This past weekend saw some big homebuilder promotions. I decided to take a little field trip to check out the "hot" deals at a few of them- Beazer Homes, Pulte, and Shea Homes. And it was hot here in Phoenix- fortunately all the builders were giving out water bottles, and Beazer had ice cream. I made it to a couple 
of Beazer developments, another by Pulte and one by Shea.
By far the most impressive list of specials was at Beazer’s Vilaggio at Montelena in Queen Creek- here’s what was on their list of inventory homes:
However, before you run to sign on the dotted line, consider a Motley Fool article from last Friday , [Hat tip L!] which raises some great questions on builder specials. It warns:
Watch out for savings that sound huge
"Up to $85,000 in savings!" trumpets a recent D. R. Horton ad for a development in Florida. A Pulte ad in California late last year offered a "$99,000 discount," as well as a host of upgrades and special financing options. The question you have to ask is: Discount from what? When Ford (NYSE: F - News) or Toyota (NYSE: TM - News) offer a $3,000 incentive on a slow-selling model, it’s easy to understand what’s going on: They’re offering a discount from the factory’s price for the car, which is a widely published, established number.
But when a builder offers a $99,000 discount on a newly built home, are you really buying a $300,000 home for $201,000? Or are you paying $201,000 for a home that’s really a $190,000 home spiffed up with marketing smoke and mirrors? In order to understand if you’re really getting a discount, you need to have some idea of what the home’s fair value is in the current market. Odds are, you’re not getting as big a bargain as the advertising implies — and you may be getting no bargain at all.
There is another point to keep in mind–these specials come with strings attached: [Sales people also reiterated this to me.]
Pulte disclaimer from their list of specials: [Pulte was offering a straight 10% off ]
*Offers valid only on new contracts executed between June 22, 2007 and June 24, 2007. $10,000 "bonus cash" may only be used toward closing costs and/or select home options. See a Pulte Homes sales professional for full details on savings. To receive incentives, must elect to participate in the Pulte Buyer Rewards Program, which included financing through Pulte Mortgage LLC.
From Beazer:
*Prices and incentives subject to change without notice. All incentives are tied to working with Beazer Mortgage.
From Shea: [Escala at Seville]
$4,000 Closing Costs &$5000 Options using Shea Mortgage!
Detecting a theme here? Again from Motley Fool:
Just like car manufacturers, homebuilders have discovered that offering financing to their buyers can smooth the sales process while adding a significant revenue stream to their businesses. And just as with car-buying, sometimes the "factory financing" is a good deal and sometimes it isn’t, especially if it’s combined with other incentives. A $10,000 "cash back" promotion that requires you to use a builder’s lender and pay above-market rates or fees may be no bargain.
I tried to get any of these guys to explain what kind of deals their lender could give me, but no one was forthcoming. I turned to a local broker to see what his experience was with builder financing. He said:
An agent I know went with a client to look at the Pulte specials. They were wondering about the incentives and financing. The agent told me that they quoted her 7.875%. I assume that is one 30 year fixed loan with $10,000 in closing costs. The realtor told the home buyers "Wow, that is really really high," then she said to Pulte "What if we use our own lender?" They said they would not give the incentives and let her walk out.
If this was one loan I would be able to close a $300k home at an interest rate of 7.25% (all one loan 30 year fixed) and closing costs of closer to $6000 ( I would need at least one point to make that rate work. Without a point I would ask for a rate of 7.5%) An 80/20 would price out at 6.75% and 8.25% with a 720 score and a point and no point would be 7% and 8.25% (I never mess with the second it is already so high)
It looks like the lending company is charging four points (2 on front and 2 on back, the most you can legally charge) then giving a kickback to the home builder to cover the incentives.
[The kickback would ony cover a portion of the incentives.]
So as always, it’s caveat emptor-, "Let’s be careful out there." If you have any experiences of your own with builder lending, please let us know.
I am not surprised that the builder’s lenders have higher rates. What surprises me is that this far into the “musical chairs” thing of getting rid of inventory that they are still clinging so tightly to their sales prices and not budging. Oh well another chair is being pulled as we speak (the buyer).
