Charlotte homebuilder offers partial refund if area home values fall more than 10% within a year of purchase.
By Stella M. Hopkins
shopkins@charlotte observer.com
Posted: Friday, Feb. 20, 2009
Simonini Builders will refund customers up to 5 percent of what they paid for a house if Charlotte-area home values take a steep plunge. The refund kicks in if values decline within a year of purchase by more than 10 percent and up to 15 percent, based on a widely used home price index.
On a $700,000 house, the refund would be $700 for a decline of 10.1 percent, to as much as $35,000 if values fall 15 percent.
“We view it more as an insurance policy for the consumer,” said Ray Killian Jr., CEO and co-owner of the company. “We give them a hedge.”
For more than a year, new home construction has been plunging locally and nationwide as lending standards tightened, foreclosures glutted the market, unemployment rose and the economy soured. Even people with good credit and relatively secure jobs are hesitant to spend. And the ongoing decline in home values has some buyers holding out for lower prices or unwilling to buy and risk a quick loss.
Discounting and other incentives have been common among builders hungry for sales. Killian says they've already cut prices 8 percent to 13 percent.
But several real estate experts said they hadn't heard of a refund plan like the Simonini deal. The hedge, which Killian credits to Chief Financial Officer Bill Saint, is based on the widely watched S&P/Case-Shiller Home Price Index.
“It's a very clever idea,” said François Ortalo-Magné, a professor and chairman of the real estate department at the University of Wisconsin-Madison. “In today's market, given the fear and uncertainty, we're looking for things to get the market flow going again.”
The likelihood of a payout is probably slim. Charlotte never had a big bubble market surge in home prices. A specific neighborhood might have had a big run-up and may fall hard. But the refund is based on the index, which as of November showed Charlotte-area prices had declined 5.3 percent compared with a year ago. That was the biggest annual drop in more than 20 years of available data.
December figures are due Tuesday.
The refund offer is backed by the company, not insurance or an outside party. So, Killian said: “It's only as good as the financial strength of the company.”
Killian said the company offers customers its credit report, prepared by an outside firm, and a financial bill of health from an accounting firm. Simonini also provides customers with contacts at 12 of its vendors, so they can confirm the builder is paying its bills.
The firm, which traces its Charlotte roots to 1973, typically builds at the higher end, with some houses above $1 million. Models opened this week at its Christenbury Hall near Concord Mills, with prices starting around $675,000. Other projects include Heydon Hall, near Quail Hollow Country Club; the SouthPark area's Conservatory, which starts around $875,000, and The Preserve at Robbins Park near Lake Norman, starting at about $645,000.
Simonini is also tackling the problem of would-be customers who can't buy because they can't sell what they have. The builder will help identify Realtors who have been successful in that area, with close attention to how closely sales prices are tracking with asking prices. Simonini interior designers will evaluate the existing house and recommend fix-ups to lure buyers. The builder will then do up to $15,000 of repairs and improvements at cost, with no profit mark-up. The customer gets the amount spent as a credit on the new home deal.
“We're in the business of selling homes,” Killian said. “We recognize there's a lot of confusion and fear in the market.”
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