EXCLUSIVE REPORTS: Homebuilders pony up with incentives for home buyers

Written by Kate Miller Morton

 

Memphis, Tenn. – From closing costs to interior upgrades to new appliances, homebuilders are increasingly contributing to the start-up costs of home buying.

Once the purview of volume builders only, bonuses have become an expected part of the bargaining for entry level home buyers and similar incentives are creeping into higher end homes.

Reeves-Williams LLC vice president Martha Fondren says the company’s bonuses usually range between $8,500 and $10,000, depending on the location and price of the house. Bonuses can go as high as $15,000, which is now being offered in the nearly completed Cumberland subdivision where the company is anxious to finish construction and move on to the next project.

Fondren says the company has always offered special programs, but bonuses have become important in the last three or four years. She attributes their rise to the fall in the typical home buyer’s savings.

“Nobody saves money any more,” Fondren says. “The purpose then of the bonus program is to help them with closing costs to get into the home. The mortgage companies have come up with special programs for them so they can get in with little or no money as down payment. Then Reeves will kick in money for closing costs that helps them get in the home. They don’t have to borrow.”

Fondren attributes the lack of savings partially to the age of new home buyers.

“There was a time when you got married and had to save money to buy a house,” Fondren says. “People just aren’t doing that. People now expect to immediately buy the home of their dreams. They’re getting it.”

Volume builder Bowden Homes doesn’t have a formal bonus program.

“We don’t do a whole lot of that,” says Jeff Sweeney, president of Bowden Homes. “We have a design center and we have a program that’s called Bowden bonus bucks, and it’s just money we allocate to be used for that design center.”

Sweeney says Bowden opened the design center four years ago to get its sales people out of the decorating business, not because of pressure from other builders’ bonus programs. Bowden does offer several programs that assist with closing costs.

An average Bowden house sells for about $150,000. Sweeney says buyers of these houses could receive anywhere from $1,500 to $3,500 in Bowden bonus bucks. The money can be used to upgrade to hardwood floors, wrought iron light fixtures and marble fireplaces.

“Our goal is to give the best quality home with the most features for the best price, and we try to stay out of the gimmicks,” he says. “Home buyers are smart enough where they can read through most of that.”

John Criswell, a broker at Crye Leike’s Highway 64 Houston Levee office, says builder dollars or bonus bucks began about three years ago when volume builders began offering $5,000 in closing costs or upgrades.

“It just began to escalate,” Criswell says. “Some builders offer a tremendous amount of up-front money. It helps people get into the home for little or no money down, and it does sell houses.”

Criswell represents P&G Capital Partners, which is building 51 homes between Whitten Road and Mullins Station in a subdivision called the Grove in Whitten Forest. P&G is offering $4,000 in closing costs or upgrades on the homes priced between $121,900-$134,900. The company has sold more than 50% of its inventory in the last 18 months.

Criswell says the bonuses are primarily offered on entry level market or zero lot line homes of $100,000 to $150,000.

“Usually if you get a real expensive home people are coming out of another home and have some equity and aren’t looking for all these closing costs,” he says.

Phil Chamberlain, vice president of Chamberlain & McCreery, Inc., says his company resisted bonuses and other special programs for 15 years, but finally caved two years ago.

“We would have people come into the models and kept asking our agents, ‘What’s the builder going to do for me?’ ” Chamberlain says. “We had so much pressure from our real estate agents to get competitive.”

Chamberlain & McCreery now offers a $5,000 bonus in all of its homes, which sell for an average of $215,000. The bonus is contingent upon the buyer using approved mortgage companies and closing attorneys, which Chamberlain says ensures on-time closings.

Chamberlain says his company’s bonuses are among the lowest offered, and that’s not likely to change regardless of any increase in interest rates.

“If we offered more we would have to have a price increase,” Chamberlain says. “This is as much as we can offer without a price increase.”

CONTACT staff writer Kate Miller Morton at 259-1764 or kmorton@bizjournals.com