I an a lender and writer.
I see it all the time where I get beat out by higher rates.
BIG PROBLEM IS the appraisel. You got to use the lenders appraiser who ids paid to deliver a value. No way will that value be deliverred by my guy
Mew properties are way overvalued
Steve
Steve -
That’s not a pretty picture. Is anyone regulating this stuff?
It’s a huge RESPA violation to offer monies for the exclusive use of a predetermined vendor.
One of you with more time on their hands than I [busy today] can look it up.
AZDFI is about to crucify these guys. This is specifically what the new law regarding ‘fraud in housing’ was aimed at. It isn’t aimed at mortgage brokers, but at this activity and escrow people who cut checks to people not listed on closing docs.
This is why a couple of weeks ago I wrote saying that the first to be prosecuted under this new law would be a developer forcing their own financing by ‘giving away’ pools, upgrades, etc.
It’s wrong, it’s lame, it’s fraud, it’s hijacking, and it is tantamount to redlining. Redlining as in; if I don’t qualify with a certain lender you are denying me $10k, a pool, whatever, because of my inability to meet your arbitrary expectation, be it RACE or indeterminate arbitrary financial contingencies. Anyone with a 4th grade education wouldn’t fall for it. Niether is the AZDFI.
Incentives or whatever they want to call it, most folks are just plain turned off to houses they are spent, they tried to buy when the times were good and told stand in line and shut up they are now fed up.
Granite,stainless steel,travertine all the buzz words the darling of the resale and new home is just no big deal anymore.
I’m going to overpay for a house to get upgrades and in return i get a poorly built property, on a postage size lot, and go broke to pay for it.
Just think,you can tell Aunt Martha i have granite counter tops and steel kitchen upgrades and a sky high mortage, and Aunt Martha reply’s, can you cook?
Ducksface-
I asked L about RESPA. His response:
I don’t understand who would or even could buy these houses. At those prices wouldn’t you have to have an income of 150k-200k+ a year for the ratios to make sense? Are there really that many people making that much money that would want to live in Queen Creek? I guess I don’t live in reality anymore, but swap the incentives and new price columns and it makes more sense to me.
Village Idiot-
The short answer to Are there really that many people making that much mney that would want to live in Queen Creek? is “no.” That’s why they are trying hard to get rid of these things before prices fall even further.
Ha ha, agreed, there is nobody with 150k-200k in EARNED income that would want to live in Queen Creek.
The Respa research is true. Except that the builder can’t pick the title company. All things must be equal. If the contract states that the fees are paid by the builder that’s one thing. It still doesn’t allow them to force a title compnay on you. That’s coersion. If the incentive is anything but those fees, it’s an obvious RESPA violation. I’m not an expert on RESPA, but I do know that the whole ‘preferred lender discount’ thing is about to get some developers spanked, hard.
As you cannote in your summation of the RESPA rules, it’s all in the wording. Call it even slightly the wrong thing, and watch a builder go to jail.
There are currently 5575 homes in the $500 - $700,000 range in MLS. From 5/15 - 6/15, 476 sold. There is just under a year supply in this price range. Soon there will be more foreclosures on the market in Queen Creek than regular listings.
How about potentially forced builder lending?
The wife and me wanted to buy (ready willing and able) a Kimball Hills Homes, Providence, Kensington development,North Las Vegas. We took our realtor with us (Prudential Americana).
Incentives were promised; up to $10,000 in closing costs was the spiel(which I questioned, using the RESPA template–we had just sold a home).
The sales consultant was nice enough until he found out we were gonna use our lender and we insisted on it).
(Being elderly, we had arrangements with a reputable Reverse Mortgage lender, and we were putting a lot of cash down).
Further, Reverses come with a string of fees– being FHA HUD regulated–that the lenders cannot charge, and there is oversight).
Well the builder sales consultant not only became in our perception,indignant when finding out we were not going to use the tied in lender, he wouldn’t even give us a purchase contract (nor one for our counselor to view–though our realtor repeatedly asked for it).
