There is a term in real estate that is called "Seeding!" It is an attempt to make you believe that in a new homes subdivision, a lot of homes are already "UNDER CONTRACT!" when they are NOT! It refers to when you drive into a new homes subdivision and you see quite a few under contract signs on all the new construction or vacant lots. Reality is quite different. If you go to the visitor centers or new homes sales center you sometimes see a large subdivision plat divided into numbered lots. On the lots a green dot or pin means it is still available, a yellow dot or pin means under contract and a red dot means it is sold.
The only problem is that you go back to a subdivision a few months later and there is still a lot of inventory available. You may take it personally and think that you are losing your mind, you are not. But what is happening? Well you are being deceived. Sometimes there are no homes that are under contract. The marketing effort is deceptive in nature that wants you to believe that every one else sees the value, and they purchased already. A few months ago in the Atlanta area I went into a new homes community. I was very impressed with the product. I then approached the onsite agent and asked them about how business was! The onsite new homes agent told me it was "red hot!" I was informed that 6 homes were sold that week alone. The wind was out of my sails. However, yesterday I popped into the same subdivision again. I was shocked to see all the homes were available, that another one was for sale or rent. This was the onsite agents personal home. Only one home in the subdivision was occupied. And as I mentioned this to another agent I work with, he advised me the other home that is occupied was a rental. The builder is trying to rent out the inventory that is not selling. So this is a point of reflection.
How many persons actually buy a home when they are deceived like this? Caveat emptor! Buyer beware! Person that buy a home without an experienced buyers agent representing them are easily suckered into buying a home. Their own greed will do them in. They can listen the the onsite agent (who by law can never represent them). In a worse case scenario ... theoretically they may be the only owner in a half finished subdivision and lose their entire investment. This is a scary scenario for a home owner, but worse for one that is represented by a buyers agent that has little or no experience in changing markets. What if you sell a home to a buyer,a nd they turn out to be the only homeowner in the neighborhood? How could you defend your actions if you have a signed buyers agency, but never actually did any research that would protect your client? These are not isolated incidents. I visited three new homes subdivisions today, where I realized construction has stopped, the fake "under contract signs" are now all showing availabel, and not one home is sold. A scary scenario!
In changing times, builders become desperate...creative marketing may move into a range that really is fraudulant. My advice to your..."Look before you leap!"
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Just another slam to the real estate profession. I would suspect that this would be unethical as well as illegal. It is almost a bait and switch maneuver and could cost an agent their license if it is indeed true. At the very least a good slap on the hand is in order.
Just my opinion.
Doug
I understand what you're saying, but think there is something else going on as well. I moved into a new subdivision a year ago, and have seen a lot of these signs go from available to under contract back to available. Being a small community, we all talk to each other as well as the onsite agent and what has been happening here is that people can't get financing, so the deals fall through. This is definitely more prevalent with the fall of the subprime industry.
But I have no doubt that there are some builders who are up to no good with deceptive practices. Buyers should always beware!
My question would be why would anyone who represents a builder want to do such a thing. I mark my under contract as to help buyers see what is available and what is unavailable.
My builders would never want a property available marked as under contract if it were not as it may keep a prospective buyer from calling about or coming in and asking to see the property. With most of my business in the new construction field in a good market,
I am simply not capable of understanding any type of misleading conduct going into what is a longer, more arduous real estate transaction and relationship as the construction process requires a lot of contact with buyers for selections, etc,; why would myself or my builders want to start it with a lie or by misleading someone.
Venice I think we need to not take things at face value. I've not seen this so strong as in the late 80's and early 90's.
Missy, it is always good to drive around and be familiar with products. Then revisit next month. A subdivision I was in today the sales agent says "Can you believe we sold all of this out since January?" I should have called him on it, but the reality was if he said "sold all of this out since January 2004!" he would be telling the truth. A lot of sales in real estate take into account they are dealing with new sales people that are in experienced and will not ask the right questions!
Tim it is a reality. Perception becomes reality if you allow it. The truth is always the truth. I was shocked when I visited 3 subdivisions today... one was actually doing a "Grand Opening!" Guess what? On the bottoms of their marketing materials in real small print was the original marketing date of 5/2006. So maybe it should have been the Grand Reopening for all the missed the first few of them!
