Everyone knows that when it comes to real estate in San Diego, the old adage, "location, location, location" echoes in the distance. Even when the San Diego market is down, many locations, like beachfront homes, have maintained their property value, and in some cases, even gained equity.
Of course, there is an exception to this real estate trend. San Diego's home values peaked in the summer of 2005 and have dropped approximately 10-35% throughout the county. So, what market element has been most affected? New Construction. While location remains king, informed buyers take many other factors into account during market fluctuations to ensure they get the best value on their San Diego home.
One of the areas my clients have taken advantage of in the past year is the new construction market. Nearly half of my San Diego home sales have been new homes, new condos, and condo conversions; even complete rebuilding projects like this new home in Clairemont I just listed. The new construction market gets hits the worst in a market downturn. Condos are hit second worst while detached homes best hold their value.
Let's examine why new construction is affected by market turndown.
1. High inventory of similar properties
2. High motivation to sell
Two main reasons affect new construction in San Diego. High inventory is a simple issue of supply and demand. Not only does the builder find him or herself with excess homes to sell, but most of these homes are very similar models in the same location. These two factors combined give the buyer a huge negotiation platform, and often lower prices on the new homes.
Unlike many San Diego homeowners that can hold onto their home and neither move or rent it out, if they don't get an ideal sales price, San Diego home builders are usually in a must sell scenario. In this case, builders slash prices, add incentives, and offer higher referral fees to local San Diego realtors in order to increase sales. San Diego builders do what they have to do to sell thee homes. If the houses don't sell, the builders can't pay off their creditors. Some builders even file for bankruptcy during down markets, and foreclose on an entire new condo building.
A third reason why some San Diego builders cut more prices than certain San Diego homeowners is that builders have a larger margin to deal with. If a homeowner purchased a home in the last 4 years and now wants to sell, he or she likely did not gain much equity, if any at all, and could even owe more than the home is worth. Builders, on the other hand, will often have a larger margin and can afford to cut the prices.
But builders don't always cut prices in order to offer buyers the best deals. For example, if they initially drop the price, they may not be able to drop it much further. Have you stopped to think how this affects San Diego homeowners that bought at a higher rate? Slashing prices after units are sold can often give builders a bad name in the community, and hurt future sales. In fact, some homeowners have gone so far as to bring class action lawsuits against builders for cutting prices too far.
I have negotiated some interesting deals with San Diego builders over the past years. A key thing to know is: what is the builder most flexible on? For one client, I was able to negotiate much higher incentives than offered, to be used toward upgrades on high-end flooring. For another client, I negotiated a back-up lender to be brought into the equation, while still keeping lender incentives, which saved my client over $400 a month on their loan payments on a $450,000 home. For another client, I negotiated payment of HOA fees for the first six months, in addition to all closing costs. It's very normal in the San Diego real estate market to get lender incentives offered to pay for closing costs. But, did you know that you can use this money to "buy-down" the rate on your loan? This inside fact is very useful to many first-time buyers.
As new construction continues to play a larger role in the San Diego real estate market, here are a few words of advice: always use a realtor. It doesn't cost you a penny to use a realtor with new construction. And as I have elaborated above, I always represent the best interests of my clients. In contrast to a builder that is only looking out for their best interest. I always accompany buyers on the first trip to the new home sales office, and I am always able to negotiate excellent deals for my clients.
You can request information on new homes in San Diego by contacting me at my website or by calling 858-761-1707. I can provide lists of San Diego communities that meet your needs, take you to view them and negotiate on your behalf.
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