Buying in 4s a suckers deal?

[Alex_angel]

I’m looking to buy a home in 4s but after reading through the posts here I feel it might be a suckers deal right now.

I see ads in the paper of people selling a home for $825 but the builder is selling them off for $700. Honestly, who is going to pay these resellers what they paid two years ago when today you can buy it brand new for 20% less.

The main problem is when to bite and buy-in. It seems that a lot of builders have simply stopped building and I am afraid to buy and have the remaining lots sit empty for years until the builders sells the land to someone who puts up a large condo right next door.

Buying a second hand home is out of the question since brand new is cheaper right now but still way overprices for what you get.

[LookoutBelow]

I'm looking to buy a home in 4s but after reading through the posts here I feel it might be a suckers deal right now.

With all the articles being published, anecdotal evidence from the water cooler crowd and dominating everyone elses conversations since the new year, it is apparent that you my friend, have a "profound grasp of the obvious"

Not trying to be a smart ass here, ….but have you been living under a rock since 05 ?……Hasn't this "possibility" crossed your mind at least ONCE since then ?

 

[Alex_angel]

I am well aware of the housing situation but I was wondering about 4S in particular. It just seems to me that these builders can’t be trusted. They show you a map of lots for future homes but have been sitting on the same phase for months. Is there any restriction as to what they can build if those remaining lots stay empty? In one part of 4s it looks like they are finishing a huge 5 block apartment compex. They might be calling them condos but they are apartments. Its kind of sad buying a home for $800k when across the street will be this loud busy complex with tons of traffic and noise. How can anyone be sure that if they bought away from this that the builder won’t decide homes aren’t worth it and try to throw up a condo right next door to you on the unsold lots where you thought only sfr would be.

I look at some areas such as Carmel Valley and although the world of real estate is collapsing that area is still growing and prices remain strong. Pardee refuses to dip prices and still has a huge amount of land they are preparing for more homes.

Some areas are in duress while others are still booming. It seems people are still buying. I’m not sure where they get the money from but it is still happening.

[gn]

Alex_angel,

So, you look at sales in 4S Ranch being weak & sales in Carmel Valley being strong and you wonder: why the discrepancy ?

In a downturn, there is always a “flight for quality” and a tendency to “dump the dumps”. That is, prices in the less desirable areas go down first. The more desirable areas are NOT immune to the downturn. They are merely behind the less desirable areas.

The real estate market is like a giant oil tanker. It takes a while for it to change direction. We are in the midst of that process right now.

[Carlsbadliving]

If the lots have already been created, then they are part of a final map (subdivision). The builder will be required to build as outlined on the recorded final map. Additionally, 4S would have an approved Master Plan that lays out all development within the Master Plan area.

For a builder to build something other than a single family home on any of those lots that originally called for single family would be a lot of work; Master Plan amendment, new final map, public hearings, etc.

I’d say that you can be pretty sure that any empty lot next to an existing home will be built (eventually) as originally called for.

[Bugs]

They won’t be changing the General Plan or the zoning for a parcel that already has a recorded subdivision map.

However, there’s nothing stopping a developer from drastically changing the design and quality of subsequent phases in a project. The only question is whether or not it’s profitable to do so. It hasn’t been profitable to do so during this economic cycle but I’ve seen where it has happened a few times during previous cycles. You’ll be driving down a street in a subdivision and all of a sudden you’ll see smaller and inferior quality homes that were built later in the cycle.

Seeing as how there have been a few subdivision site sales between builders, it wouldn’t surprise me to see a couple mixed neighborhoods spring up.

[Alex_angel]

Bugs,
that is the scary part. That old saying about birds of a feather. Well you want to live in an area with the same income level that you’re at. People at different income levels have different expectations. You’d hope in an area that has an average home price of $800k that it would be quiet and that the majority of people are working professionals and will not be partying it up on a wednesday night. Now all of a sudden the builder decides the 3000sqft homes won’t sell and put up a bunch of 1500sqft homes for $400k. Is is a different demographic now. All of a sudden things change.

The dumb San Diego thought that an area must be good because its expensive does not hold true.

If you look at an area like Rancho PQ. 5 years ago the avg home price was $200k. Now you move in for $700k, your mortgage is probably 5 times higher. You have no equity and are barely scraping on a $130k salary by while your neighbour works at a 7/11 and is paying $800 a month for mortgage.

[gn]

Bugs,

>> Seeing as how there have been a few subdivision site sales between
>> builders, it wouldn’t surprise me to see a couple mixed
>> neighborhoods spring up.

Are you saying the following ?

