Bacchus Posted January 16, 2007 Share Posted January 16, 2007 The topic here centers around why builders tend to discount the last unit of a cluster of new builds. Let's say you have a block of 6 townhouses that are in a development. Why would the builder be more likely to discount the 6th unit to sell? Does it relate to being able to extinguish the construction loan? This would assume that the construction loan is linked to the entire development, as compared to there being 6 loans. That case makes sense, as you would be incurring carrying costs (interest on the loan) on 6 units, even though you've sold 5. The other argument could be comps. If you discount unit #1, then other buyers would want that same discount.Am I missing anything here? A buddy of mine bought the last unit in a development several months ago for 30% off list. Many thanks Quote Link to comment Share on other sites More sharing options...
TheNiche Posted January 16, 2007 Share Posted January 16, 2007 The topic here centers around why builders tend to discount the last unit of a cluster of new builds. Let's say you have a block of 6 townhouses that are in a development. Why would the builder be more likely to discount the 6th unit to sell? Does it relate to being able to extinguish the construction loan? This would assume that the construction loan is linked to the entire development, as compared to there being 6 loans. That case makes sense, as you would be incurring carrying costs (interest on the loan) on 6 units, even though you've sold 5. The other argument could be comps. If you discount unit #1, then other buyers would want that same discount.Am I missing anything here? A buddy of mine bought the last unit in a development several months ago for 30% off list. Many thanksIt depends upon the size of the development, but it has to do with cost control. Carrying costs have fixed and variable components, so the cost is not always in proportion with the number of units that are available for sale. Once the developer is down to the last one or two units, those costs can't be spread out over as many units, so the developer looks for ways to bail out and extinguish those costs.Why have a sales center, for instance, if they're just trying to move a unit or two? It's just less expensive to close everything out more quickly. Quote Link to comment Share on other sites More sharing options...
TJones Posted January 16, 2007 Share Posted January 16, 2007 The developer is paying the mortgage on it at this point, so it is more cost effective to sell at a discount and move on to the next project. You will usually get a deeper discount if you are the first one int he building and the last one in. The developer has to show people moving in, and then he just wants to get out of it at the end so he can start a new project. Quote Link to comment Share on other sites More sharing options...
Spike101 Posted January 16, 2007 Share Posted January 16, 2007 More often than not, the last unit the sell in a development may be the most undesirable. Generally, builders/developers calculate their profits on the whole development rather than per unit basis. Meaning, they may be certain units that could sell for more given the location or other features without necessarily having any added costs. Profits may vary due to perceived value. If they have reached their goal in previous units, it is possible that they are more incentivized to sell at a lower profit. Velocity has a lot to do with it as well.The previous posting is absolutely correct. There are fixed costs that are offset by units sold. And one unit does not equate to a steady revenue stream. Hope this helps. Quote Link to comment Share on other sites More sharing options...
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