There is a niche developing in the real estate industry that could one day account for 35 percent of all real estate sales. The niche we’re talking about is new home construction. The National Association of Realtors estimates there will be approximately 5.1 million home sales in 2014. New-home sales only made up roughly 10 percent of sales in 2013 but that percentage is expected to steadily increase.
Demand is outpacing new-home construction
Laurence Yun, chief economist for the National Association of Realtors predicted that while housing starts will increase by 25 percent to about 625,000 in 2014, to keep pace with the demand, new-home starts would have to increase by another 50-60 percent. A Harvard study estimates the shortfall to be approximately 1.8 million new homes per year.
Majority of buyers would consider buying new construction
A builder consortium that included 32 builders across 25 markets found that 54 percent of the buyers surveyed said they would consider purchasing new construction. A sales pace of 5.1 million units translates into 2.75 million home purchasers who would like to consider new construction as part of their home search. Given that there will be only 625,000 actual new units built; the potential shortfall could be more than 2 million new homes. What can agents do to capitalize on this opportunity?
1. New-home sales drive resales
The National Association of Home Builders reports that 70 percent of their buyers have an existing home to sell. The agents who represent builders seldom take outside listings. This means that if you represent new-home purchasers, you have a very high probability of listing their home as well.
2. Infill: the real opportunity
While many agents would like to represent the big builders, most fail to realize that the greatest opportunity may be with small builders. While it takes special training to represent a large builder, which often includes being able to lay out changes to blueprints, the real opportunity for most agents is with “infill.”
The term “infill” refers to creating new construction in areas that are already built out. This opportunity is greatest in major metropolitan areas. In fact, the prediction from NAR’s new-home panel was that by the end of 2014, 30 percent of all new construction would be due to “infill” properties. These smaller projects are usually of no interest to big-name builders and also fly under the radar of most real estate agents.
3. Single-family opportunities
An entirely different option is to locate foreclosures or dilapidated properties that can be acquired for lot value, torn down, and then replaced with new construction. This is an especially good option in many luxury markets, since most of these areas are already built out.
The beauty of working with a smaller builder is that you obtain a commission on the land sale and on the listing side once the property is built out, as well as possibly selling it to a buyer who has another property to sell. That’s a total of four commissions!
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