Builder Incentives Run Rampant in Slower Southwest Florida Housing Market

With overvalued markets declining throughout Southwest Florida, people are willing to try things they otherwise wouldn’t. When Joan and Paul Lee decided to buy a house being built in North Naples, the free $40,000 pool was a factor… but it wasn’t that simple.

“It wasn’t, ‘OK, we’ll do this or not because of that,’” Joan Lee told the Naples Daily News. “We actually upgraded the model we were going to get because we liked the pool” and were able to afford more by getting it free.

Welcome to the post-boom world of the Southwest Florida housing market, where builders compete for scarce customers by offering discounts and upgrades such as the Lees’ pool.

• Home prices in Lee County have dropped sharply since December, when the median price of a single-family home peaked at $322,300.
• By August, that figure had fallen to $264,100 — down 7 percent from $283,600 a year earlier.
• In Collier County, the median price in August was $469,100 — down 6 percent from $500,800 a year earlier.
• Meanwhile, about 12,000 houses are on the market in Lee County — about three times the amount of inventory seen a year ago.

“That’s the first thing builders do when the market softens,” said John McIlwain, with the Washington-based Urban Land Institute. “They don’t want to reduce asking prices because it affects values and the market. The prices are going to start coming down, but it’s really hard for a builder to post a sign: ‘Price reduced.’”

“That sends a bad message to the buyer. People wonder a couple of things: ‘If I don’t buy, will it come down next week,’ or ‘If I buy, now, if it comes down next week will I lose value?’”

Michael Reitmann, who heads the Lee Building Industry Association, said incentives are becoming more prevalent in Southwest Florida.

“Builders are using unique incentives to lure in buyers, anything from a new car to gasoline. Obviously, the days of just taking orders are over, and the sales and marketing people have to hone their skills. But there are limits to how much the tactic can accomplish,” he said.

“Ultimately that gets them in the door, that gets the attention of a buyer, but the success of selling a home is still dependent on a particular sales person.”

For are home builders, an incentive such as a pool can be a way of standing out in a crowded field. The tactic has been a success in this era of high insurance and property tax rates, along with volatile Florida mortgage rates.

Other Southwest Florida builders have been offering similar incentives in recent months. At Sherwood at the Crossroads in Lehigh Acres, Beazer Homes recently offered to pay up to $24,000 of the Florida mortgage for the first six months. Lennar Homes had a deal to pay $5,000 toward closing costs and a 30-inch flat-screen TV for its Lee County communities.

Sometimes a developer’s incentives are used to compete with people who are trying to resell houses in a partially built community.

McIlwain said this pattern is the result of a tough South Florida housing market and should disappear when the downturn ends. That is likely to happen late next year, said Michael Timmerman, the Naples-based managing director for Florida at Hanley Wood, a national company that collects and analyzes data for home builders.

Reitmann said it’s also important to remember that incentives don’t affect the underlying structure of the business, and factors such as the overall cost of a Florida home loan remain largely out of builders’ control.

“There are certain things you cannot change, like the increasing cost of construction materials. The marketplace takes care of that. You have to get a certain return on your investment or you go out of business,” he said.