Denver Real Estate Blog

Denver New-home prices are following a nationwide trend

The sub-prime market meltdown is hitting home builders in the Denver area harder than anytime since the 1980s, when the economy collapsed in the wake of an oil and gas bust. Some experts predict we will probably see new home sales off 50 percent at the end of this year, compared with 2005. By comparison, we saw about a 20 percent decline after (the terrorist attacks) on 9/11. This downturn this time is different from the one two decades ago.

Despite good economic news on almost every other front – the Denver area’s resale homes showed the highest month-over-month increase in value in August compared with 19 other cities – there are signs the new-home market is struggling. Some builders are expected to declare bankruptcy or flee Colorado before the market recovers. The latest example is the recent bankruptcy filing by Neumann Homes, a builder with a presence in Denver.

In the 1980s, the area suffered from an economic crash after dramatic growth on rising gas prices. Denver and Colorado companies that invested in the boom collapsed when prices dropped to about $12 a barrel. In the Denver area, a record number of homes, apartments and condos were built to prepare for the growth that never came. Instead, tens of thousands of people fled Colorado for better economies in places such as California, often walking away from their mortgages, leading to foreclosure levels that only now are being toppled. Colorado, Oklahoma, Louisiana and Texas were hit the hardest.

This go-round, there’s an unprecedented crash in housing prices nationwide. Denver-based MDC Holdings, one of the nation’s largest home builders and parent of Richmond American Homes, has cut its work force by about 40 percent since 2006 and recently reported a $155.4 million loss in the third quarter. The loss came after years of reporting record quarterly profits. MDC Chairman Larry Mizel described the market as being in “turbulent times” in a recent Securities and Exchange filing.

Other national builders with a big presence in Denver, such as Engle Homes and Beazer Homes, are in worse shape. Atlanta-based Beazer Homes is being investigated by the FBI in connection with mortgage fraud. Engle’s parent, Tousa Inc., of Hollywood, Fla., has seen its stock drop to about 70 cents from more than $22 two years ago.

As buyer confidence continues to erode and competition for new home sales intensifies, buyers can experience reduced selling prices and increased incentive levels.

The concern I have says Jeffery McClintock, President and CEO of Real Estate Technology Group, Inc a Denver based full service real estate company that operates in and along Denver’s front range and Summit County is “Make sure before you put money down with a builder you do some due diligence and investigate the financial health of the builder. It usually takes 7-9 months from start to finish to build a new home, you want to make sure that the builder is not about to close down and skip town”. “A lot can happen in 7-9 months”, says McClintock.

Some builders require your earnest money to go hard in a very short time after you sign the contract and order the house. Most once you start picking out colors, flooring and appliances. Don’t forget the warranty issues, who is going to handle and stand behind the work? “These are things you need to consider and not let the promise of ” a good deal” on price over ride common sense, said McClintock.

Many new home buyers believe if they buy directly from the builder they will save money. This generally is not the case. Most new home builders are members of the Builder Realtor Council. The BRC’s builder members agree to pay Realtors a selling commission if they are involved in the transaction on behalf of a buyer. If a Realtor is not involved in the purchase transaction, the builder retains that commission money. That money is not offered to the buyer in the form of a credit or a reduction in purchase price. Therefore, there is no financial savings for the buyer by not using a Realtor in the transaction.

More important is the fact that the buyer is negotiating with the builder without representation. In Colorado, the Colorado Real Estate Commission prepares and approves purchase contracts that are intended to protect the rights of both the buyer and seller. New home builders do not fall under the rules and regulations of the Colorado Real Estate Commission, and as a result, do not have to comply with standard regulations including the preparation and use of commission-approved forms. The builder purchase contract forms are traditionally worded to favor the builder – they are not drafted with the intent to protect the interests of the buyer.

Use a Realtor

Building a new home is a major event. Undertaking this event without the benefit of the representation and expertise of a Realtor is not a wise decision. Realtors can minimize the problems involved and can provide peace of mind for the new home buyer – making the new home building process a more pleasant experience.
Surprisingly, most buyers who attempt to save money by negotiating directly with the builder without the expertise and guidance of a Realtor also choose not to retain an attorney to review the builder purchase contract. Usually, the attorney and the Realtor are contacted after problems are discovered – often when it is too late to eliminate the problem. This “after-the-fact” approach can be very costly to the buyer.

Understanding that there is no financial savings to negotiate with the builder without a Realtor, it is important to know that Realtors are familiar with new home construction and are accustomed to working with builders and their purchase contracts. Realtors can recommend the inclusion of language in builder purchase contracts that protect the buyer. For example, most Realtors recommend to buyers that they retain the services of an expert (i.e., architect, building inspector, engineer) and have them visit the property while it is under construction and following the completion of construction to insure that any problems are addressed properly. The Realtor will often recommend the inclusion of language that provides for these inspections as well as “walk through” of the property as a contingency to closing.

Realtors can also address other concerns that protect the buyer’s interest (i.e., receipt, review and approval of title work and homeowner association bylaws and covenants) so that the buyer can terminate the builder purchase contract in the event conditions in any of the documents do not meet with their approval.

Realtors may also be able to negotiate upgrades at no additional costs, closing extensions without penalty, recommendations of experts, other improvements (i.e., landscaping, security systems, sprinkler systems), radon mitigation before and following the purchase of the property, and address a number of other significant issues that directly impact the buyer’s purchase and eventual resale of the property.

REAL ESTATE

If you would like additional information about the Denver Real Estate area in Denver Colorado as well as anywhere in Denver Metro Area contact us at 1-800-791-3990 ext 232.

Jeffery McClintock, is a real estate broker in Denver and prides himself on providing clients with professional guidance in all phases of residential new construction, including market research, product development, consulting, marketing and advertising. His personal mission is to bring to you a level of knowledge, experience, commitment, high standards and results to answer your real estate needs. He believes, the most effective way to provide superior service is to build a strong working relationship with you. His system includes regular consultations and feedback, which is the best tool for identifying and clarifying your real estate objectives and help define strategic solutions.