Belfiore Real Estate Consulting
As demand for housing headed deep into the housing downturn in 2008, 2009, and 2010, some homebuilders manipulated base prices and incentives to seemingly confuse buyers. Sales were bottoming out, and yet, in some cases, builders pushed prices upward. At the same time, though, these same homebuilders increased incentives more than the base prices they had just decreased. The net result: lower home prices. To the less savvy homebuyer attaining a base price sheet on a second or third sales office visit, prices would appear to have increased since their previous visit. This, some homebuilders believed, created a sense of urgency with buyers, a “buy now or the prices might be even higher when you come back later” feeling.
Fast forward a few years until now. The Metro Phoenix Area homebuilding has hit another soft spot. Demand is clearly higher than during the downturn, but it’s below builder expectations. As a result, select homebuilders are employing the same sales strategy- raising base prices, albeit minimally, and increasing incentives, countering the rise in pricing.
Although the illusion of raising home prices may be a strategy that results an extra sale or two in a few cases, it’s not a strategy Belfiore Real Estate Consulting suggests employing. Straight-forward, clear home pricing with incentives designed to motivate a homebuyer to utilize seller-preferred lenders is the preferred method. Incentives may need to be increased during periods of softness, but why increase base prices simultaneously. Artificially inflating base prices for an immediate sale or two may simply result in a delay in lowering base prices to “market”.
For sales and land acquisition personnel, the importance of understanding net offering prices is paramount. Base prices mean little in an environment in which incentives vary greatly between communities in the same market area. To truly understand competitive pricing and what it means to potential homebuyers, a value must be assigned to incentives within each comparable community and subtracted from base prices. Belfiore analysts refer to this pricing as “net” pricing. All new home pricing communicated within Belfiore Real Estate Consulting publications, database products, and custom studies is net pricing, which enables users to compare apples-to-apples changes in home prices- “real” prices, as we like to call them.
