As the real estate market cools, homebuilders are piling on the extras. They’re hoping to lure buyers with everything from deals on closing costs to granite counter tops, free landscaping and fancy flooring.

By Debora Vrana

Home buyers across the U.S., take heart: 2006 is shaping up to be your year.

As the real estate cycle gets put on cool, the balance of power is shifting from the seller’s corner to the buyer’s. And homebuilders are responding with plenty of perks, especially in areas like Las Vegas and San Diego, where there is a lot of new home construction and where there is not much diversity in what is being offered, said Nicole McAllister, director of development, for the Lusk Center for Real Estate at the University of Southern California.

“Buyers ought to do alright this year,” agreed Stephen Melman, director of economic services at National Association of Home Builders, a Washington, D.C. trade group which surveys developers on the use of incentives.

Oh, the power!
What are buyers doing with their newfound power? They are demanding -- and getting -- bargains and upgrades. These include:

New kitchen cabinets;
Granite countertops;
Center kitchen islands;
Backyard landscaping;
New stainless steel and upgraded dishwashers, microwaves and refrigerators;
Upgrades to commercial ovens;
Built-in microwaves;
Upgraded flooring, such as bamboo; and
Chances to win something, such as a car.
Roughly 40% of developers are saying yes to these cosmetic perks, and that’s double the number from six months earlier, according to a December NAHB survey of more than 500 homebuilders.

Witness the following:

In Georgetown, Washington, D.C., a 63-unit condominium project is offering financial incentives, such as requiring only $5,000 down to cover closing costs and down payments to move into a $409,000 condominium. In January, they offered a $7,500 blank check, and suggested buyers use it for a flat-screen TV.
In Sacramento, Calif., new developments from Meritage Homes Corp. of Scottsdale, Ariz., offer the “Done Deal,” program, which gives buyers $20,000 to $90,000 worth of incentives that can be packaged in various ways, such as $15,000 in backyard landscaping or reduced closing costs.
In a new master-planned golf community near Las Vegas called Tuscany, anyone who visits a model home built by Rhodes Homes is eligible for an all-expense-paid weekend trip for two to Cabo San Lucas, Mexico. The builder said the contest helps attract traffic to its developments and boosts sales.
New homeowner Debbie Wilson knows the benefits firsthand. She scored $10,000 worth of perks that included upgraded kitchen counter tops and reduced closing costs on a $375,000, three-bedroom home in Northern California. Wilson, who is an administrator at the University of California at Davis, said the package helped her afford her 1,560-square-foot, three-bedroom home.

“I’m still amazed,” she said.

Don’t be blinded by sparkly extras
Many of the cosmetic extras being offered are often products builders can get at cost. Rarer are financial incentives, like Wilson’s reduced closing costs, interest-rate buy downs and cuts in home prices. These packages can cost a builder more, but still are being used as carrots by roughly 7% of developers, nearly double the amount from six months earlier, according to the NAHB survey.

Which should buyers go for? Financial planners say while it’s fun to show off granite countertops and built-in microwaves, in the long run, financial incentives will provide the bigger payoff. A reduction in price, even small, will mean lower property taxes and lower monthly payments. A reduction in interest rates can pay off big over time, said Dirk Huybrechts, a certified financial planner in Los Angeles.

“Upgrades -- frankly all they do is depreciate,” said Huybrechts. “You want to look closely at the numbers. Remember, you can always upgrade your appliances later yourself.”

The power of perks
Builders have historically used incentives in other tough housing markets, such as the early 1970s when interest rates were high and the early 1980s when the economy was struggling, said McAllister at USC.

“It works,” said McAllister. “Builders don’t want to have inventory standing, and they will do what it takes to move product. Buyers like perks because they feel like they’re getting a good deal.”

New homeowner Wilson can attest to that. “I would have never even looked at the home without those incentives,” she said. “It was a blessing.”

Developers are more likely to offer incentives to move product if they have a back-up of inventory, or a home has fallen out of escrow, or if it is a sluggish time of the real estate cycle, such as January and February.

“Builders are fighting for their markets in some areas,” said Melman, of the NAHB. “They are resorting to their arsenal of marketing tools, and some of those include giving buyers some perks.

“It’s a win-win. It’s an excellent way to move property and get buyers loyal to a certain builder.”