Home builders around the region are luring would-be buyers with freebies worth thousands of dollars, in an attempt to prop up sales in a slowing real estate market.
Pulte Homes Inc. is offering a 42-inch television, free heat for six months or a $5,000 check for window coverings to some buyers. Ryan Homes will finish the basement free. NVHomes will throw in a golf club membership in some developments.
"Incentives are definitely on the rise," said Kenneth Wenhold of real estate research firm MetroStudy. He estimated that since July, when the market began to soften, buyer traffic at new-home projects has fallen off 30 percent and so have contracts. "With all the inventory, buyers now have more choices."
This has been good news for D.C. teacher Kathleen Bergin and her roommate, Mary Wilson, who works as a nanny. The two long-time friends rented in Glover Park for four years and wanted to buy a place in the neighborhood, but couldn't afford it, Bergin said.
They watched as work started in spring 2004 on the Archbold, an old American University dorm being converted to condos. "But we just assumed it would be way out of our range."
However, after a price cut of $30,000, from about $500,000, plus $10,000 for using a designated lender, Bergin and Wilson became first-time homeowners this month.
Builders offer loss-leaders
The number of homes for sale in the Washington area has more than doubled since last November, according to figures from the area's multiple listings service. The last time the Washington region had this many houses for sale was the late 1990s, before low interest rates and a growing job market fueled the years-long boom in home sales.
During that boom, even while houses and condos sold as soon as they came on the market, builders sometimes offered limited year-end deals. They have also routinely given buyers a break for using approved lenders or title companies. But those incentives were nothing compared with what's going on now.
Among the deals showing up in ads and sales offices are upgrades to gourmet kitchens, six months of mortgage payments, a year-long lock on interest rates and tens of thousands of dollars toward closing costs. Many of them have been promoted as year-end or holiday specials.
In the Washington area, incentives can amount to as much as 5 percent of the sales price, according to Daniel Oppenheim, an analyst with Banc of America Securities. One problem for builders, he said: Investors who bought recently are reselling to cash out.
"All of a sudden the new-home builder is not only competing with the resale market but with the exact same home they just completed," Wenhold said.
Deals are most common in the condo conversion market. For instance, Miami-based Crescent Heights, one of the nation's largest converters of rentals to condominiums, has been advertising up to $40,000 in "holiday savings" and two garage parking spaces on "select units" in some of its Northern Virginia buildings, such as the Palazzo at Park Center in Alexandria, where two-bedroom condos are priced "from the $330s."
The condo build-up has led to another change in the market, local real estate agents say. Builders and condo developers who did not need the cooperation of agents when people were camping out in front of sales offices are now courting those same go-betweens.
"Agents are getting bombarded every day now with e-mail from builders, condos especially, offering big commissions and bonuses," said Patricia Kennedy of W.C.& A.N. Miller Cos. in Chevy Chase.
Tuscany Condominiums, a Bozzuto Homes project near Landmark Mall in Alexandria, for example, enticed agents in mid-November with an e-mail headlined: "Here's how we say 'grazie' (thank you) to our Realtor partners!"
The e-mail offered a 3 percent commission for any sale, a Gucci gift certificate for two sales, a trip to the Venetian hotel and casino in Las Vegas for four sales and a trip to Italy for eight sales.
Developer PN Hoffman of the District, whose luxury condo projects have routinely sold out before construction, has surprised some agents by inviting them in and offering buyers a $5,000 closing credit on the Chase Point Condominium in Friendship Heights.
A December survey of 407 builders by the National Association of Home Builders showed 62 percent are offering incentives, compared with 58 percent in September and 51 percent six months ago. Forty percent of those surveyed are including optional items at no charge and 33 percent are paying closing costs or fees. Twenty-five percent were even cutting prices, which many builders say they avoid because it angers earlier buyers.
G. Cory DeSpain, who oversees home building in Virginia and Maryland for Pennsylvania-based Toll Brothers Inc., said: "I don't cut prices. I have to try to protect the value of my homes that I already sold and that people are already living in."
Real estate agent Candyce Clanton of Re/Max Allegiance in Fairfax said: "For the past two years, I couldn't find a builder who would allow investors in because they were afraid they'd flip the properties. . . . Now we get e-mails every day saying, 'Come on, bring your investors, bring them back.' Now they're begging them to buy."