Price slash

The builder of this Firestone home has slashed its sales price. That's just the beginning. Denver-area home sellers are offering all sorts of incentives to move their bloated inventories.

John Rebchook, Rocky Mountain News

Published August 16, 2007 at midnight

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Home builders, real estate agents and sellers in the Denver area and across the country are going to new extremes to attract buyers in an increasingly sluggish housing market.

Denver-area home sellers from Firestone to Castle Rock are slashing prices and kicking in everything from free plasma TVs to paying homeowner association dues to entice people to buy.

In recent years, home builders have constructed too many houses in areas that have gone from hot to cold - including the north Interstate 25 corridor - saddling them with huge supplies of inventory.

Reduced prices, increased incentives and a "high level of competition" led Denver-based MDC Holdings Inc., parent of Richmond American Homes, to take a $161 million write-off on land and housing inventory, according to a recent SEC filing.

MDC, one of the largest home builders in the nation, said nearly 50 percent of the charges are in California, but Arizona, Nevada, Florida and Colorado also are affected.

Other national home builders, such as Beazer and D.R. Horton in Denver, are offering about $100,000 in price reductions on some hard-to-sell homes.

In one case, D.R. Horton knocked down the sales price of a 3,201-square- foot home in Firestone, near Interstate 25 and Colorado 119, to $299,990 from $394,720, or 24 percent. The home has four bedrooms, 4 1/2 baths and a four-car garage.

D.R. Horton also is offering an additional $1,000 in upgrades.

Housing consultant S. Robert August doesn't like the practice of builders slashing prices.

"It devalues the homes of previous buyers," which contributes to the record foreclosure numbers, when a homeowner who bought a house in the same subdivision for a higher price has to sell, August said.

Not all builders are embracing the practice.

"We currently are not offering any incentives to home buyers," said Jason Lindaman, spokesman for KB Homes. "And we have not increased the Realtor/broker commission. I know that there are some builders in the marketplace that are offering incentives, but we are not. We price our homes as competitively as we can."

Still, some sellers, especially in suburban Denver, are offering incentives themselves.

"Sellers are offering anything to get their homes sold," especially after their home has been on the market for more than 30 days, said Lisa Rowe with Realty Oasis/Metro Brokers.

She said home sellers along the E-470 corridor in Aurora, for example, are competing against giant builders.

Sellers are paying the closing costs for buyers and, in some cases, paying homeowner association fees, which can run $300 a month in some Aurora condo projects, Rowe said.

Chad Corbett, a broker with Prestige Realty Group, is listing a two-bedroom condo in Aurora at $125,000, which is $15,000 below the assessed value.

The owner also is tossing in a "brand-spanking-new," 42-inch plasma TV.

Another seller Corbett is representing is offering six months of free golf to a buyer who pays full price for a condo in Windsor Gardens.

Just this week, Corbett lowered the price of another home by $10,000 for four hours on behalf of a buyer, but to no avail.

"We did manage to get a few showings but no contract," Corbett said.

He also heard about a seller offering a free trip to Hawaii a few months ago, "but things like that are fairly rare," he said.

Jim Pieters of Pieters Realty said the last time home sellers in the Denver area were offering big concessions was during the economic downturn following the energy crash in the late 1980s.

"I think we're coming around to that point, although they're not as aggressive today as they were in the late '80s," Pieters said. "But (sellers) are finally starting to get the picture."

Unlike the '80s, home prices aren't falling across the entire metro area.

Many Denver neighborhoods are still strong, he said.

"Bonnie Brae, Washington Park, Congress Park - they seem pretty immune," Pieters said. "But if you go to Adams County, I would guess values have dropped at least by 10 percent and probably by 20 percent."

Michelle Odenbach of Prestige Real Estate agreed.

"In some sought-after neighborhoods, like DU, Harvard Gulch, northwest Denver, it is by no means a buyer's market, and we are not seeing any incentives if the home has been recently remodeled and is priced right," she said.

For example, a home in northwest Denver this month sold for the full asking price of $425,000, before the Realtor even planted a sign in the front yard.

