ALPHARETTA - Expanding on yesterday’s post about house swaps and real estate log jams, here is a slightly different angle to this problem.
Take builders. I didn’t talk about them yesterday.
They are the opposite of the first time home buyer. They don’t have anything to buy, only a lot to sell - as opposed to not having anything to sell and only dealing with a single home to buy like a FTHB.
Builders, of course, are dependent on buyers. Builder are having trouble selling though because, as much as John Q. Public might like to buy, he either can’t sell his house or he is underwater in his house, in which case he needs a snorkel – I mean he might be selling in order to downsize.
The buyer might be credit challenged; sometimes the buyer has a sizable down payment but can’t get a loan because they are self-employed, or don’t have American credit because they are from another country.
So what do builders do about the situation?
Some of them don’t do anything. These are the ones you hear about going bankrupt.
Others get more creative and agressive. They partner with a lender to do low rate or “buy down” loans where the builder pays to buy the interest rate down for a period of time. I saw today where McCar homes is partnering with SunTrust for loans at 4.5% if they close by January 31st. The purchaser must have a 680 credit score to qualify, though.
Some builders will offer to purchase the buyer’s existing home so that they can buy the builder’s new home. This strategy could help, but sometimes the builder is just trading one head ache for another.
I was involved in a deal last year where a builder offered to buy my client’s house. He was going to pay them about 20% less than what it was listed for: His calculation was that my client would ultimately net about that once he paid real estate commission, price concessions and repairs. The deal didn’t work out, but the offer was certainly there and I know similar deals have been struck.
Finally, owner financing is another option that you see builders offering these days and owner financing is closer to what I feel is really going to help break the log jam.
We have a market failure where willing sellers and willing buyers can’t transact because prices are out of whack and credit is extremely tight. However, where there is a problem, there is always a solution in a free market.
What I’m seeing now is more sellers and particularly builders offering financing. In Cherokee, Forsyth and North Fulton counties, there are currently 222 properties for sale where the seller is offering to finance. Most of the same rules apply as a typical loan except your bank is the seller. Like a bank, the seller is assuming the risk that you pay on the loan. If not, they can foreclose…just like a traditional lender.
Even more interesting, now we are starting to offer seller financing coupled with a house trade program to help buyers and builders break the market impasse. Again, where there is a will, there is a way: a free market allows for creative solutions. The lenders screwed things up, so now other parties must assume the role of a bank to unscrew us all.
If you would like to buy a new construction house, but need to sell yours first, we can help with a trade program; or we can seller finance your new purchase if getting a loan is your roadblock. We could also privately finance the sale of your home so you could get it sold in order to buy the builder’s new house.
Our current inventory is sixty homes ranging from $285,000 to the $800′s throughout north Atlanta.
Builders are anxious in this market to understate the situation. They have asked us to do anything and everything to help break the log jam and get their inventory sold. I hate the expression “thinking outside the box” because I think it is thoughtlessly over used, but I do believe some new thinking is required in this market in order to get things done.
The alternative is not pretty. Reference the builder who does nothing. We are now in the snorkel business.