In soft market, home buyers drive a hard bargain

By Nick Zieminski

NEW YORK (Reuters) - U.S. home builders are adding incentives to lure buyers but are keeping prices steady, meaning buyers can request more amenities to close a deal in a soft real estate market, real estate executives said this week.

"In the latter part of 2005 and 2006, we're learning how to creatively lower prices in those communities that are having a tougher time," said Robert Toll, chief executive of luxury home builder Toll Brothers Inc. (TOL.N: Quote, Profile, Research, Stock Buzz).

"We never lower nominal prices, but give more incentives, create a better mortgage deal, that kind of thing," Toll said at the Reuters Real Estate Summit in New York.

A few weeks can mean the difference between a high-demand market and one that requires sweeteners to close a deal, Toll said. In Arizona in March, Toll needed a lottery system because of strong demand for homes in a new community, and the company was able to raise prices.

But a few weeks later, Toll was looking at incentives to draw interest.

These can run anywhere from $1,000 or $2,000 worth of kitchen remodeling, or better appliances, to a spa in the back of the house, or as much as a $50,000 credit for options, Toll said.

"Incentives are all over the place," he said, adding that their extent depends on the community.

Incentives are not limited to builders of high-end properties like Toll.

Beazer Homes USA Inc. (BZH.N: Quote, Profile, Research, Stock Buzz), whose houses start at about $100,000 and sell for an average of some $300,000, lets qualified buyers choose between better financing terms and better features in the home.

Beazer CEO Ian McCarthy said incentives have always been a part of the home building business -- it's just a question of degree.

"Today there are certainly more incentives out there," he said.

A builder may also take out features to help a buyer afford a home, since higher mortgage rates mean the same monthly payment doesn't go as far as a year ago, McCarthy said.

"We can squeeze it down," he said. "We can still get the customer into that lot, into that community, but they may have less home than recently."

McCarthy said Beazer makes more money from features it builds inside the home than from the home's financing, with options accounting for about 8 percent of the company's revenue.

"If we have to give some of that away because (the buyer) can't afford it, that's not the end of the world for us," McCarthy said.

"It comes down to a payment at the end of the day."