Things have been pretty good for builders the last couple months. After two years of sideways growth, construction activity has been charting upward, builder confidence has been rising, and, in the most positive news of all, there have huge increases in multifamily originations, which suggest future developments for builders to anticipate.
What all that good news does not change, though, is the distressed property market, which still poses the most substantial challenge to not only a construction recovery, but a housing market recovery, and one builder is taking some interesting steps to confront that fact.
We found a “Foreclosure Calculator” website, an application that proclaims to represent the true cost of foreclosed homes. Some developers, like Fulton, based in Arizona, are also adding these calculators to their own websites. Web users are asked to input the listing price of a home, its square footage, and the condition of the property. Then, the application calculates the “real” cost by adding the assumed rehabilitation and legal costs to the overall price of the property – and then, users ar directed to view new construction properties by Fulton in the same price range.
The reason for Fulton’s strategy is simple – homebuilders cannot compete with the irresistible listing prices of foreclosed properties. According to the latest data from RealtyTrac, foreclosed homes are sold, on average, at a 34 percent discount, and no builder, regardless of its cost-management system or labor force, can sell properties for such a price and still make a profit.
Thus, as AgentGenius pointed out in a recent article, Fulton is aggressively promoting its calculator app to dissuade homebuyers from considering foreclosed properties.
“As an example,” the article stated, “a 1,755-square-foot foreclosure home in Arizona listed for $81,500 in ‘poor’ condition that has outstanding liens but no current occupants will cost an average of $42,908 cash investment in the form of repairs, appliances, painting and the like, making the total investment $124,408 … Some consumers believe that the $81,500 price tag is their cost, but when buying a distressed home, it is often much more.”
Foreclosures are expected to increase in the coming months, so builders can expect added competition from heavily discounted properties; Fulton’s strategy, though, is among the more original approaches to the home-price dichotomy that we’ve yet seen. Do you see their strategy working, and reinvigorating interest in new construction?