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Builders Lure Buyers With Freebies

This holiday season offers a bargain beyond slashed prices on clothes, tools or household trinkets: free furnishings for new-home buyers.

Some homebuild-ers are tossing in extras that buyers normally have to pay for, including granite counter finishes and special wiring for music or movies.

It’s a marketing tool builders shelved for much of the recent housing boom. But this year’s usual seasonal slowdown has hit builders amid a more fundamental shift.

Industry sources are of two minds about the return of free or discounted upgrades.

The optimists: they’re temporary and will disappear when homebuyers come out in force again after the holidays.

The pessimists: they’re here to stay and even may be the first defense in a falling market, to be followed later by price cuts.

Observers agree swift price rises in recent years are behind the free upgrades.

“We probably got a little bit ahead of ourselves,” said Michelle Wolkoys, managing director of Costa Mesa-based Meyers Group, a housing consultant owned by Washington, D.C.-based HanleyWood LLC. “We have seen builders needing to add value.”

Builders face a decline in overall housing demand that began in summer. Some buyers have been chilled by Orange County’s median sale price of more than half a million dollars.

In October, sales of new and existing houses and condominiums fell 25% to 3,508, versus a year earlier, according to La Jolla-based market tracker DataQuick Information Systems. Still, the county’s median home price was up 21% in October from a year earlier to $532,000, though slightly off its peak earlier this year, DataQuick said.

Extras in a home usually are an added source of profit for builders. Companies typically don’t break out how much profit comes from options. But they can add thousands of dollars to the sale price of a home.

Builders aren’t offering deals everywhere ,just where demand might be softening. South County has seen the most, sources said.

Standard Pacific Corp. has advertised deals at its homes in Talega, a masterplanned development in San Clemente. Last month a sales pitch from the Irvine builder offered freebies to customers who buy before the end of the year.

Selected homes at Standard Pacific’s Amalfi neighborhood in Talega include a granite fireplace and a security system. Another home plan at Amalfi offers a “pre-wiring speaker package,” granite kitchen counters and upgraded bathroom tile.

Todd Palmaer, president of Standard Pacific’s local unit, said the company wants to make sure it sells a home before construction is finished.

If homes at some of its developments are almost completed but not sold, or if one falls out of escrow, then the company might consider discounting the upgrades, he said.

“It’s a little bit more enticing,” Palmaer said.

The practice is fairly common each fall and is related to Standard Pacific’s sales goals, he said. While the upgrades are included in the price of a home, they aren’t necessarily free, Palmaer said.

If the company wants to give sales a boost, it will raise the home’s price but not by as much as the retail cost of the upgrades, he said. If homes are selling well, then the price of a home may go up to the full amount of the upgrades, according to Palmaer.

“It’s not something we are doing across the board,” he said.

Palmaer said the company isn’t offering discounted upgrades at its new neighborhood in Irvine’s Woodbury, a large development by Newport Beach-based The Irvine Company.

Buyers signed contracts for all 10 $1 million-plus homes Standard Pacific offered for sale at Woodbury’s opening weekend last month, he said.

Anecdotal evidence suggests builders are selling well in OC’s central cities, such as Irvine, Tustin and Costa Mesa.

Companies in any industry will entice buyers to take unsold products off their hands, said Jay Moss, a local regional manager for Los Angeles-based KB Home. Public companies in particular want to keep unsold homes low and sales at a steady pace, he said.

Red Bank, N.J.-based Hovnanian Enterprises Inc. last month advertised “free upgrades” at La Habra Knolls in La Habra.

A sales pitch from publicly traded Hovnanian said “the inclusion of extra upgrades” would save buyers “thousands of dollars.”

The extras include granite and tile counters as well as Whirlpool refrigerators, washers and dryers, according to the release.

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