Your builder doesn’t care about you
April 23, 2009This story comes to us from Atlanta, GA. It illustrates a little tip to those of you looking to get into a real estate investment or purchase a home. Here’s the advice: Your builder does not care about you.
How do we know? Let’s take an example from this Atlanta story. Why Atlanta? Well, we don’t want to smear anyone in SF on a public message board, but 2,500 miles away in the A-T-L… we’re blowing the whistle. Off the public board, however, we advise our clients how things shake out here locally.
Anyhoo, there is a company that built a high rise condo building in Midtown Atlanta in 2004. Units sold like hotcakes at the time. The sales center opened and it was like an old west land grab over the ~380 units. The building, named “Spire”, caters to a young, professional, and hip crowd addicted to city living, incredible views, and night life that never ends. Owners happily moved and settled in. The builder had acquired a nice batch of customers.
Spire was a hot commodity in '04.
Fast forward to 2007. The same builder went directly across the street and built an even more gargantuan building. We’re not blaming them for this. Their previous project had been such a success that their decision to build another was fair. The new project, called “Viewpoint”, one-upped Spire in size and amenities, but not sales. Due to the timing of the residential real estate market implosion, Viewpoint has had trouble selling units. And here’s where the “builders don’t care about you” wisdom comes in.
A few months ago, we received an ad for “Buy One Get One Free” at Viewpoint. Thankfully, for the owners at Spire, they’re not talking about units. But they are talking about bedrooms. For a limited time, 2 bedroom units are priced at 1 bedroom prices. Now, just thinking out loud here, what does that do to their “valued” customers across the street at Spire? Basically, it screws them. The discounts at Viewpoint will most certainly be comps for anyone appraising a unit at Spire.
Here's the ad. Click to enlarge.
Is there any reason to be mad at the builder? Other than building something boringly similar to Spire, no. They’re doing what they have to do to move units and these types of price cuts are happening all across the nation. But there is a very important lesson to be learned from this. The lesson is that if you’re buying into an area that is slated for lots of new growth (in the form of inventory), don’t be surprised when the builder who sold you your unit turns around and gouges your value. Just a word to the wise…
Atlanta has some inventory problems of its own. Photo courtesy of Bill Cobb.
WSJ – In Atlanta, Irrational Building Exuberance
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Update: The condo tower “Spire Midtown” in Atlanta sold out in just 3 weeks… all 383 units, and this was before people could even see the finished product.