Builders TELL Realtors where to price their listings

Home builders are professional marketers and, as such, are the most important “class” of sellers you must watch in your local market.  Home builders have a lower costs, answer to a higher authority, and are more sensitive to inventories than Mr.& Mrs. Jones of Perkasie, PA.  Let me explain what that means and why it is important to you, the Professional Realtor.

Home builders have a lower cost of funds.  In 1995,  builders were a mostly entrepreneurial bunch.  They were regional, smaller, and privately-held.  Less than 20% of the home builders were publicly-owned; their source of capital was debt.  Debt requires servicing and has a lower margin for error in pricing.  Hence, the homebuilders “marked to the market” frequently through drastic price reductions.  They didn’t fear class-action suits from homeowners because their pricing was necessary to the survival of the company.  In short, they had shallow pockets and did what the banks told them to do.

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