Let’s suppose that a builder plans to build 100 homes with sizes ranging from 2800 – 3500 sq ft. Half way through, with sales being very slow, the builder can sell the remaining 50 lots to a “low-quality” builder.

This low-quality builder will then build 50 low-quality/smaller homes.

[Bugs]

That about sums it up. I’ve already seen some so-called “Bulk Sales” wherein a developer sells off 20 or 30 recorded and finished lots to another builder. “Finished lot” meaning the site improvements prior to construction of the structure have been completed: streets, curbs, gutters, rough grading, etc.

I just got done appraising a small subdivision project up in the Temecula area and ran across a couple sales like that among my data. A developer is sitting on a recorded subdivision map and the sales of their finished homes is moving too slowly so the holding costs for the lots is eating them alive. They sell off a portion of their project to another builder and that reduces their holding costs as well as providing some cash to continue on with their Plan A.

The new developer buys the finished lots and proceeds to build what would amount to a project-within-a-project. The only thing that would stop the 2nd builder from going smaller/cheaper is if they have already agreed in advance not to do that as part of the sales agreement; if there are private deed restrictions or CC&Rs that would prevent it; and/or they paid too much for the sites to go smaller and still clear a profit.

I wouldn’t expect to see it happen as a result of the original developer changing midstream as I would expect it from successor builders who get the lots cheap as a result of a weaking market.

[Cow_tipping]

I have seen large expensive homes getting built first, and the second builder builds large inexpensive homes. Heck. larger inexpensive homes. Poplar woods in Concord NC. I know, I built one of those inexpensive homes and never closed cos I fought with the beazer.
Brief history – Start out in 96 with Shea and David weekly build 3000 sqft at 100 a sqft. After 50 or so they bail with beazer comming in as the builder. Through 98-99 beazer builds ~240K for 3000 sqft. Side by side comparisons actually make the beazer look better atleast on the outside. Then they build their next cheaper set cos 98-00 the market got very slow in the area (.com migration in part, 1000’s of people left the area leaving Wachovia and B of A) at ~60-70 a sqft for a smaller house. Which is significant cos smaller means more $$ per sqft really. Then in 02 on the last 6 lots they build their pure tract build 2600 sqft for $50 a sqft. Nice house, but cheap. Also of note is that beazer bought Squires in 2000 I think and that might have changed their management philosophy.
In any case, in a down market, lot selling cannot be good news for the previous FB’s. The new builder will screw them with no qualms. They are after all, not their customers, they are their competitors customers. I’d suggest they get ready for the shafting of a life time. And that is even before the foreclosures hit. Watch as the whole area drops to 1/4th its value when its all done.
Cool.
Cow_tipping.

[temeculaguy]

Those apartments in 4s you speak of are what is called “mitigation housing.” It was always part of the 4s plan from the beginning and was required to get approval of the master plan. In the past they would put senior citizen housing to satisfy that requirement but I’m not sure they can get away with that now. The new Sheriff’s station is adjacent to that mitigation complex, which should comfort the community a little.

As far as developers being able to change directions and build smaller or cheaper homes, they certainly can. It all depends how far along they are and if it makes any sense. If the road and utils are already in, it will cost too much to change the lot size, plus there is a cost and hassle to get the county to modify the original plan and the screaming owners at public hearings, but make no mistake, it is never set in stone, especially if it is still raw land. In 1992 I lived across the street from finished lots and finished streets that sat empty for years (and I was fearful of what might end up there) but ultimately another company bought the land and actually built bigger houses, it’s whatever makes sense to the builder and what they think will sell, not the existing owners in a development. Understand that a bunch of small houses or a bunch of “non granite counter” houses pay more in property tax than vacant land and it makes a noisy segment of the population happy because it is affordable housing. NIMBY doesn’t work as well when the builders are losing money and the county is not collecting taxes while the schools are half empty. If it makes sense to change course, then change it will.

I agree with the other posters that the first tactic they use is to sell off to a different builder who will build out with lower quality but only if it makes financial sense to them. Want to know exactly what will happen, buy the last house built.

[MANmom]

MANmom

Yes, having a big new home in a new area is nice (we had one in 1995) but don’t forget those Mello-Roos and CFD taxes not to mention HOA’s…some new homes have more than one HOA. Ask the builder to give you an estimate of those costs before you even look at the houses. You are looking at sometimes $700-1,000 per month extra. Kinda makes that older house with a huge backyard in Rancho Penasquitos look better and better. Most homes there have little or no Mello-Roos, and no HOA. I, however, am a fan of a small HOA, don’t particularly like a neighbor with a crappy lawn. Until they suspend those taxes, though, I am staying in an older well-established neighborhood and pocket that extra $700+…

[Author]

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