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By Ruby L. Bailey

RISMEDIA, April 24, 2007-(MCT)-Gerald and Arlene Zemke could see themselves enjoying the walking trails, tennis courts and swimming pool in Pulte Homes' Bridgewater development in Brownstown Township, Michigan.

There was just one problem: They needed to unload their home of eight years in New Boston, and the real estate market was in a slow crawl.

"I didn't want to build a house then have my house unsold and end up with two mortgages," said Gerald Zemke, 62, who retired from federal government work last year.

But a Pulte salesman arranged for the couple to speak with two companies who help buyers in just such a predicament. The Zemkes went with and closed last month — selling their old home and buying a new one the same day.

The sale of the old house was "simply something that was taken care of for us," said Arlene Zemke, 59.

Builders are sitting on an increasing supply of unsold houses — and paying the interest on construction loans until they are purchased. So some will find someone to buy yours if you buy one of theirs.

Timely tactic

Builders including Pulte Homes, Palazzolo Brothers and Moceri Development are either buying the houses outright or working with real estate agents or an investment company to help get potential buyers out of their old homes and into one of the builders' new ones.

It's not a new approach, but today's soft real estate market has more builders offering such plans to prospective buyers in order to move homes sitting unsold in their subdivisions.

Builders statewide are sitting on thousands of unsold homes. Just 100 of the 600 homes in the Zemkes' development have been sold, they said.

In response to lackluster sales, builders have cut back on the number of new projects.
Statewide, building permits are down 70% in 2007, compared with year-ago figures, said Lee Schwartz, spokesman for the Michigan Association of Home Builders.

Here's how the buy-buy programs work:

–Sellers are offered 85% to 90% of their home's appraised value or the value based on comparable sales prices in the area.
–Other charges are added, including a 6% real estate commission and closing costs, which average roughly 2% of the gross sale.
–Some programs charge a flat fee., for instance, typically charges a 13% fee.
–The company that purchases the properties resells the homes for a profit under rent-to-buy programs.
–Builders who profit when you buy one of their new homes promise you still get a great deal on the new property in this slow market.

"They're still getting all the great incentives that we currently have to move products," said Sam Palazzolo of Palazzolo Brothers. His company, with new subdivisions in South Lyon and Canton, started its Buyers Protection program last summer and promises to buy your home if it doesn't sell in six months.

"Maybe we're throwing in the landscaping, maybe we're throwing in a walk-out basement," Palazzolo said.

Incentives offered

The Zemkes, who bought a model home that had sat empty since it was built last July, said Pulte paid their closing costs, one year of homeowners insurance and a year of homeowners' association fees. The builder also paid a $1,000 up-front amenities fee and bought 2 points on the couple's mortgage.

Still, there's a catch: Some builders, including Pulte, require you to use their financing arm, which could limit your ability to find the lowest interest rate.

The Zemkes got a three-year, adjustable-rate mortgage for 5.35% through Pulte Mortgage, they said.

Other builders could require you to use their title company, home inspection or other services, said Pava Leyrer of the Michigan Mortgage Brokers Association.

Leyrer advises people who are considering such programs to be aware of all the terms.
Those who are anxious to get out from under an old home might skip the fine print and end up paying much higher prices for services, she said. "In a market like ours right now, a seller's a little bit more desperate," Leyrer said. "Make sure you're not being pressured."

Also keep in mind that offers of 80% to 90% of the appraised value, plus a 6% commission and closing costs, take a chunk out of your equity, Leyrer said.

Some sellers may be able to get more for their home if they can wait for the market to turn around.

All in all, a fair deal

The Zemkes, however, think they got a good deal for their old 1,700-square-foot house.

"It was close to the amount that we figured we would be able to sell it for," Arlene Zemke said.

And the fees may seem steep, but in today's buyers' market where property values are falling rapidly, "Your offers are going to come in at 10 percent to 15 percent less" than list price anyway, Palazzolo said. "The buyer's got to look at it as how bad they want" the new house.

Builders were initially hesitant to take deals contingent on someone selling a home, said Mark Charbonneau of ERA Classic in Fraser.

But in the past year, "They've started to build someone's house, then the buyer says, 'I really can't buy it because my current house is still for sale,' " he said. "Then the builder's left holding the bag."

ERA Classic has worked with six buyers in the past year, Charbonneau said. The company's program offers sellers 90% of the appraised value of their home and charges a 6% sales commission. If the home later sells at a profit, they'll return the commission to you.

"It's just a win for everybody," Charbonneau said. "Builders need it. Buyers love it."

Copyright © 2007, Detroit Free Press
Distributed by McClatchy-Tribune Information Services.