From the Seattle Times


Developers dangle discounts, toys to lure home buyers
By Elizabeth Rhodes Seattle Times business reporter
Puget Sound-area new-home developers, motivated by an increasingly soft real-estate market, are resorting to something they haven't done in years. They're enticing buyers, like Matt Orlando, with big TVs, motorcycles and other inducements.
The deal sweetener that eased Orlando into his first home was a $3,000 credit toward closing costs on a one-bedroom condominium in Veridian Cove, an extensively refurbished new conversion in North Seattle.
The first year's homeowners dues, at $197 a month, also were waived.
"I feel like I won the lottery," says the Shoreline Community College instructor. "They were basically giving me $5,000 to move into a beautiful place I could afford."
Incentives started appearing in late summer and are the best they've been in more than a decade. Indeed, until this year, builders could count on selling many new homes before they were even built.
Now there's a four- to 13-month inventory in King and Snohomish counties of new houses, town houses and condominiums available, according to New Home Trends, a Bothell data-research firm. That's spawned a goody-laden battle for buyers.
Schneider Homes, for example, offers six months of no mortgage payments. Everett's Sage Condominium offers a flat-screen 42-inch television.
There are also free custom closets, Nintendo Wii's and Apple iPhones being dangled by various developers.
And perhaps most plentiful are "buyer bonuses" of $3,000 to $30,000 that can be applied to a new-home purchase in various ways. Those are mere nibbles compared with the main course: up to $100,000 off the original price of a condominium in Bainbridge Island's Meridian complex.
"I call it the battle of the buyer incentives. How high can the bar go?" says Rebecca Ungar, who's marketing Veridian Cove.
However enticing the deals may sound, some marketers are quietly saying that buyers should carefully read the fine print to make sure the bonus is a true benefit. Not all are.
Propelling the incentives trend are sluggish sales caused by the mortgage industry's continuing turmoil.
While interest rates are near 30-year lows, lenders have tightened income requirements and mostly eliminated mortgages with no down payments that became popular in the past two years.
"We got the mortgage flu, and got a few more homes on the books than we'd like to be carrying right now," confesses a local home builder who declined to be named because he's prohibited from talking to the media. "There have been an awful lot of homes that came back to us" after the initial buyers backed out.
Several housing-industry pros stressed, however, that the malaise has led to few actual price cuts. Incentives are more likely, and even they're sporadic.
Buyers of new condos and new condo conversions are more likely to see inducements. Statistics explain why.
Rather than having a glut of new houses, King County actually had 19 percent fewer available last month than a year ago when sales were stronger. That's according to New Home Trends.
The county's 895 unsold houses worked out to almost four months of standing inventory, far below the eight to 12 months considered oversupply, calculates Doyle Beekley, the firm's vice president of sales.
Snohomish County had 42 percent more new houses on the market last month compared with a year earlier. But that was still just 5.9 months of inventory, Beekley says.
New condominiums (and town houses combined) tell a different story. Both counties have significantly more than a year ago.
As a result, last month King County had 11 months of available inventory and Snohomish County had 13.
Even so, incentives are much more likely to be seen on entry-level units and those in suburban locations, real-estate experts say.
"I just toured downtown [Seattle] new condominiums, and no one is offering any incentives," notes Leslie Williams, president of Williams Marketing, a real-estate marketing firm.
Williams says the lack of incentives makes sense because new downtown condos are aimed at affluent, often repeat buyers who don't need a financial nudge. "Those buyers have cash."
But often first-timers don't, and buying even in the best of times is a stretch. Incentives like paid closing costs have opened doors they perceived closed when lenders clamped down and zero-down-payment mortgages waned.
"The slowing of the real-estate market wasn't as much of a deal as just meeting the financial needs," Ungar says. "We just want to address helping people who might have an issue with the tightening of the mortgage requirements."
Indeed, the $5,000 in financial incentives is what sealed the deal for Orlando, who had been a renter on Capitol Hill for a decade. "The thing about this place is it was affordable," he says.
As for tangible gifts, "I don't know that the Mustangs and the barbecues and the motorcycles work," offers Vern Holden, owner/broker of Windermere's Mill Creek office. "But in this kind of market the buyer bonus does; they can use it to buy down their interest rate or pay their closing costs. The others are hooks ... more of a marketing ploy."
A Pierce County builder learned that when he tried to lure buyers to a $489,000 new house with a plasma-screen TV. There were no takers, so he lowered the price and threw in a new $23,000 Harley-Davidson motorcycle.
"We didn't get any bites, any low-ball offers, nothing," recounts real-estate agent Jeff Jensen, who suspects the combination of large house and tiny lot, in an area where that's uncommon, kept buyers away.
Others buyers are hesitant because incentives are insufficient to calm their unease about current real-estate conditions.
"As a first-time buyer in this market," says Brandon Smith, "not only would I expect an incentive to help pay closing costs, but I would also need to feel I wasn't paying a price based on the real-estate frenzy of the last few years."
That feeling caused Smith to cancel a recent deal on a new Everett condo. The developer offered a $7,000 buyer bonus, but Smith decided the asking price was too high.
"Sure enough, just days after I backed out of the sale, the asking price of all units in the complex were dropped by 7 or 8 percent," Smith says.
Buyers lured by incentives should read the fine print, one condo marketer cautions, because the deal may not be as rich as it appears.
Some developers are offering incentives, like paid closing costs, and simultaneously taking away standard perks, like an assigned parking space. Trading one benefit for another isn't illegal.
If some developers are offering incentives now, would buyers be smart to wait, hoping the lures will get richer and prices fall?
Perhaps not surprisingly, developers and marketers say no.
Analyst Beekley agrees. Like car dealers, developers are using incentives to try to end the year on a positive sales note.
"We're anticipating first of the year some of those incentives will go away, and prices will increase," Beekley says.
If not then, soon, he says, if for no other reason than this:
The region needs 10 years' worth of building lots in the pipeline to stabilize sales and prices, he says.
Because of land's shrinking availability and high prices, King and Snohomish counties have but six, Beekley says, which means the area may eventually have a new-home shortage.
Elizabeth Rhodes: erhodes@seattletimes.com
Copyright © 2007 The Seattle Times Company