4S Builders to Stop Building??

[robyns_song]

My husband and I have our eye on a floor plan in 4s, but are waiting it out a while to see what they decide to do about prices. One of our friends is a very ADD real estate agent and she said that she went to a little party hosted by the builders at 4S. She said that all the builders got together and decided that they would not drop prices again (the floor plan we are looking at sold last year for $880K and is now at $720K when we told them we didn’t think it was worth more than $650K, they told us they could work something out…they’re obviously very hungry). The builders all told her they would rather buy people cars and offer tons of buyer incentives than sell for less. She also got the impression from their meeting that the builders would stop building if the market slows in leiu of dropping their prices. Has anyone heard anything like this??

[JWM in SD]

Let’s see how that works out for them when the subprime implosion begins to affect credit availability.

[surveyor]

….

while i have no first hand knowledge of this, i really doubt they would stop building because of the amount of money they have already put in. Most of the maps have already been approved, all the environmentals have been permitted. If they are at a far along stage, they are not going to stop. They need to at least put it out there and try to get some money back, as opposed to just writing it off altogether.

[SD Realtor]

I think it is a situation that is kind of win/win for you… First, and I to say this, “your ADD realtor” said something that just seems kind of peculiar about the builders… Regardless though, if what she said is true then you really cannot lose. If the builders stop building then that means the market has tanked and you will get a good resale deal. Otherwise you can simply buy from the builders right? I think that there could be alot of overextended buyers in 4S so you could well if you have some patience.

[Bugs]

Holding off would only work if they actually believe the market is turning around sometime in the next 2 years. There are some bulls out there saying that yet, but the builders would have to really want to believe them at this point.

They probably took out construction loans to get as far as they did with the lots; those loans are short term instruments and do not have favorable terms for holding the lots for any length of time. Lenders aren’t going to be that hot to extend those loan right now, either.

Holding the lots only increases their loss, especially in a declining market. Their only reasonable choice is to either build them out and sell them off ASAP or to sell the lots off to another developer at a loss. They’re both bad situations for a builder, so they have to choose the lesser of the two losses.

What they could do is to reduce the size and quality of the house they put on the lots. It cuts way into their profits but it also cuts their costs and the houses could be priced even lower to attract those buyers who are out there.

[Sandi Egan]

all the builders got together and decided that they would not drop prices again
Hm…Isn’t it illegal? I am not sure, but one would think that kind of agreement violates antitrust laws, doesn’t it?

[LookoutBelow]

You mentioned that you didnt think the property was worth more than 650K ?….Just how did you arrive at that number ? 

In a declining asset market (avalanche) who would be foolish enough to place a number on something  while its sliding down ?

where this will stop nobody really knows, but I can almost assure you that the number you chose for its value (650K) is completely subject to speculation  

If you think its worth that…good luck then, offer that and god bless you, Iam sure the builders will probably sell for that…They are looking for the "Greater Fools" also.  

[no_such_reality]

Sounds like standard wishful thinking gossip and rumors repeated so many times amongst the realtors that they all take it as fact.

One think I learned about realtors is that for the majority, 99% of what they claim is fact is drunk babble other realtors are trying to impress them with at the agent showing or realtor mixers.

[Cow_tipping]

They will stop building, and on a related note, their families pitched in by saying, they are going to go without air as well …
I’d bet … they will sell the lots to some bottom feeder builder, usually someone who is a splinter group that broke off from another bottom feeding builder, and they will go in and build for 1/2 the previous price. Its already happenng in miami condos. Someone is building and selling them for 159,000.
Cool.
Cow_tipping.

[gn]

One of the most well-kept secrets in real estate is: it’s possible for builders to make money, even in a downturn.

When prices go down, builders pressure the subcontractors to reduce construction costs. The subcontractors really have no choice but to comply, b/c all builders are doing this.

The prices of building materials also go down. The crucial thing is land cost. I think the land in 4S was purchased in 2001 or even earlier, so the cost is not so high.

>> If they are at a far along stage, they are not going to stop
I agree with surveyor on this.

>> the floor plan we are looking at sold last year for $880K and is now at $720K
That’s a 18% reduction. What is the size (sq. ft.) of this floor plan ?

[SD Realtor]

Agreed with gn and bugs bigtime. Builders don’t hold on to things. I have a relative at Kehov and he was telling me that they recently repurchased some land that they gave back, (and of course at the deposit)less then two years ago due to market projects… Again it all depends on where they were at in the development cycle. I do not know of the margins that it takes to get an approval for the developers to move forward on land purchases and development. I do know that for products made for tech, at least for one company I have worked at, the projects would not get approved unless there were 50% net margins on the product line in production. Now this was for ASIC development. Again, I do not know what the margins are for a developer to move forward but I would imagine they are at least 40%.

SD Realtor

[robyns_song]

“You mentioned that you didnt think the property was worth more than 650K ?….Just how did you arrive at that number ?”

We just picked an arbitrary number to see how hungry they were. Since they jumped on it pretty quickly, they obviously weren’t doing too well in the sells department.

[wantobuy]

Hi robyns_song, which builder was this? I found that builders were notoriously hard to negotiate. It’s amazing how you could just get them down from $720K to $650K? Is it Silhouette by John Laing Homes? It’s strange to see Silhouette is not selling as well as other communities in 4S ranch like Pienza even it got the the best $/sqft value and the plans look good.

[robyns_song]

It was John Laing. I was actually suprised that they had the lowest price/sq ft as well. They Laing homes appeared to be of the highest quality and best laid-out, in my opinion. At the time we were there, one of the last of phase 2 fell out of escrow…so maybe they just wanted to finish out the phase, I’m not really sure. I really don’t know much about purchasing new homes since all that I deal with are pre-forclosures and REOs…so we’ve taken an interest in watching the builders.

We’ve driven by the home sites and it doesn’t look like they’ve made any progress in the past two weeks even though they are supposed to be sold out of phase 2. I would think that the builder would want to hurry and finish so that they can start putting $$ in the bank.

[SD Realtor]

Hi robyns_song –

I was also curious as this spring it has been really tough negotiating with the builders. Last summer it seemed like they were much more negotiable. So what was the exact time that you got them from 720 down to 650? Sorry if you already posted the exact time, it has been a long day…

SD Realtor

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