Here is the reality...the new homes have been standing for over 1 year, and they are having a big grand opening party for real estate agents this week. The weeds are 3 foot deep on the undeveloped lots. Anyone that has driven past the subdivision realized they have been up for over 1 year. But the sales agent lead me to believe they were just built. My thoughts? PURE RISK! Pure lies, pure deception. This is why real estate is regulated by licensure.
Jim,
The builder I work with does not do that. I know because I control everything that goes in and out of the MLS. I check regularly at each sales center the "pins". My builder does not have time to play games like that. They want to sell their inventory and not try to trick the consumer.
Wow, Jim. I just never would have thought about that! I haven't seen anything similar in this market. It is more common they don't release something as available until they have the rest under control. Many times we will have a buyer waiting for a certain lot to become ready for market.
I guess I'm lucky I live in a small town. We have a saying "You don't have to know what you are doing, because everyone else does".
Building permits, subdivision plans, etc. are all public record. We are small enough that if there were ghosty contracts, the agents and buyers would see right through it. However, as always, I appreciate your insight into what is happening "in the real world".
Jim,
I know you were not making an indictment of all builder's. This same thing goes on in my market also. Too bad lenders & builder's have to resort to this style of selling.
Hi, Jim!
Hmmn... Interesting! Thanks for this fair warning. Now I know we should be on the lookout to better guard our buyers' interest, after all, if we are representing them, we better have the facts about all these new developments we take our clients to, or answer to them later which wouldn't be a good situation to be in--speaking of client satisfaction. I believe you that this deception could be happening in some new home developments.
I agree with Randy as well about why new agents like myself need to be careful when taking clients to buy homes in new developments. Sweet-talking clients into investing in real estate, specifically in new homes (with all the incentives, upgrades, etc.) just for the purrpose of home value appreciation (speculation, that is) just could be a little risky on the part of the clients especially if they don't have prior real estate investing experience of their own.
Jim,
Thanks for that heads up. I had no idea things had gotten that bad and I don't know that I would have thought of that. I do know that a lot of builders in my area are now leasing homes out because they have so much standing inventory. No matter how bad things get it's never ok to be dishonest. I wonder what else we may see before this is all over.
Chuck it is just unfortunate for all.
Debbie! Long time no see. I think we are the ones that may represent a buyer. Back in the early 90's there were a few homes that sold in new home subdivisions that actually went bust. What agents got to see was the "Little home on the Prairie!" How would we protect ourselves in court if someone asked us..."Wait a minute, you were the buyer's agent, you were supposed to represent the buyer, you sold this home to him/her without doing and research? Did you ask any questions, did you advise your buyer not to buy....?" I can answer it easily. Yes I did.
Sybil this happens a lot. The scary thing is this is just one scam there are others.
Jim,
Personally, I would never say hurry and buy before prices go up. What you will find though is a disclaimer on all of my sale brochures that say prices and specifications are subject to change without notice. If you are in the building industry, you will always remember that after a large hurricane like Katrina, our plywood insulation, shingles, etc. can increase as much as 20% practically overnight. And of course as gas go up, everything delivered to a job site cost are increased. Unfortunately, a lot of products such as fiberglass shingles and other construction products are petroleum based and not just affected by delivery costs but costs to manufacture.
I guess where I live is one of the few markets where we don't have much finished inventory. Most of my builders homes are sold prior to their being completed - but not all. After reading the other comments in your blog, my builders would go crazy if a home was on the market for any amount of time after we finished it. We actually enter our listings as soon as the building permits are applied for and the prices are established. Sometimes our prices are increased after clearing the property, we found out that taking out the root mass took a lot of the dirt or found dirt that needs to be replaced with dirt more conducive for this particular type of construction. When the builder notifies me, I notify my staff and typically we will honor the price if you have already shown it at that price.
As a broker representing builders, sometimes in 1st phases or in close outs we offer $1000 to $5000 bonuses in addition to your already earned commission to outside co-operating Realtors. What surprises me is that the agents don't bring buyers nor register them. I would say on average once a week I pay a Realtor from an outside firm a commission although my agents were procuring cause. When the Realtors shows up with the Buyer after my company is clearly procuring cause, I most likely will allow the other Realtor compensation - we are required to allow them representation but not required to give them compensation. But we do give them compensation. As a the builder's Realtor, we want to work with you - I am a Realtor too. I just chose land acquisition, land development and new home marketing as my niche.
