Buyers buy HOMES and HOMES Make the Community
Most often, the land owner will partner with the Developer. Typically, this will be contributing the land and the Developer will pay for the development and entitlement process. When the finished lots are sold to a Builder(s), the land owner will make their money on the land.
What’s wrong with this?
What if your land is developed into 100 lots. The Developer may sell the lots to 3 different builders. Builders do not buy lots all at once. Typically, the builder will purchase 3 or 4 lots, build the homes, and purchase another 3 or 4 lots. This is called a “lot takedown” and is very common in the business.
The builders will purchase the best lots first. Typically, the worst lots are left for last.
What if 2 out of the first 3 Builders can’t sell their homes and the Developer sells more lots to more builders? More Builders equals more different styles and price points of homes. Typically, the value of the homes starts to decrease.
As a result of different builders with different homes, when the development is nearing completion, the last lots are very difficult to sell.
There’s many things that can go wrong in building out a community. The objective is to create a neighborhood that has a cohesive feel and where a family wants to move to. Remember, a new home cost more than an existing home. There must be a strong reason to buy a new home. Typically, the buyer of a new home wants (obviously) a new home with updated floor plans. And, the buyer wants a neighborhood that is new, that is cohesive and has a great feel to it. Perhaps they want more control on what their neighbors can and cannot do (no chickens in the yard like their neighbors in their last house).
It comes down to control of the product (homes), control of the sales process and control and enforcement of the CCR’s of the development (rules and regulations of the community such as no chickens, no parking RV’s and boats out front, a common fence design, etc.).
If the developer keeps control of the builders, product and sales, the community becomes more desirable to live in as more homes are built.
If the developer is just interested in selling the most lots to the most builders, a variety of problems occur. These problems grow as the development matures and the last portion of the development is difficult to sell. When lots don’t sell, those properties are discounted. Cheaper builders buy those lots and build cheaper homes. The new development enters a cycle that creates a downward spiral. The land owner loses money on the last portion of the development.
We’ve seen this process happen time and time again in Spokane. Spend some time driving newer communities (communities built in the last 20 years) in the Spokane region. Most of these newer communities will have an odd and mixed feel to them. Once you start visiting these communities, you’ll discover what we are talking about. A few will feel great. Most will not. Ask yourself, which one would you want to move into?
How to Avoid This?
It’s very simple. Designing and building a neighborhood is not just the streets, parks and entrance, it’s about the homes and controlling those homes.
When you DEVELOP PROPERTY, YOU MUST DEVELOP THE BUILD PROGRAM FOR THE HOMES. If you don’t do this, and the Developer that you are working with is just going to “sell the lots” to builders, then you’ll end up with a development that is never a community. It will be another Spokane development that stutters and fails.
Obviously, there’s a group of Developers in Spokane that promise the world, but can’t deliver. They can’t deliver because they do not have a Development and Residential Construction company.
It’s synergy. You need a Developer and Builder to create the community and build program. That’s how you maximize your land investment and ensure the success of the community.
When talking to a Developer, ask them how they are going to provide the build program to ensure the lot takedowns and valuation increase in those properties. If their answer is “we will sell the lots to our builders,”…..run.