Question from a reader:
Jim, I’m interested to hear the thoughts of Realtors on how best* to market lots in a new/proposed residential subdivision. The methods being employed in Fluvanna and Louisa at present are:
(1) Make all lots available for sale to anyone (via standard marketing tools, i.e., MLS, print ads, etc.)…Simply market the hell out the thing in every way possible. Of course there should be architectural standards for the subdivision, but basically sell any/all lots to anyone for the desired price. They can sit on it, build, resell it, or whatever.
Pros: faster lot absorption, higher lot price potential
Cons: speculators purchasing lots and sitting on them, undesirable heterogeneity in home styles, market-level sales commissions
(2) Require buyers to use one or more pre-selected builders…In several instances, I’m seeing developers hire listing agents to sell lots, while requiring buyers to use a pre-selected builder(s). The developer pays the listing agent a minimal commission (1%) on the lot sales, while the agent gets a market (6%) commission on the sale of the home. While not necessary, I’ve observed a limited approach to marketing the lots from agents in this model. I’m not sure why, but they seem to focus more on the sale of the home than the lot.
Pros: minimal sales commissions
Cons: buyers may not want to use pre-selected builders, slower absorption
(3) Sell all lots to one or more builders …assuming the desired price and absorption can be negotiated, and the builder is not some startup guy who could fold if a single home doesn’t sell, this is probably the best situation for developers.
Pros: no sales commissions, predetermined absorption
Cons: small builders may back out, price discount likely
*Best, in this context, is how best to maximize value/return on the development of the subdivision. That is, how best to sell lots as quickly as possible at the highest price possible.
I’d like your thoughts, and hopefully thoughts from readers of your blog.
I’d like to expand on this a little bit more and include buyers – what are your expectations when buying new construction?