The sale-leaseback does ease their cash flow, but probably a more significant reason for a builder to do this is it immediately provides a closed sale that will be used in at least the first few appraisals. Appraisers usually use at least one outside sale when appraising new homes, but they would normally weight the inside sale a lot more.

Lennar’s project in Carlsbad (Bressi Ranch) sold the model homes from all 6 of their “neighbohoods” to a group of investors. Some of you may remember that these buyers subsequently tried to sell the model homes off and then when they had trouble getting their price they tried an auction – kind of like DR Horton’s auction this weekend. Lennar’s auction fizzled – no sales. So they went back and marketed them through the MLS again. The last time I looked there were still a couple of these available for sale. Had the market continued to go up these investors might have made a lot of money. Now it looks like they’re going to end up losing a lot of money.

But for Lennar everything worked out great – they got their closed sales and those closed sales were indeed used in most of the appraisals in the initial phases of these neighborhoods.