And he told our realtor, the deposit money would be trebled (from $5000 to $15000), if we wished to proceed.
But that is not the end of it. Being a former California licensee (back in the ‘70s) and former low-level politician…I immediately punched the local administrative-exhaustion–of–remedies buttons.(Ain’t much of it in the jurisdiction, I found out).
One agency said politely, “were not going to touch it.”
Another local agency said, “we don’t know if we have jurisdiction.”
We have no condemnation, being big boys and girls, here.
Builders by lawcontribute schools,roads, and parks to an infrastructure development, indirectly and directly adding to a municipality’s tax basis (and bring tax-paying butts into the houses).
(Not withstanding the Bureau of Land Management/Interior might have given away the land for reduced rates or other there were other taxpayer supported development incentives).
So we’re now doing the obligatory federal agencies (several) exhaustion of remedies route (FTC for what appears to be in this writer’s humble opinion, e.g., anti-trust, tying, steering), and various Civil Rights (age discrimination) violations.
And oh, about those closing costs—FHA has a cap on certain amounts.
Further, the preferred lender was a Nevada broker. And as we know all mortgage brokers, don’t work free (they include their fee in the deal)… so doing the math, one sees the costs are increased there.
Oh, don’t get me started on certain costs and fees–the appraisal? Appraisal based on what? The new development? The homes that aren’t or can’t sell because of the large inventory….Blue sky numbers?
And the incentives? Uhhhhhhhhh, what really is the cost of an upgrade i.e., refrigerator, granite, flooring, cabinets– (We actually did the pricing at Lowes, Home Depot and several HGTV builder expo sites, inter alia).
The analogy is like $2000 nail being charged to the government.(which costs app. 15 cents).
Lastly on the upgrade costs? What would the true numbers be if American workers affixed them?
All we saw laboring around the various worksites (not only this builder but a lot of others), what appeared to be “Los Indios” (not the Native American kind), and ostensible “Undocumentados”.
This writer’s from Cali.
(There’s a current ‘You Tube” upload about Pulte,elsewhere (whose houses we love, by the way),where the striking workers are being doused by someone’s water wagon. -the language chanted in part? Spanish!
As a last aside, while the dialogue is on immigration policies, immigration problems, builders sites should be one of the first places “La Migra” (Immigration Bureau) should be checking. ain’t we got no American carpenters, American tilers, American Masons, American laborers? American plasterers? NONE???
But that’s just my humble opinion.
Ducksface
You made me work today & try to remember.
This is a question that has never been truly answered, and been bandied around for 30 years. In Arizona the seller pays many of the fees that could include the lender insurance fee also.
Another question that remains to be answered, since the lender is the one being insured and the one that would have to deal with any problem, is does the lender have any say as to who insures title to the property..?
In Texas fees are regulated, so they have the same question. I’ll try to post a link to opinions on that there if I can find it.
Anyway below is the opinion of the AAR attorney on this issue……!
Thanks for keeping me thinking. L
_______________________________________________________
Who Selects the Title Company?
RESPA & Other Considerations
Reviewed: April 2007
——————————————————————————–
The Real Estate Settlement Procedures Act
The Real Estate Settlement Procedures Act of 1974, 12 U.S.C. 2601 et seq. (”RESPA”) was enacted to insure that consumers are provided with sufficient information on the nature and costs of the settlement process and are protected from unnecessarily high settlement charges. Section 9 of RESPA (12 USC § 2608) states:
(a) No seller of property that will be purchased with the assistance of a federally related mortgage loan shall require directly or indirectly, as a condition to selling the property, that title insurance covering the property be purchased by the buyer from any particular title company.
A federally related mortgage loan covers virtually all financing secured by a lien on residential property. A federally related mortgage loan includes home purchase loans, refinances, lender approved assumptions, property improvement loans, equity lines of credit, and reverse mortgages.