"Now, if you go down south where Richmond and Shea are building, it's a different story," Odenbach said.

Last year, John Fritzel of Paragon Real Estate and Development offered a luxury Mercedes-Benz to anyone who bought a $2.45 million home his company had built in Cherry Creek North.

Instead of the car, the buyer "just got a big price reduction," Fritzel said.

Denver buyers typically prefer a price cut to exotic incentives such as cars, he said, although in his case, the publicity about the Mercedes helped him sell the home.

The market for new homes in established, urban neighborhoods, known as infill developments, has cooled, Fritzel said.

"If your home has an unfinished basement, which is becoming more uncommon in central Denver, the builder typically finishes it for you" at no extra charge, he said.

"Mostly, people are just getting a big price reduction," Fritzel said. "There are some infill homes on the market for $2.5 million, and the offers are coming in at $200,000 or $300,000 under that, and there's not a lot of counteroffers. Nobody seems to be married to a specific house."

In other words, they're willing to walk away from one house to shop for a better deal.

What the slow market cycle will do is weed out the "ma and pa guys and the doctors who had a couple of extra hundred thousand dollars" and thought they could make a killing tearing down a small house and replacing it with fancy townhomes or a large single-family home, he said.

"Usually, these people make some pretty expensive mistakes, and it is pretty easy for their interest carrying costs to get to $10,000, $15,000 or $20,000 a month," he said, forcing the owners to throw in the towel.

Fritzel expects a "pretty slow fall and winter" with the market picking up next spring.

Bargain bin?

With the housing market looking increasingly frail, home builders and real estate agents are going to new extremes to attract buyers, dangling lavish incentives and slashing prices. Some home builders are:

• Cutting prices of homes in the $400,000 range by as much as $100,000.

• Throwing in upgrades, such as finished basements and landscaping.

• Increasing commissions to brokers who sell their homes.

• Paying HOA fees.

• Covering buyers' closing costs.

• Tossing in amenities, such as new plasma TVs and sports cars.

Cracks in the foundation

Sales of existing homes fell in 41 states during the April-June quarter, while home prices were down in one-third of the metropolitan areas surveyed, a real estate trade group reported Wednesday. The new-home sales figures from the National Association of Realtors underscored the severity of the housing slump, the worst downturn in 16 years. The results for the second quarter vs. the same quarter in 2006:

• States sustaining the biggest drops in the quarter: Florida, 41.3 percent; Nevada, 37.5 percent; Arizona, 23.4 percent; Tennessee, 21.5 percent; Maryland, 21.1 percent; and California, 19.8 percent.

• States showing increases: Wyoming, 10.8 percent; Iowa, 4.1 percent; and North Dakota, 2.9 percent.

• Nationwide, sales of existing homes totaled 5.91 million units, down 10.8 percent.

• The national median sales price in the second quarter was $223,800, down 1.5 percent from a median price of $227,100 in the spring of 2006.

• Among the country's largest metropolitan areas, price declines were in Detroit, 7.2 percent; Boston, 2.1 percent; Phoenix, 2.8 percent; Cleveland, 7.2 percent; Sacramento, Calif., 6.3 percent; and Tampa, Fla., 3.9 percent.

• Price gains were in New York City, 1.7 percent; Los Angeles, 3 percent; Chicago, 1.7 percent; and Dallas, 1.7 percent.

A separate housing report found the industry is still being battered by the rising number of home foreclosures, particularly in the subprime mortgage market, which provided loans to borrowers with weak credit histories.

• The National Association of Home Builders said its survey of builder confidence for August dropped by two points to 22, its lowest reading since January 1991, when the country was also caught in a severe housing downturn.

"Builders realize that issues related to mortgage credit cost and availability have become more acute, filtering some prospective buyers out of the market and prompting others to delay their decision to purchase a home," said Brian Catalde, a home builder from El Segundo, Calif., and president of the home builders group.

rebchookj@RockyMountainNews.com or 303-954-5207

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