Stupidity = "lacking intelligence or common sense!" So says my Correl Word Perfect 12's dictionary.
At a time when it's become PC, Politically Correct for people to abandon perfectly good homes, even with good loans, because they are "up-side down," with their mortgage exceeding the current value of their home. Builders continue to lure people into these traps.
Besides questionable "Green" options, that may or may not add value or functional utility to new homes, a recent REALTOR® blog offered a "Green" car with the purchase of a new "Green" house.
With out debating the "Green" issue, even the staunchest "Greene" will have to admit that the value of some new "Green" options remains to be proven.
I wouldn't question the popularity of the "Prius" nor the "MRSP" of $20,000.00 to $30,000.00.
The use of so called "Up-grades" and the inclusion of personal property as an inducements for the consumer to buy expensive real property, has been used since the time of Miles Standish, simply put, it works. When the west was settled we offered the aboriginals trinkets and bullets. Such boot is common in both new and existing home sales, the mortgage lenders regularly accept it, provided it is of "NOMINAL VALUE" if you fail to label the personal property, as of nominal value or if you included a dollar amount the lender will deduct the value from the purchase price when determining the LTV (Loan To Value), and require that value to be paid be paid in addition to the down payment and closing cost. There is just no way to call a new car nominal to most home sales.
Builders often get around this incentive problem by owing the mortgage company, most often a mortgage banker. Then, the builder's mortgage company selects the appraiser, who conveniently over looks the personal property, or labels it nominal. (In Las Vegas builders were paying cash back up to $80,000.00 on a $400,000.00 house! How can any one call 10 to 20% of the purchase price. nominal?) Then the builder selects the title company! (This is almost a necessity, for builders to pre-select the title company.) Finally, in addition to the consumer's incentives there are often additional incentives to the selling agent.
The cumulative effect is that the consumer stands naked! Striped of the protection afforded by an independent lender. An arms length appraisal. And, a independent escrow agent/title company insuring the legality of the closing. (Escrow/title agencies insure that the closing is in accordance with the sales agreement and that the closing is in accordance with what the lender thinks is happening.) Most importantly, how can the selling agent honestly represent the buyer when the commission received on the builder's house is substantially higher than on a re-sale property? (We've all seen these incentives, some offering to pay the agent personally!)
Despite the current crisis the most common down payment is still around 5%. Our naked consumer is "up side down" before leaving the closing table! He owes more than the property is worth! Builders continue building and offering incentives, so how is the private owner of a relatively new house to compete? To resell our buyer has to pay 6% to the real estate pro's, about 3% in closing cost, and say $20,000.0 for a new Prius, not to mention a home warranty and what ever discount the buyer demands for closing cost (3 to 6%) say 3%. That's 12% or more plus the $20,000.00 or about $44,000.00 on a $200,000.00 house. Which means the consumer has a $44,000.00 loss when he closes. If they only put 5% down the seller leaves the closing room, a minium of $34,000.0 "up-side down!" God help the consumer, because none of his professionals did!
About a week ago I saw in our local paper the first of the suits to come. The home owner was suing: the builder, the builder's lending company, the builder's appraiser, the builder's title company, the buyer's broker and agent. Personally I hope they win, big! Once the first loss is incurred even the majority of honest professionals are going to get eaten in the resulting feeding frenzy. You, the honest, innocent surviving real estate pro' are going to pay for the sins of the others, because the public and the press paint us all with a broad brush. Guilt won't matter, money will and there is no money going after people who's current job includes asking "would you like fries with that?"
As you drive to your bank to deposit that builder paid bonus check, you may be headed to the poor house, or the big house, and you probably earned it!
Bill
William J Archambault Jr
The Real Estate Investment Institute