“Required use” as used in RESPA means:
a situation in which a person must use a particular provider of a settlement service in order to have access to some distinct service or property, and the person will pay for the settlement service of the particular provider or will pay a charge attributable, in whole or in part, to the settlement service.
However, the offering of a package (or combination of settlement services) or the offering of discounts or rebates to consumers for the purchase of multiple settlement services does not constitute a required use. Any package or discount must be optional to the purchaser. The discount must be a true discount below the prices that are otherwise generally available, and must not be made up by higher costs elsewhere in the settlement process. (Section 3500.2)
RESPA FAQs
Despite the fact that RESPA was enacted almost 30 years ago, the debate about who selects the title company still raises questions today.
Is it a RESPA violation if the seller requires the buyer to use a specific title company when the seller is paying for the buyer’s title insurance?
The Department of Housing and Urban Development (”HUD”) has indicated that it “will not enforce Section 9 of RESPA against a seller who selects the title insurance company if the seller is paying for the owner’s title insurance policy, and does not require the buyer to use the title insurance company for the simultaneously issued lender’s policy.”
Is it a RESPA violation if the seller requires the buyer to use a specific title company and pays for the buyer’s title insurance with funds from the buyer’s closing costs?
Yes. HUD has indicated that it would take action under Section 9, “in situations where a seller required a buyer to pay the seller an amount towards closing costs and the seller used a portion of the buyer’s paid closing costs for the owner’s title insurance without providing the buyer with a choice of that title company.”
What is the safest course for a seller who wants to require the use of a certain title insurance policy?
Based on HUD’s position, it appears that the safest course for a seller who insists on using a particular title company is to pay for both the buyer’s title insurance policy and the lender’s title insurance policy. Further, the seller should not require the buyer to pay any closing cost that could be attributable to the cost of the title policies.
What are the penalties for a violation of Section 9 of RESPA?
Pursuant to 12 USC § 2608(b), any seller who violates Section 9 is liable to the buyer in an amount equal to three times all charges made for such title insurance. Additionally, the seller may face sanctions from HUD (Section 3500.19(c)) and the Arizona Department of Real Estate (A.R.S. § 32-2153(B)(10)).
‘…in whole or in part….’
So the max allowed is the max title fees. How much are those these days, maybe 10% of the discount offered to use the builders loan programs?
It’s not the AZDRE they need to worry about it’s the AZDFI. The AZDFI is not lazy and they will use this gray area to bury some smarmy builders who have inflated appraisals, flipped back cash and tried/succeeded in forcing their mortgage source upon buyers.
Below are links showing how AZDFI works when compared to HUD. While HUD sits on their collective hands concerning Net Branches, AZDFI will crack your ass hard for it.
Ask Dana Capital what happened when they challenged the AZDFI stance on a federal issue. AZDFI wasn’t a nail in Dana’s casket, they built the casket from scratch. That was truly a good thing.
http://www.hudclips.org/sub_nonhud/html/nph-brs.cgi?d=MLET&s1=00-no&op1=AND&SECT1=TXTHLB&SECT5=MLET&u=../html/shortcut.htm&p=1&r=33&f=G
http://azdfi.gov/Alerts/Regulatory%20Bulletin%20BK-06-01.pdf
I lost my last post and the copy here’s the short version;
AZDRE is weak and the AZDFI is not. Here are two links as to how AZDFI handles the ‘hands off’ approach of HUD. AZDFI rightfully killed Dana Capital with this and the Feds were/are completely uninterested.
Those applicable closing costs better not equal a PENNY more than the incentive. Cash back and inflated appraisals are done with. So is this. And if they are offering to pay closing costs, they’ll have to allow a comensurate discount to all. If normal closing is 10k and they are getting it for 8k, there better be the 2k difference offered to all.
http://azdfi.gov/Alerts/Regulatory%20Bulletin%20BK-06-01.pdf
http://www.hudclips.org/sub_nonhud/html/nph-brs.cgi?d=MLET&s1=00-no&op1=AND&SECT1=TXTHLB&SECT5=MLET&u=../html/shortcut.htm&p=1&r=33&f=G
Ducksface-
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