As fears of falling home values continue to grip the Sacramento-area market, more home builders are offering limited protections against losses to help worried buyers sleep at night.
"No one wants to purchase a home or a car or a microwave and know that two months, three months or five months later there was a better deal out there," said Barry Grant, Sacramento territory president for Los Angeles-based KB Home.
To woo anxious buyers, KB promises if it lowers prices during the three or four months between a signed sales contract and finished construction, the buyer will get the lower price. The same applies to interest rates: If an original locked rate drops while the buyer's home is being built, the buyer can "float down" to the lower rate.
Grant said the builder "sporadically" offered the guarantee in local projects last year, but "has made a commitment this year that we're doing it on every built-to-order home in Sacramento."
Last year KB ranked second among the region's home builders for sales, according to Costa Mesa-based industry consultant Hanley Wood Market Intelligence. Approaches similar to KB's limited protections are becoming more common in the capital area, said a Sacramento analyst for the firm.
"I started hearing about it maybe three or four months ago," said Hanley Wood's Kathryn Boyce. "Builders know there are a lot of people who aren't buying because they think the market is going to go lower."
The builder's guarantee is part of a larger strategy by the private sector and government to help the nation's housing market. As builders roll out such offers nationally to win buyers, the government is working the other side: trying to prevent people from losing homes or walking away from them because of heavy debt.
Most recently, the Office of Thrift Supervision, which regulates mortgage lenders, proposed that people who owe more than their home is worth be allowed to refinance at its current value. Lenders would recoup the rest of what they're owed upon eventual sale of the house.
Ryland Group of Calabasas, which builds houses in the Sacramento region, had a January promotion offering a price guarantee similar to that offered by KB. "We're not advertising them now, but they're still being offered to our buyers," said spokeswoman Marya Barlow.
One of the Sacramento region's leading town house and condominium builders, Reno-based Pacific West Cos., is going a step further. It's telling customers that if they buy today and the builder drops prices before the development is finished – even as far out as two years – they'll be reimbursed for the difference.
"It becomes kind of a psychological edge. You feel comfortable with what you're buying now," said Taylor Cohee, the builder's vice president for sales.
The deal is being offered at two of the builder's condo communities in Folsom and El Dorado Hills, and also in Reno and Fresno. The Folsom and El Dorado Hills projects already sell in the low $200,000s.
Among buyers won over was Luis Gallardo, a Walnut Creek business technology consultant. He is moving to El Dorado Hills.
"I think it gives you some comfort level that with the economic conditions being what they are, and the housing market being what it is, that you're not going to continue to lose more money," said Gallardo. "It's comforting that you are able to get in now and not worry about it for the next year and a half during buildout."
Cohee said the deal doesn't change the buyer's mortgage in any way. Buyers would receive a check at buildout if their units are selling for less and would have to pay taxes on the reimbursement.
Call The Bee's Jim Wasserman, (916) 321-1102.
