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Condo buyers get 5-year sales price guarantee
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Photos by Juan Carlo / Star staff Lisa Norlander assembles furniture at her new Ventura condominium. One of the selling points for her was that the builder is protecting the resale value for the first five years.
Juan Carlo / Star staff Lisa Norlander assembles furniture at her new condominium. "I do a lot of traveling, and I like being mobile," she says. "I did not think I was going to be buying."
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More from BusinessBuying a home is a gamble in any market.
But a Ventura home builder is trying to protect sellers from future market risk by making a bet of its own — that the housing sector will recover.
To push buyers off the fence, Row Park Associates, a California limited partnership doing business as Pacific Pointe Condominiums, is offering to protect the resale value of its new downtown Ventura condominiums for five years as part of a new financing program.
"The value of the home would have to go down more than 15 percent from today's values before our buyers would lose a dime," said Dawn Dyer, president of Dyer Sheehan Group Inc., a real estate and brokerage firm representing Pacific Pointe.
Another 15 percent decline is unlikely, said Robert Kleinhenz, deputy chief economist with the California Association of Realtors. For example, the median price for an existing, single-family detached Ventura County home has tumbled 30 percent from when it peaked at $711,000 in August 2006, to $497,000 in April, according to CAR. Condominium prices are generally lower.
"I think we're fairly close to the bottom," Kleinhenz said, noting that the market should be stable in five years, with appreciating values.
Still, playing it safe was important to Lisa Norlander, 28, who recently moved to Ventura for a three-year residency in family medicine at Ventura County Medical Center. Wary of buying a home and having to sell in a couple of years, Norlander had planned to rent.
"I do a lot of traveling, and I like being mobile," she said. "I did not think I was going to be buying."
But she found the condos, which start at $379,000 for a one-bedroom and $449,000 for a two-bedroom, to be reasonably priced. The granite countertops, laminate flooring and maple cabinets were also major perks, although it was the buyer-protection program that sold her.
"That I can sell in the next five years and not lose any money is phenomenal," she said.
In today's gloomy housing market, that kind of security might matter more to buyers than location or amenities.
Still, the response has been lukewarm.
"It's not what I expected," said Harvey Champlin, general partner with Row Park Associates. "I expected a stronger positive response."
Buyers have acknowledged that the incentive is a good thing, but it only has prompted one purchase, Champlin said, noting that the difficulty of securing financing seems to be an overriding factor.
Pacific Pointe has responded by offering two programs.
n Resale protection: The developer provides secondary financing for up to 15 percent of the purchase price for five years, with the first two years set at below-market interest rates — 3.7 percent in year one, 5 percent in year two and 6 percent for the duration of the loan. A buyer must come up with a 5 percent down payment and their own financing for the remaining amount.
A homeowner who wants out within five years after the purchase would have to make a good-faith effort to sell the property for at least what he purchased it for. If the best offer is $370,000 on an original $400,000 purchase, Pacific Pointe would reduce the amount owed on the secondary loan. In this scenario, $30,000 would be knocked off the remainder of the $60,000 owed to the developer and the homeowner could walk away without a loss. This program is available through July.
n Secondary financing: Same terms as the first program but without the resale protection. This program is available until the 12 condos left in the 32-unit complex at 285 N. Ventura Ave. are sold.
Because they are secondary financing programs, there aren't any loan costs or an additional qualification process, Dyer said.
While the market may continue to soften, that will likely occur among foreclosed properties, not brand-new homes, Dyer said.
"Pacific Pointe is not anticipating losing money," she added. "They wouldn't be doing this if they expected the market to continue to go down. They're willing to put their money where their mouth is."
On the Net:
http://www.viewpacificpointe.com
Posted by SmashyCrashy on June 24, 2008 at 9:08 a.m. (Suggest removal)
A price guarantee presumes the company giving it will be able (i.e. solvent) to back it up in 5 years. You are betting on the company as much as the housing market.
As is said in the article, the market is having trouble finding qualified applicants.. prices are too high, financing is returning to more tradition (though still loose) underwriting standards.
