In a five-week span that began in early December, William Ryan Homes Inc. signed contracts to build seven homes in its suburban Chicago developments.
Orleans Homebuilders, meanwhile, sold nine homes between late August and mid-January.
Flukes or fire sales? No. The area homebuilders attribute the increased interest in their subdivisions to a partnership with a Michigan-based company to help move-up buyers get out of their existing homes and into brand-new ones.
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Marketplace Homes, of Plymouth, Mich., has been around for several years, but it’s just in the past few months that it has come into the Chicago market, initially partnering with Orleans and William Ryan.
Marketplace’s business model is a sign of the times in a housing industry that knows it needs to think outside the box. Some builders are moving beyond merely dangling incentives like upgraded cabinets and finished basements, and now are helping consumers with a key reason why they can’t move: Their inability to sell their existing homes. At the same time, Marketplace, and, by extension, builders like Orleans and William Ryan, are trying to capitalize on the greater demand for rental housing.
Either on their own or after talking with a participating builder, a consumer contacts Marketplace, providing pertinent details on their existing home such as the location, square footage, number of bedrooms and property upgrades. The company researches the local marketplace and comes back to the homeowners with a number of what Marketplace would, in effect, pay the homeowners to rent the home.
If the homeowners agree, they still have some wiggle room to negotiate on the price of the new home they’re buying. And each year for up to six years, Marketplace and the homeowners will discuss whether the home should again be rented or put up for sale.
Marketplace handles rental of the home, from vetting potential tenants to collecting rent and property management. Even if the home sits empty, the homeowner is guaranteed the monthly rent from Marketplace.
“There’s a huge market of people who feel stuck,” said Mike Kalis, a former employee of Pulte Homes who is Marketplace’s managing partner. “If they have the nicest home on the block, they can expect to get a really nice offer from us. People ask, ‘What’s the catch?’ The catch is you have to buy with one of our partner builders. Then, this could be a great fit. If one of these communities doesn’t fit for you, then it may not be the best match.”
There are some other important details too. The homeowner still needs to keep insurance on the house and needs to check how the transaction will affect their personal tax liability. Also, some consumers may be concerned about the upkeep on their homes because Marketplace is an absentee landlord.
In addition, because it is the builders, not the consumers, who are paying a commission to Marketplace for every deal struck, that may mean less in the way of other incentives offered to homebuyers. That means consumers may get the home they’ve always dreamed of, but not the gourmet kitchen of their dreams.
In 2010, Marketplace worked with builders in 13 markets and fostered the sale of 205 homes. This year, its goal is 36 markets and 365 home sales. Most of those sales will be to growing families that need a bigger home and transferees who are moving from one city to another where Marketplace has a builder-partner.
“We’re paying an expense to move inventory, but we’re moving inventory,” said Deborah Beaver, vice president at William Ryan. “If a builder can move a lot they paid $75,000 for and lose $20,000 on the house, we’re $50,000 ahead.”
For a builder like Orleans, where 88 percent of its buyers have to sell their own home, the investment with Marketplace makes sense.
“It puts the ‘ing’ back into the word ‘move’ for these people,” said Brian Fink, vice president of sales at Orleans in the Chicago market.
Expect to see more creativity ahead. This year is expected to be another bumpy ride for the housing industry.