Before we’re off to the races I should clarify a couple things:
1. I have no idea if the company that owns the houses in this auction is affiliated, directly or indirectly, with the builder.
2. These homes have not sat vacant; they’ve been used by Lennar as the model homes for their projects. That means that when a buyer is out shopping for a new home, they walk through one of these tricked out models with all the options and upgrades. A model home is the equivalent to a demo at a car dealership.
3. While I assume there were leaseback agreements with Lennar, I have no idea what the rents were or whether those payments exceeded the market rents for a fully furnished home (the excess portion being that portion that could be characterized as an undisclosed payback). The example I gave was of a DIFFERENT builder, NOT Lennar.
4. If an appraiser uses a model home as a comparable for one of the later units, they know to consider the effect on the sale price of furnishings and options packages, as those will vary for all the units in the project. What no appraiser can know about a model home sale that occurs prior to the other sales in the subdivision is whether or not the sale incluldes a leaseback, what the rental terms are and whether those rents are typical for what the residential occupancy of that unit would be during that time.
5. Regardless of the sales inside the subdivision, typical appraisal practice is to also include at least one or two sales from different outside subdivisions as a cross check. So in terms of pricing a builder can’t get too far out in front of their competition – even in an overheated market – because it’s still an open market and their buyers still have options.
Like I said, this situtation might be a little smoky or it might not, but there’s no point in getting excited about it until you see the fire. After all, there is the possibility that what we can see is all there is to see.
I still wouldn’t buy a new home from a subdivision builder, though.
