Disgruntled Short Sale Buyers Moving To “New” Homes

Written by David Fletcher

Recently, Tampa Bay Realtor Christine Hensley’s $153,000, 1800-square-foot ten-year old short sale canceled unexpectedly. The seller allegedly could not get comfortable with what he would really owe the lender after the closing.

One week later, Hensley’s buyer closed for cash on a brand new upgraded 2100 square- foot Centex home for $170,000 cash, or about $2 per square-foot less than the short sale.

Within two days of asking for interviews from Centex if they had any recent sales resulting from burnt-out, distressed sale shoppers in Central Florida we had three stories and had to withdraw our request.

“I purchased a new home because I will never ever go through a short sale nightmare again in my lifetime,” said buyer Lynn Buonviri. Her dream short-sale fell through when the seller canceled without telling anybody, refused to move out, and would not come to the door. The fact that she had just arrived after pulling a trailer 1,000 miles for the scheduled final inspection, did not help.

“My broker negotiated with the bank and owner for 5.5 months. The stress on both of us was incredible, but the idea of going through this again was unbearable.”

Fortunately, everything worked out for both buyer and broker.

“I couldn’t be happier with my new home, its 10-year warranty and the fact that Christine earned a commission in the face of what could have been a real nightmare for both of us,” Buonviri said. (Disclosure: This happened to be a Centex property, but the same principles apply to all production builders. The author has a professional relationship with Pulte Homes.)

If you didn’t know better, you would think Hensley is a recovering short-sale specialist, with a new-found passion for selling new homes. That’s an understatement. The chances of a homebuilder canceling a sale is about as likely as the United States Supreme Court overturning the law of gravity.

Others think that a short sale or a foreclosure is the best price and therefore, the best value on the market, when this clearly may not be the case. Short sale versus new home pricing is proof that ‘price’ does not equal ‘value’.

Could the ‘new home alternative’ be trending as an option to a short sale purchase?

According to Sean Strickler, Vice President of Sales for the Pulte Group, of which Centex is one of its brands, he thinks so.

The broker community is starting to move in the new homes direction for different reasons than just price, according to Strickler.

Hensley thinks builders should take advantage of the lack of affordable, closeable inventory and should build to compete specifically with short sales in their markets. In her Valrico market, she believes the price point is “around $175,000.”

Strickler said that the Pulte-branded communities maintain an inventory home program specific to each community, “While we don’t want to overbuild in a particular community, our goal is to always have a quick move -in or two for those buyers who don’t want to wait for their home to be constructed.”

No doubt, this is a market-specific challenge, but there is plenty both builders and agents can do to improve sales, starting with confirming what the short sale/new homes story is in your market.

The recommended action plan for real estate brokers:

1. Do not assume you understand the new homes market.

2. Understand the square foot price differences between resales and new homes.

3. Visit sales centers for yourself. Ask questions.

4. Email this column to a builder and ask him to give you his comments.

5. Ask for case studies of short sales buyers who eventually purchased a new home. How long did the new home take to close?

6. Call at least three new homes sales offices. Ask them if they are seeing an increase in short sales buyers who are shopping and buying new homes in your market.

7. Put your findings in writing, so you can show the results to a short sale buyer who may not be aware of the differences in short sale and new home prices.

8. If you confirm a new home alternative, establish a new homes niche to strengthen your short sale program.

Recommended “critical few” action plan for builders:

1. Conduct an informal focus group with productive short sale agents. They have the buyers.

2. Compare recent short sales square foot prices with yours.

3. Educate the broker community.

Are new homes sales trending as a short sale alternative? It’s too early to tell.

If so, home builders and Realtors are finding a most unexpected sales solution – each other.

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