The pros and cons of builder incentives
Letter to the Editor
By Inman News, Wednesday, January 14, 2009.Re: 'Builders get reprieve on incentives' (Jan. 12)
Dear Editor:
There is in fact much evidence to support the U.S. Housing and Urban Development Department's charge that builders have been over-offering incentives and then "charging a higher interest rate, increasing a home's price, or inflating closing costs."
On the flip side, there is much to be said for using a builder's preferred lender, particularly when it comes to condominiums and condo conversions, since lending has become all but impossible on some of these projects.
Would-be buyers who think they have their lending squared away with an outside lender usually find that they are ultimately unable to close on their purchase. This is frustrating for all parties, particularly the developer who knew that would be the likely outcome. With a preferred lender a buyer knows that the project has already been approved for lending, saving paperwork delays and assuring a clean close for all.
In short, there are concerns on both sides. Hopefully a sensible compromise can be reached that will satisfy HUD and protect the public while allowing builders to move their inventory.
Marcus Burke, broker
Orlando Real Estate Pros
Condo Metropolis LLC
Orlando, Fla.
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Submitted by Ted Jernigan on January 14, 2009 - 4:55am.
How many of the failed closings are due to appraisals that don't measure up? As a buyer I would appreciate having an independent appraiser as opposed to the appraiser hired by the builder's lender. Values are changing rapidly in some markets and independent appraisal should help keep some reality in the process for the seller as well as the buyer. I think this is a bigger issue than whether the buyer is being charged more in closing costs because they have been hidden elsewhere in the transaction.
Ted Jernigan
Ebby Halliday REALTORS
McKinney, Texas 75071
Jernigan@ebby.com
972-489-6173
Submitted by Emmanuel Scanlan on January 14, 2009 - 5:08am.
I believe Ted Jernigan said it well! That is the reason for "independent" parties handling the various parts of the transaction. After all the writer himself has intimated the problems with "preferred vendors" in his statement:
"Would-be buyers who think they have their lending squared away with an outside lender usually find that they are ultimately unable to close on their purchase. This is frustrating for all parties, particularly the developer who knew that would be the likely outcome."
There is no reason for the builder to be concerned about closing if they are 100% above board on the deal.
Emmanuel Scanlan
PS Inspection & Property Services LLC
www.psinspection.com
Dallas & Fort Worth, Texas
Knowledge is power, but sharing knowledge brings peace!
Submitted by Stephen Graham on January 14, 2009 - 10:33am.
In response to Ted Jernigan, I believe there is a new law on the books that require lenders to use approved appraisers. So, hopefully, that will address your concern, as it is an earnest one.
If that concern is indeed rectified, then preferred relationships should still be acceptable. Consumers, as logic suggests, often receive more priority in these situations.
Associate Broker | Buyer's Agent
www.realtown.com/BuyersAgentGeorgia/blog
www.georgia-new-homes.net
Submitted by Francene Grewe on January 14, 2009 - 3:23pm.
While I agree that pre-selected lenders can work in tangent with builders and not offer the most competitive package to the buyer - there are definitely times when this is a benefit for the buyer. If you are dealing with a condominium project, for instance, that has not achieved standard pre-sale requirements for delivery to FNMA, or if it is an "unwarrant-able" project that the construction lender is willing to put on their books - then the buyers are wasting their time shopping this deal. Most buyers, and sometimes even novice loan officers, will fail to recognize the inevitable - you're not going to close this deal.
Submitted by Lenn Harley on January 15, 2009 - 2:33am.
I've specialized in new home sales since the 1980s and I can say without qualification that builders need to have some control over the selection of the mortgage company used.
A builder who sells 2-5 homes a month and may have 10-20 homes under construction at any time, cannot operate with any efficiancy dealing with 10-20 different mortgage companies selected by home buyers. Buyers are far too likely to "go to the Internet" and select a lender by a published interest rate thinking that is the only criteria for financing their new home construction.
If builders have to accept any lender selection of the average buyer who does not know the difference between a mortgage broker and a direct lender, lender fees, points, appraisals, etc. the only result will be much higher prices for the homes to offset the nightmare of dealing with multiple lenders.
The folks at HUD have no knowledge of new home construction dynamics and should not try to tell builders how to run their businesses. This nonsense does not protect the interests of consumers, but is probably the result of some political pressure by some interest group, probably a mortgage industry group.
Lenn Harley
Broker
Homefinders.com
http://www.homefinders.com