It works out to the builder’s advantage. Let’s suppose:
A John Doe who has a house in Mira Mesa & wants to sell it & upgrage to a house in 4S ranch in Rancho Bernardo. John wants to sell his house at $600k so he can buy the $850k house in 4S.
John has a hard time selling the house in Mira Mesa b/c it is only worth $550k. The builder agrees to buy it at the inflated price of $600k b/c the sale of the $850k house will net the builder a good profit margin.
The builder then turns around & sell the Mira Mesa house at $530k. Even though this loss cuts into the builder profit, it’s better than lowering the price on the 4S ranch house because:
1. It destroys the “comps” in Mira Mesa not 4S ranch.
2. Avoids upsetting previous buyers in 4S.
Obviously, the builders don’t do this for every buyer. The only do it in the cases where the entire deal “pencil out”.
