Q: Are you encountering many clients who aren't finding houses that suit their desires?
A: There is a demographic moving from out of state — baby boomers and retirees — who need to have a master bedroom on the main floor or have a single-story home. That's rare in Ashland. People in good health, who enjoy walking, can be discouraged from housing on the steep, hilly areas. Some of the best housing stock in Ashland is on slopes. If you find a client in need of that first-floor bedroom or single-story home, they are uncomfortable living on a slope and there simply aren't many places on the market.
In those cases, I will suggest something they probably haven't thought of: building their own house. While there are lots available, financing is another matter. Unless they have cash to buy a lot outright, they are going to find a roadblock. Since the housing bubble burst, it's been difficult or impossible to find financing for bare land.
Q: What are the alternatives?
A: A client can give up one of their priorities and take their chances with a house where they have to walk up stairs. But they are often looking for a house they will live in for the rest of their lives. You have a lot of people who fall into that category for other reasons — people who are sensitive to environmental pollutants from carpets, cabinetry, dust and mold problems. They are uncomfortable and unhealthy. They could rent, but new construction solves a world of problems.
Q: How prevalent are such opportunities?
A: The number of days on the market for lots is extraordinarily long, and prices continue going down. Only 25 residential urban lots in Ashland have sold in the past year (as of March 1). The supply is there, but there is no demand because of the lack of financing, so it keeps clients from having a home they want. What I've discovered is that we can work with a builder who can purchase a lot with his own money and finance the construction, leaving the buyer only needing to obtain a conventional mortgage for a completed house.
Q: How does the process begin?
A: Once they decide they need to build, they can start looking at places where builders have lots and plans, and finding a builder who has the financial capacity to purchase a lot and finance construction, like Suncrest Homes. Then, in essence, they are selling that home as a completed product.
From a seller's point of view, you are trying to sell a residential lot. Because the buyer is unable to purchase the lot, you can benefit by working with a builder who can develop a specific plan for that lot and market the lot.
Q: What is the next step?
A: The buyer will bring refundable earnest money, as with any real-estate purchase — typically $1,000 — then they will reach an agreement with the builder on plans, materials and the ultimate price. The builder's price is generally nonnegotiable because he is the one building it and knows his profit margin. Because these are custom houses, the buyer can determine what amenities and materials and style may add to or reduce the price in the dance with the builder.
Let's say a builder sets a price of $300,000 with agreed-upon materials. The client can say: I don't want granite countertops, and I want a less-expensive solution. That will be $3,000 less on the bill for the house. In the same way, the buyer might like skylights in each of the rooms that might add costs to the house. They can make trade-offs at every stage, leaving them flexibility in the design and style.
Q: How does the time frame compare to going out and building your own house?
A: I don't think there is a difference if I have a general contractor I'm working with. You are making one less deal by not negotiating for a lot because the builder does that. It's basically one-stop shopping, like buying a completed house yet with the flexibility of having it the way you want it.
After the contract is signed to work with the builder at a specified price, the buyer has 45 days to agree to the plans, materials and final price, reflecting the custom decisions. Until the end of the 45 days, the buyer can receive earnest money back and move on. After 45 days, the commitment is made; the plans are completed and approved. The buyer will pay a substantial sum, which becomes part of the down payment if they are financing, allowing the builder to complete acquisition of the lot and begin construction.
Q: So, you still have to have some money set aside to begin construction?
A: No more or no less than in a conventional mortgage when you are buying a completed house. The only difference is that it comes earlier. A modest house takes approximately six months, depending on the builder. If it was a $250,000 house, they would be looking at $25,000.
Q: At what point should buyers be shopping for a mortgage?
A: Just as with making an offer on an existing property, they need to be preapproved for the amount they qualify for to go ahead and complete the transaction. The only difference is that closing for this transaction (takes place) after the home is completed. If you buy an existing house, it takes 30 to 60 days for a closing. In this case, it would be closing after completion.
Reach Mail Tribune business editor Greg Stiles at 541-776-4463 or email email@example.com. Read his blog, Economic Edge, at www.mailtribune.com/economicedge or follow @GregMTBusiness on Twitter.