed to sell for whatever reason and were faced with the unpleasant prospect of having to sell their home for less than what they paid for it. There are a couple of reasons for this:

The first reason is that, historically, it is difficult to sell an existing home within a new subdivision when the builder is still selling new homes within that subdivision. Often times, existing homeowners can't compete with the builder - the builder can offer buyers the exact model, layout and features that led a buyer to look at a new subdivision in the first place. The builder also has promos that an existing homeowner can't offer. And typically the builder has special teaser mortgage rates that an existing homeowner can't offer. So the only thing an existing homeowner CAN offer is the same house for less than what the builder is selling theirs for, and often, there simply hasn't been enough appreciation in surrounding house prices in a few short years to make that a profitable choice for the existing homeowner.  

The second reason existing homeowners end up selling their newer homes for less than what they paid for them is that they didn't consider the true value of their home when they were building it. Almost always, these homeowners are the ones that just walked into a model, sat down with a salesperson and wrote up a contract. If a broker had been involved in the home buying process, they could have been advised on what features enhance resale value, which lots are more desirable (and it's NOT the corner lot) and whether the price of their home could be supported by surrounding comparable values. That's why last year almost 3/4 of existing homeowners who sold their new construction homes within the first 36 months and used a broker during their new home buying process were able to sell their homes for at or above what they paid for them.  

Truth #3: Having a broker represent you in the new home buying process doesn't cost you anything.

I can't tell you how many buyers believe the myth that the builder is going to cut them a deal or give them a discount on the price if they don't use a broker. This is simply not true. Almost all of the national, publicly-traded builders factor a broker's commission into their standard pricing, and they do not alter that pricing if there is no broker involved. Instead, the money that the builder has allocated for a broker's commission in a deal where there is no broker typically gets retained by the builder, or in some cases, a portion of that money is given to the builder's salesperson as a bonus. The builder's rationale for this is simple: They want to sell more homes, and they recognize that brokers are integral part of achieving that goal. The last thing reputable builders want to do is alienate the realtor community by creating an incentive for their salespeople to cut the broker out of the deal. (Note: A disturbing trend that I have started seeing with a few of the national builders in my area is to have the salesperson refer buyers who walk in off the street to what he/she calls a "preferred realtor" who he/she says can help them sell their existing home at a discount. I don't know if this practice is coming down from the builders' corporate offices or if this is the result of some entrepreneurial salespeople here locally, but my advice to any buyer who is presented with the offer of a "preferred realtor" is this: Buyer Beware. Any realtor who receives referral business from a builder client is going to be beholden to that builder client and not to you, as it is impossible to serve two masters.)      

Hopefully, this has given you some food for thought if you are in the market to buy a home. The next article in this series will address some of the "truths" of buying an existing home, so stay tuned.

Chris Camperelli is the Team Leader for The Elite Realty Pros Brokered by eXp Realty and can be reached at chris@theeliterealtypros.com or at 317-710-5019.

    

Video Killed The Radio Star, But Tech Won't Replace The Realtor

I was listening to the Buggles tune, "Video Killed The Radio Star," in my car the other day, and the song resonated with me, especially after a few articles I had read earlier that day about tech and real estate.

Everywhere I turn, everyone is talking about how tech is transforming the residential real estate industry. From algorithm-based pricing decisions, to digital staging, to virtual listing platforms, everyone seems to believe that the real estate industry is deeply in need of transformation and that tech is the answer. But why the need for transformation, and is tech really the answer?

Let's first start with the why - why does everyone believe that the residential real estate industry needs to be turned on its head? Is it because most brokerages have inefficient operations? Sure. Is it because there are some sub-par agents that give realtors a bad name? Always. Could it be that the client experience needs to be improved? Of course. But if we are really honest with ourselves, it's because of the money. There is a lot of money to be made as a realtor, but there is even more money to be made from realtors - and eventually from replacing realtors. That's what I think is really driving this push toward tech.

Already, the process of selling a home has undergone a huge transformation with the advent of all of the digital listing services that are available today. These platforms have successfully convinced many homeowners that selling their home is as easy as taking a few pictures on their phone, tapping out a description and uploading it to an online database. Sadly, most homeowners find out the hard way that selling a home isn't as easy as selling a car. And in the end, it doesn't appear that these platforms have done anything to improve the client experience, and they certainly haven't helped to improve brokerages' operations or to raise the bar of the profession. In fact, the only transformation I can see is that realtors now have to buy back their leads from these platforms when they used to get them for free. So, how exactly has this kind of tech improved the experience for the client or the realtor?

One could argue that these listing platforms have improved the experience for the buyer, and if by experience, you mean endlessly surfing through pretty pictures of homes, yes, it is nice for a buyer to be able to do that from a single website. But, after that, the experience starts to take a bad turn. The buyer experiences disappointment because the info on the site is out of date, and the home that they fell in love with was sold last year. Or, if the home is still for sale and the buyer takes the time to see it, the home ends up looking nothing like the pictures because of photo shopping and digital staging (where furniture is digitally inserted into the photos). Again, how is all of this tech really improving the buying experience? The realtor has wasted his or her time showing a home that might never have made the list but for the pretty but deceiving pictures, and the buyer (in addition to wasting his or her time too) is left with disappointment and a bad opinion of the real estate industry.

But not every experience that starts on one of these online platforms ends badly, so let's move on to the offer stage. Now comes another piece of tech meant to transform the real estate industry: algorithm-based pricing. That's where a computer crunches a bunch of data from public sources (because the only prices that really matter are the ones that get reported to taxing authorities anyway) and spits out a recommendation on what price to offer, etc. So, now the realtor has abdicated his or her judgment to a computer. The only problem is that what price to offer for a house is NEVER just about the sales data. So much goes into the decision-making process that can't be factored into any algorithm, but the most obvious data that can't be crunched by a computer is the buyer's NEEDS. That's where a great realtor adds value: Listening to their client and crafting a buying strategy that meets all of their needs on price point, down payment, monthly payment, etc. while also meeting all of their personal needs (i.e. getting moved before the baby is born or school starts in the fall, negotiating for post-closing possession to allow for a seamless transition to the next home, etc.). As far as I know, there isn't any tech currently that can crunch all of that data, and for realtors' sake, I hope there never will be.

In the meantime, my only advice to my fellow realtors is this: As you get bombarded by more and more technology and platforms and services, please take a minute to turn down all of the noise and ask yourself these few basic questions:

1) Will this tech cost me more money or make me more money?
2) Will this tech improve my client's experience or diminish it?
3) Will this tech, if it is ever perfected, enhance me as a realtor or end up replacing me?

If you can foresee a scenario where any new technology or platform could be used to replace you as a realtor, do yourself (and your clients) a favor and stay away from it. Don't buy it, don't support it, don't even stay neutral on the issue. We as realtors won't end up like the radio star unless we participate in our demise by supporting technology whose end goal is to replace us.