Comments by "Jeffrey Deuitch" (@jeffreydeuitch2146) on "ZILLOW Home Builders CRIPPLED (1.4 Million Homes Completed in May)" video.

  1. In our area builders have started to court realtors. Builders sell for profit and traditionally had relatively narrow profit margins. Most planned developments have model homes and on site agents. They also have their own ad budgets and campaigns. Therefore, unlike an individual home seller, they have planned marketing on their own and a whole self initiated program. They have not needed outside real estate agents. I have reviewed about 1500 builders contracts. If an outside agent brings a buyer in, there typically is an agent agreement where the outside agent registers the name of the potential buyer. When new construction demand slows, then builders reach out to the realtor community. To pay an outside agent, the margin narrows. Therefore there is resistance.
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  2. Another thing to consider is that a price reduction may be the result of the builder specing in less options and updates. Typically in a new home development, the same floorplan can have many different prices depending upon the options built in to unit. In higher end developments, the differences can be extreme. Therefore you must be careful. For a long time there have been buyer incentives. These are rebates based upon the magnitude of the options specified. This is nothing new and not related to market conditions. When conditions truly slow, as in the GFC years, the resales from private individuals fell below the current cost of construction. Therefore it was better to buy a 2 to 3 year old resale then to contract for a new build for same model in same development. In those years, the builders had often quit building new builds and left the development. Most large builders do not continue new starts when no longer profitable and most do not build a bunch of spec homes. One builder I work with does begin a,bunch of new starts, then begins marketing at about 60% completion. This has been done to buffer the impact of rising materials and labor costs and price rises have been implemented prior to marketing to offset cost increases that occur during construction. There is much more to the equation than one might guess.
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