Posted by CAPEDad on June 24, 2008 at 9:53 a.m. (Suggest removal)
"Pacific Pointe is not anticipating losing money," she added. "They wouldn't be doing this if they expected the market to continue to go down. They're willing to put their money where their mouth is." - or find a knife catcher taking the 15% bait when they know 30% fall is probable.
BTW, NEVER, EVER listen to a realtor-enconomist like Robert Kleinhenz. These guys will NEVER forecast a falling market. Their advice should be taken a contrarian. Clowns they are. All of them.
Posted by CAPEDad on June 24, 2008 at 12:29 p.m. (Suggest removal)
"While the market may continue to soften, that will likely occur among foreclosed properties, not brand-new homes, Dyer said."
- What a ridiculous statement. Ms. Mintz has written an advertisment for this developer - probably as payback for add space. This shouldn't be considered a news story.
Posted by CAPEDad on June 24, 2008 at 12:29 p.m. (Suggest removal)
"While the market may continue to soften, that will likely occur among foreclosed properties, not brand-new homes, Dyer said."
- What a ridiculous statement. Ms. Mintz has written an advertisment for this developer - probably as payback for add space. This shouldn't be considered a news story.
Posted by riotgrrl83 on June 24, 2008 at 1:51 p.m. (Suggest removal)
I think this sounds like a great program and an excellent way to ease the fears of nervous buyers. Although the sub-prime debacle was certainly a factor, much of this real estate "crisis" is caused by fears, often perpetrated by the media and uninformed people like CAPEDad. "A 30% fall is probable"?! Are you kidding me? We live in coastal Southern California. Real estate is cyclical and it always rises and falls, but in Coastal SoCal, historically, the market actually rises significantly and then it simply levels out.
Posted by riotgrrl83 on June 24, 2008 at 2 p.m. (Suggest removal)
Also, SmashyCrashy, you clearly did not read the article very carefully. As I read it, the resale protection is based on financing that the buyer is taking from Row Park Associates. Basically, Row Park Associates provides a loan to the buyer (the money is already there!) and if the buyer needs to use the resale price protection, Row Park Associates will simply take the difference off from what the buyer owes. To me, this does not sound like a "bet on the company" as SmashyCrashy claims, but rather a good deal.
Posted by riotgrrl83 on June 24, 2008 at 2 p.m. (Suggest removal)
Also, SmashyCrashy, you clearly did not read the article very carefully. As I read it, the resale protection is based on financing that the buyer is taking from Row Park Associates. Basically, Row Park Associates provides a loan to the buyer (the money is already there!) and if the buyer needs to use the resale price protection, Row Park Associates will simply take the difference off from what the buyer owes. To me, this does not sound like a "bet on the company" as SmashyCrashy claims, but rather a good deal.
Posted by CAPEDad on June 24, 2008 at 3:14 p.m. (Suggest removal)
Riot - From a valuation perspective, this market could easily fall another 30%. Rentals are completely backwards, owners are underwater, and MANY MORE option ARMS are ready to explode.
Sorry, facts are facts. Go listen to your CAR economist for more cheer leading.
Posted by desdave on June 25, 2008 at 1:54 a.m. (Suggest removal)
When I see a blatant advertisement presented as a news article, it always make me wonder what the story is behind it that made the star willing to do it. It really erodes their credibility. And by the way, the guarantee that this builder should be offering is that if you buy today, and they then reduce the selling price on remaining units, that you get the difference refunded to you. Nothing would make a buyer more angry than to have his neighbor get the same place for less money. Oh wait, that sounds like all the people who bought houses at the top of the price increases 2 yrs ago.
Posted by SmashyCrashy on June 25, 2008 at 2:25 a.m. (Suggest removal)
riotgrrl83: "Basically, Row Park Associates provides a loan to the buyer (the money is already there!) and if the buyer needs to use the resale price protection, Row Park Associates will simply take the difference off from what the buyer owes."
Funny, I seem to remember reading the article quite well. Maybe you can point out to me the part of the article that explains what happens if Row Park Associates goes bankrupt and the note is held by the creditors of the corporation. You are then dependent on the creditors forgiving a portion of the debt. Like I said, you are betting on the company being solvent as much as the housing market.
riotgrrl83:""A 30% fall is probable"?! Are you kidding me? We live in coastal Southern California. Real estate is cyclical and it always rises and falls, but in Coastal SoCal, historically, the market actually rises significantly and then it simply levels out."
