As we have consistently seen in Rich’s articles, very soon the reality and imbalance of supply over demand will create very anxious and desperate builders that have to drop prices and give away incentives to move inventory. This certainly drives leverage to the buyer. Well this reminded me of an article that I recently read in the WSJ that in China there is a grass roots movement among consumers that “organize” an informal cooperative to leverage the buying power of a group versus the individual. For example, if I want to buy a car and find 9 friends who also want to buy a car, the 10 of us organize ourselves and go into a dealership and demand a price concession. The dealership 9 times of 10 gives them what they want. As they do not want to loose the 10 sales, the volume makes up the individual reduced margin.
So I was thinking why could I not apply this same model to buying a home here in San Diego? Why could I not gather and organize everyone else that is interested in the development that my wife and I like and “organize” ourselves. Determine who wants what lot and how much we are willing to pay for what we want. Go to the developer as a group ready to buy and demand what we want. This model would certainly not work a year ago but has a fighting chance as builders become desperate and need to move inventory. They are not going to walk away from selling multiple units in one fell swoop while still making excellent profit margins. This would shaken things up and drive a more equitable sales model for the consumer. Let me know what you think about this idea. Do you think it would work? I think if we are organized and have done our homework and have a finely tuned attack plan, we will be successful and can take back the leverage and demand reasonable prices instead the rediculous costs that builders have been charging. If you are interested, let me know. This is a thought worthy of further discussion. Email me at [email protected].
I like the unusual viewpoints I read here, and thinking outside the box. The strategy you mention would work for a group of buyers who are interested in buying from one seller (or builder) during a normal or increasing market. San Diego does not fit the bill. You could try this in a town with normal appreciation, like Midtown, Nebraska, or Deerville, South Dakota.
In a market overvalued 20-50%, where we are already on the downhill side, I think you would still end up overpaying. Builders are already offering concessions; I’ve read Centex doing $100K reductions in Florida. More will be forthcoming.
Even if a builder gives you a 10% concession, next month he will have a 15% concession to move inventory, and you’ll have lost equity. I read about lots of people who are mad that their builders are selling for $50K – $100K less than they paid just a few months ago.
Personally, my husband and I have avoided new construction due to the small lot sizes. I don’t like homes so close to my neighbor that when I am on the patio or in my pool, they can see me from their upstairs window. I also prefer the spaciousness of a one-story. These preferences require larger lots, a factor that new builders have avoided, as they minimize the fixed cost of land and push us together like chickens in a hen house. I find the whole modern high-density building phenomena abhorrent.
When there is a builder who has houses on real lots (i.e. 1/4 acre to 1/2 acre lots), and prices are back to reasonable levels, I would definitely contact you about that idea! The idea is great, and its time will come.
I’m in manufacturing, and margin is my number one consideration all day long. I’d be interested in finding out what kind of gross margins builders work on. It seems to me, the little guys can’t be making that much money. The big guys yes, but not the little ones. Can anyone shed some light on this subject?
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