Realtors, just as a point of reference, if you have a buyer you think may want to see a property, go ahead and register with the builders in your area prior to their arrival and if things work there like they work here, you are protected on the sale. Builders and their staff want you to bring buyers to our homes and want you to represent their best interest and everyone come out of the experience positively.
This is a practice that I have not experienced in this market or in the past. Perhaps I'm very naive, or perhaps they've really fooled me! I'll have to be more alert in the future. Thanks for the warning.
Remember Margaret in Maryland for real estate in the D.C.-Baltimore-Annapolis triangle.
In my "real estate childhood" my partners and I developed a couple of rather large subdivisions. For one near the then brand new DFW Airport, we hired an architect from California named Barry Burkus. He was the guru of what people would be buying, not what people HAD been buying. He drew a bunch of his "new and improved" home plans, and after we got our land developed and our sales office building in, we started building his homes.
We built and we built and they weren't selling. I mean we hadn't sold a one, and we had several million dollars in the deal by then. A guy called us from New York, and he said that he understood we were having trouble getting our sales going. He said he could do it, and he'd do it strictly on commission.
So we took a chance. And I don't want to know what he did because I'm pretty sure it was nothing I would have approved. Yet, he did get sales going, and the subdivision sold out and was very successful. And the people who bought were happy, and the people (us) who sold were even happier.
I suspect old Ed put some sold signs out here and there when he was trying to find his first few buyers. But then no one ever complained about old Ed. They all loved him.
BILL CHERRY, DALLAS-BROKER-REALTOR. MY 43RD YEAR SELLING TEXAS.
Jim - This is a new practice I was not aware of. Thanks for bringing it to my attention. I'm going to start watching for this in the new construction neighborhoods in West Cobb and the surrounding area.
Thanks.
Margaret,I am from Brooklyn New York originally. I take nothing for granted, and nothing at face value. I can see a scam coming from ten miles away. Sometimes, they get so good at it that we do not even question it! We should always!
Bill as always thank you! There are loads of ingenious ways to get stalled sales moving again! This is just one of many that needs to be paid attention to in changing times. No one ever raises a ruckus when an agent says "If you are going to write, you better hurry...I have another offer coming in!" or "The other offer is just a lot better than yours, do you want to give it your best shot?" There are many ways to create a frenzy when there is no other interest in a home or property, and buyers can get talked into besting their own offer by 50K to beat out the competition, waiving appraisals and the right to do a home inspection etc. Am I right? Well what if there was no other buyers? What if there were never any other buyers? What if yu were bidding against yourself? The major lawsuit they had in California years ago brought out that same scenario. So why then would a lot of agents that responded to this blog doubt it could occur? LOL! The Truth is, they never gave it any thought. Their buyers may question their representation if they feel they have been taken advantage of. And if they do, they may sue their buyers agent.
Tony, it isn't new. I blogged about it, becuase I see has reared its head again in this crazy market. We should all be on our guard.
Very timely post for us here in Fredericksburg VA.
Some marketing geniuses (if that is the plural of genius) have had a sign out in front of some apartments which have been converted to condos on the main road going from Interstate 95 to downtown historic Fredericksburg. For the past month "Only 3 Left" has been adorning the main sign in front of the property.
At least once each week the MLS shows that one is under contract. That has been going on for months. Think that they may be morphing?
Ed I love it! Sometimes I think Lex Luthor has gotten his real estate license. It is almost criminal to be that deceptive. I'm sure some agent someplace is thinking that they are s total genius. They need to hold that thought. There is a warm bed waiting for them at the jail!
Sad to say it is alive and well in Gwinnett & south Forsyth counties. I refuse to pull that trick however a national builder down the road is knee deep in the practice. I went over for a chat while doing my competition analysis. The onsite told me they had 2 presales under contract and no inventory, she also said they had sold over 30 homes in the last year and a half. I took a ride through the subdivision. there was only 24 homes and 5 were under construction, how do you sell 30+? I also counted over 12 lots and of homes under construction that had Under contract signs on then. A Lawyer frien of mine said he was not aware of any state statue in GA that prevents this but if one bough based on the appearance of a lot of sales activity they might have action for a claim of Fraud. In this case let the seller be ware!
Maybe we should talk to our local state reps and have that las changed
Tim, I agree!