Where is the developer of my subdivision?!?

Do you currently own a home in a subdivision that is surrounded by vacant, unkept lots? If so, carefully consider what could happen–if it hasn’t already. In order to get educated, let me explain how developing property works:

When a developer develops lots, he or she incurs heavy upfront costs to acquire the land and install the infrastructure. These costs must either be financed or paid in cold hard cash. If the costs are finacned, the developer must pay interest on the acquisition and development loan and may have a “balloon” for the repayment of the loan. Those financing costs result in ongoing debt payments that erode any potential profit when the lots are eventually sold. (Life gets exciting when a developer owes millions of dollars on an asset that is unsalable and/or declining in value). The lots created by the developer must either be built upon or sold to builders to recoup development costs and, hopefully, a profit.

In our current market, builders have stopped building because they can’t obtain construction financing and/or they fear they cannot sell the homes when built. This leaves the developer facing the decision to hold onto his lots or sell them at today’s lower lot prices. If the developer sells his lots at a lower price point, builders who purchase them can then build lower-priced homes to meet market conditions. That means homeowners who previously purchased homes when times were better may end up with smaller homes or homes of lower quality built on the remaining vacant lots in their subdivision. This, of course, robs the owner of the “nicer” home in the community of any equity which may remain.

Another separate consideration is what may happen with incomplete common areas and other amenities (pool, community clubhouse, so on and so forth) if the developer sells his remaining lots to another builder who doesn’t deliver on promises to complete those amenities.

All this said, it is essential to be within a proven subdivision developed by a developer possessing financial strength and a track record of delivering what they promise. Otherwise, you may be in trouble.

Questions about your community and the status and/or your developer? Call me at 869-3469, I’d be happy to acquire information for you.

source boiseblog

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