The Real Deal New York

Fire sales prompt deals in South Florida

By Robyn A. Friedman | March 31, 2008 02:03PM

The ads scream from the pages of
local newspapers: “Original price: $1,002,488. Sale price: $803,358. You save: $199,130.” “Deals of a lifetime weekend event: Make us an offer!”

It’s no secret that new home builders are slashing prices on houses in South Florida. But lately, buyers have been getting off the sidelines, and inventory — in some locations — is starting to move.

Just how low are prices going? And how big are the deals that buyers are picking up?

Ask accountant Karen Harris. In January, she closed on a four-bedroom, two-and-a-half-bath house at Sunset Falls in Miramar, a project by Sunrise-based G.L. Homes of Florida. Although the 3,412-square-foot home was originally priced at $545,470, Harris paid just $417,000, a savings of $128,470, or 24 percent. Plus, G.L. threw in extras: 16″-by-16″ tile downstairs and a waiver of its 1 percent builder’s fee. Harris said G.L. even offered her a credit for closing costs that would have amounted to $7,000, but her bank wouldn’t allow it. “I was there at the right time,” she said. “I negotiated, and they worked with me.”

The fire sale on new home
pricing in South Florida is being driven by a confluence of excess inventory, low buyer interest, record-low levels of builder confidence, and pressure on builders to cover escalating
carrying costs, which are eroding profits on existing inventory.

“It’s very difficult for homebuilders right now,” said Brad Hunter, director of the South Florida division of Metrostudy, a housing industry research and consulting firm. “There’s still downward pressure on prices.”

Hunter said that in addition to the apparent market factors, builders are starting to feel squeezed by competition from local banks, whose inventories of new homes are swelling due to builder foreclosures. “Up to now, banks have been very stubborn about pricing the homes in their inventory,” he said. “I think later on this year, we’ll see more and more of them taking lower bids for the properties just to get rid of them.”

Hunter said new home builders have already slashed prices by 20 to 25 percent from their peak. The greatest discounts are available on the Treasure Coast, he said, where housing projects from Fort Pierce up to Indian River County are under the most stress.

Builders are taking varying approaches to cope with the challenges of today’s market.

“We negotiate on price, options, upgrades and closing dates,” said Marcie DePlaza, division president of G.L. Homes. “We’re even doing special incentives where we put in window treatments, accessories and light fixtures. Those are all incentives for a home purchase, because the house is then in move-in condition.”

Buyers can grab houses at prices 20 to 25 percent less than they were a couple of years ago, she said.

G.L. is also buying down interest rates, offering free homeowners association dues and throwing in other perks to make deals — depending on the demand for the project, for the particular house, its location and how long it has been on the market. Buyers who are already prequalified for a mortgage are considered “a hot prospect” and have the most leverage.

Coconut Creek-based Minto Communities is using a different approach to sell homes in a tough market. “We started working on new product in the spring of 2006, when we started to really see that the market was going to deteriorate,” said Harry Posin, the firm’s president. “We’ve introduced all new product in every one of our communities.”

At Olympia, a Wellington community that Minto has been selling since October 2001, new models are what Posin called “market-priced — not where the market was, but where we believe the market is today.”

According to Posin, a buyer can pay 30 to 35 percent less for a lot with a newly designed model at Olympia than for the product originally planned for that lot. As long as buyers have good credit, they can pick up homes at 2003 prices — before the run-up started.

Condominium developers are discounting the prices of new units as well, said Peter Zalewski, founder of Condo Vultures, a market analysis firm in Bal Harbour. But despite the glut of available units, he said builders are reducing prices only by about 10 to 15 percent, choosing instead to wait and see if they can move unsold or defaulted units in bulk to the various funds searching for block purchases. “No developers or lenders that I am aware of are willing to discount units on an individual basis by more than the deposits kept from defaulting buyers,” he said.

Zalewski believes what will really drive pricing of condos is the foreign market. “If foreign buyers are willing to accept minor discounts of 15 percent off original pricing, the developers will be fine,” he said. But “if the foreign buyers want deeper discounts, the market could get bloody.”

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