Recently it has been in the news that BuzzBuzzHome.com – the new construction real estate site – will be launching a “buy now” feature in the new year (2016).
This will allow people to buy condos and homes online with their credit card, which means that people will be able to pay the $5,000 deposit online and process all the paperwork that today happens within a sales office.
This is huge.
If you’re somebody who has used a computer and the internet before, the process today feels archaic. Typically you go online to register for a project and then somebody will call you to arrange an appointment. If you ask them to email you the price sheet and floor plans ahead of time, they’ll almost always tell you that they can’t do that and that you’ll need to come into the sales office for an appointment.
But what about if you end not liking the floor plans and you’re about to waste a few hours of your time? Too bad. The sales funnel requires you to be present in person. This is nothing against the many talented sales professionals working in new construction; it’s just that if I can design and price out a car online and if Mark Cuban can buy a $40 million jet online, then I should be able to shop for a new condo online.
BuzzBuzzHome has been chipping away at the current model for years and they’ve managed to get a lot more information online than was previously available. When Matthew and Cliff first launched BuzzBuzzHome in the late 2000s it was almost unheard of for developers to put any sort of pricing and floor plans online. Now they at least have some of that on their site. I’m glad they stuck with it.
Because what’s equally exciting about what BuzzBuzzHome is doing is that in order to offer a “buy now” feature, they also need to have an accurate account of all developer inventory on hand. And so alongside this “buy now” feature they’re also building out a full cloud-based inventory management system for developers.
This means that BuzzBuzzHome will soon be managing the supply-side of the new construction marketplace. Think of the data and analytics you can extract from a platform like this. It’s going to bring much greater transparency to this industry.
But if your business is in any way connected to the new construction real estate market, I would take this morning and think about how the above innovations could impact your business model. I can think of a few winners and losers.
Some of you might be thinking that people aren’t going to make the biggest purchase of their life online. But I would bet the farm that many people will. I know I would.
On my way back from Philadelphia this past weekend I wrote a post called, The Philadelphia (real estate) story. It was about how opposite the market is in Philly compared to Toronto.
After writing that post and because of a discussion in the comment section, I started thinking about condo vs. rental apartment development across the US. Because unlike cities such as Toronto and Vancouver, it struck me that – outside of maybe New York and Miami – most U.S. cities are really not building a lot of for sale condos. And if you’re from Toronto or Vancouver, I bet that feels odd to you.
But what exactly is that number?
As of the first quarter of 2015, condos as a percentage of all new multifamily (apartment) construction in the US was only 5.5%. That’s a tiny number and is down from over 50% before the Great Recession, which means most cities in the US really are building mostly rental. Last year the US built 264,000 multifamily units across 11,000 buildings.
So why is that happening?
There appears to be a number of factors, according to a recent article in the Wall Street Journal.
There’s a supply side constraint:
Another obstacle cited by developers: construction loans. Matt Allen, chief operating officer of the Related Group, a developer based in Miami, said he can get a construction loan for roughly 75% of the cost of building an apartment complex. But lenders will cover only 50%, on average, of a condo complex’s cost because of the greater risk, he said.
There’s a demand side constraint:
As a result, the Federal Housing Administration, which backs mortgages made to low-wealth buyers, tightened its lending standards in a series of moves from 2008 to 2012. Under the new rules, in order for the FHA to insure mortgages in a given condo complex, at least half of the units must be owner-occupied and no more than half can be FHA-insured, among other requirements. For condo projects under development, at least 30% of units must be under contract for sale before the FHA will start backing mortgages there. Mortgage giants Fannie Mae and Freddie Mac tightened their standards as well.
And there are macroeconomic factors:
On the entry-level end, tepid job growth early in the recovery and the younger generation’s affinity for flexibility have fueled demand for rentals. Apartment rents are up nearly 16% since 2010, according to Reis Inc.
Notwithstanding the above, could this be a post-recession policy pendulum that has swung too far in one direction?