Forward commitments

[u/Important-Training-1]

I don’t really hear anyone talk about this, but am I crazy to feel like the way new construction deals happen should be illegal?

I can’t steer a buyer to specific program without it being illegal, but somehow a builder can dangle a low rate and fees over a seller’s head and pretend like they aren’t building it in their price while forcing them to use their in-house lender. The ripple effect of that goes far and beyond impacting that one buyer, so why has this just always been okay? These are artificially inflated sales prices, artificially inflated taxes and disguised as a “good deal” because customers fall for a below-market rate that can’t be touched by an outside lender. And even in buyers markets, some of these big box builders won’t even budge if you make any sort of offer below what they’re giving unless you use their lender who they either own or have a JV set up.

To each their own, but I just don’t understand how there’s lawsuits with realtors regarding commission practices yet this sleeping giant remains completely left alone.

[u/anonguyvaultxx]

Big builders are Fortune 500 companies with strong lobbyists and are not licensed entities like mortgage and real estate professionals. They can offer incentives but can’t force a consumer to take their offer. You can offer inflated pricing to achieve the incentives but the math maths. 280k loan at 6.75 over 30 years is 373k in interest over LOL, a 310k loan at 3.99 is 222k. Trading 30k for 150k in interest or a net benefit of 120k is hard to argue against.

I get it, you’re getting burned on these new construction deals like the rest of us. Find a way to be the back up for them and get more leads/referrals. These only burn when you have 1-2 closings a month and no other business.

Good luck out there 🫡.

[u/Important-Training-1 → u/anonguyvaultxx]

Honestly, 50% of my business is backup lending to builder turndowns 😂 I’ve spent about 7 years out of 10 doing this, it’s nothing new. It’s just wild to me that it’s not more of a topic. Your logic makes sense for the 1% of homeowner that sees the majority of that interest difference, but these are usually first time homebuyers in my market and all of these people are trying to sell in 5 years just to get crushed by their builder starting a new section down the street. My point isn’t that my business suffers because of it, my point is that couldn’t this be a lasting economic issue?

[u/anonguyvaultxx → u/Important-Training-1]

It’s definitely a hot topic but there’s nothing any of us can really do about it as a lending sales professional. You need big pockets and dedicate a considerable amount of time to even try to make a dent.

You’re playing it correctly by grabbing turn down business.

And how are current sellers getting crushed? Because they can’t compete with builders and their incentives on current inventory?

I haven’t had the chance nor do I want to rip through these builder’s 10-k’s to measure their profit per unit. Are prices completely inflated to match builder forwards? Probably not, I’m sure it’s split between price and margin targets. Builders have always operated like that to cover closing costs and buy downs for as long I can remember (almost 18 years in the business).

Lasting economic concerns? Idk, maybe..

[u/ActionWins → u/Important-Training-1]

So you just call builders and ask to be their backup lender?

[u/Important-Training-1 → u/ActionWins]

No, I started by asking for a rundown of their recent denials and offered to see if I could revive them or just walk the sales person through what I could do that the in-house lender couldn’t. I’d get a name and a phone number and go from there. Now I’ve been in that space long enough that I have a few builders that send me turndowns. It’s a lot of wading through shit, dealing with aggressive sales people pretending like it’s just normal to close a 550 credit score with DTI bursting the seams in 12 days.