You do know median prices for Ventura county have fallen continously from June 2006 high of $625,000 to last months current reading of $435,000. Now my fancy schmancy math is a little rusty but $190,000 drop seems like a bit more than "leveling out".
You should find someone with MLS access, ask them the number of homes/condos on the market in Ventura. Then ask them how many of those homes are short sales. Or how many of them are REO (banked owned foreclosure) or vacant. Compare the inventory to the slow sales (never been slower according to Dataquick) and look at the number of trustee sales each month. No reasonable person could look at those numbers and think "Hey, we are close to the bottom". And I haven't even got to the whole Countrywide Financial issue (July 1st..) which will probably significantly effect local employment.
Here are the Dataquick links for the peak and last months:
http://archive.dqnews.com/AA2006SCA07...
http://www.dqnews.com/News/California...
Posted by CAPEDad on June 25, 2008 at 7:47 a.m. (Suggest removal)
Smashy - If you'd like to see evidence of the blood in the streets, look at www.redfin.com. This is a great site because it covers all MLS listings and provides prior sale information, along with the price adjustments for the life of the listing. In particular, there are several on Saratoga (Peppertree) that have had over 50% corrections from the last sale price to current LIST price.
My general observation is an overall correction so far of 30% without any sign of stabilization. I can easily see another 20 to 30% decline followed by a long leveling period. Real estate is very distasteful now and the correction will be long and deep.
Posted by guy133 on June 25, 2008 at 4:59 p.m. (Suggest removal)
If a $379,000 fell 15% in value, that would put it at $322,000. I would say it's extremely likely that a ONE BEDROOM condo will fall below $322,000 value in the next 5 years.
Posted by freethought on July 1, 2008 at 1:42 p.m. (Suggest removal)
riotgrrl83 - Let's see if I can guess your profession...
Realtor?
Mortgage Borker?
Loan Officer?
Pacific Pointe/Row Park Associates Employee?
CAR Economist?
...or some other Real Estate Professional?
If you are none of these, then you have obviously been drinking their kool-aid, and way too much of it. Comments like yours are so far from being true, they contain absolutely no merit. You said, "We live in coastal Southern California. Real estate is cyclical and it always rises and falls, but in Coastal SoCal, historically, the market actually rises significantly and then it simply levels out." When did this happen last? In the late '80s? Early '90s? No and No. Prices rose out of contol, then fell out of control. When they did finally hit bottom, they stayed there for awhile before slowly clawing their way upward for several years. Prices only increased during the last six years because Alan Greenspan decided to blow the largest ever-in-history asset bubble by lowering overnight lending rates to 1%, thereby allowing speculators to buy without responsibility and banks to lend without responsibility.
You are like every other real estate professional who posts on the VC Star's threads about how great a deal real estate is right now. The problem for you is that no one is taking you seriously any longer.
Note: The above statement does not apply to all real estate professionals - only to those who agree with the CAR's latest kool-aid induced report that we have "finally hit bottom".
Posted by freethought on July 1, 2008 at 1:50 p.m. (Suggest removal)
riotgrrl83 - Oops, I left out VC Star employee. That would also explain your comments.
CAPEDad and desdave - You are right on the money. The VC Star has been writing more and more of these pieces during the last couple of years as the RE market continues to erode. They must somehow think that it will "push buyers off the fence". They, along with real estate professionals, never take into account that homes at current prices are just too unaffordable anymore given that Option ARMs have dried up and interest only loans are heading the same way.
SmashyCrashy - Excellent posts as always.
Posted by freethought on July 1, 2008 at 1:50 p.m. (Suggest removal)
riotgrrl83 - Oops, I left out VC Star employee. That would also explain your comments.
CAPEDad and desdave - You are right on the money. The VC Star has been writing more and more of these pieces during the last couple of years as the RE market continues to erode. They must somehow think that it will "push buyers off the fence". They, along with real estate professionals, never take into account that homes at current prices are just too unaffordable anymore given that Option ARMs have dried up and interest only loans are heading the same way.
SmashyCrashy - Excellent posts as always.
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