In an effort to entice buyers to pull the trigger and purchase new homes, builders in some parts of the country are offering “trade in” value for buyer’s old homes.
I’d call that innovative marketing. As with a used car trade in on a new car purchase, the vendor makes money in 3 ways:
1. On the buy of the used asset, usually far below market value, that they can then resell at a premium.
2. On the loan. Ever have a salesperson ask you, “what would you like your payment to be?”. Great. You’ll be paying for that car for the next 17 years.
3. On the sell of the new asset, at or below market value.
The wise buyer adds up these 3 parts of the overall transaction, and figures what is the net cost of the new car (or home) really going to be… and many buyers give up the opportunity to get a truly good deal by spending 90% of their energy haggling on the items price, when the vendor is making far more profit on the purchase of the used asset and the financing offered.
Nevertheless, avoiding the potential of having to carry 2 mortgages is too daunting for most buyers to bear. And much like a car, a home is something most of us can’t do without in an “interim” period that may happen between a sale and the purchase of the right home.
Although this may be just a better deal in the long run for the builder, it’s a very viable option for many buyers and I have a feeling it’ll provide a great opportunity for many buyers to make a move without the very real fear that they could risk a good credit rating by holding onto a home that just won’t sell. For builders, these homes still act as collateral for any financing they may have obtained, or need to obtain for future development, while they sit out the market slumps in some parts of the country.
My final verdict? The best buy of all might be taking these “used” homes off the builder’s hands… keep your eyes open for a brand new segment of resale Real Estate. Are you a builder? Please contact me to develop a marketing plan for your trade-ins…