real estate

Is homebuilder doing false advertising?

Steve McLindenDear Real Estate Adviser,
There's a big national homebuilder who advertises on billboards outside a new subdivision that its homes begin in the "high $200s" there. These signs have been up for over a year and every time we check, we find that the cheapest homes go from the mid-to-high $300,000 range, not including the lot price. The builder also advertises the same way in the newspaper. Is this considered bait-and-switch or false advertising?
-- Victoria T.

New houses under construction © AleksandrN/Shutterstock.com

Dear Victoria,
For someone who's had careers in both advertising and real estate writing, my answer is most definitely that it's both. However, it's unlikely that an individual or class-action case based on this practice would ever go to court. That's because few lawyers want to take on a giant national entity with high-powered legal teams who've broken up their company's subdivisions into hundreds of limited liability corporations to mitigate lawsuit risk.

But based on a quarter century of covering residential real estate, it's apparent that misleading, if not blatantly false advertising, remains business as usual for far too many homebuilders, with apologies to those ethical operators who suffer for the actions of their contemporaries.

Tall tales about big lots

In your case, there likely was never a home available in the "$200s" in the subdivision you mentioned, though if pressed, the builder might defend its claim by saying that a stripped-down home could have been purchased and built there for $299,999 at some point. As for your point that lot prices aren't included, well, the builder might argue that a home is not a lot, is it?

Those aren't the only deceptions by any means:

  • It's common for builders to spotlight charming renderings of homes set on spacious tracts, even though such lots were never offered anywhere in the subdivision.
  • Some builders advertise "free closing costs" that are already wrapped into the sales price.
  • Other homebuilders hawk "gated communities" in subdivisions where streets were subsidized by state bonds, meaning the public must be allowed access to them. ("Hmm, why are solicitors coming to my door? And why is the subdivision gate never closed ... or even attended?")

Beware lies about business ties

Some builders tie seemingly generous incentive packages to the mandatory use of their own mortgage companies, title companies and other partners. Red flag! I've also heard of builder real estate agents who refer to themselves as "buyer's agents" to lull purchasers into a false sense of security while they act predominantly, if not wholly, in the builder's interest.

Watch for upgrades

Moreover, consumers should never assume that the model homes they tour are the homes they're going to get if they're the same floor plan. Most models feature "decorator extras" such as vaulted ceilings, ceiling fans, wall coverings and appliance and flooring upgrades. If you do buy new and ask for any of these extras, don't accept the typically exorbitant "upgrade" markup. Price these elsewhere and negotiate them down to market value with the builder.

Don't expect help from regulators

While the Federal Trade Commission cracks down on deceptive industry ads from time to time, it typically focuses on exaggerations in loan guarantees, financing and interest rate offers. As for bait-and-switch, seldom do homebuilders or other businesses such as car dealerships get sued or sanctioned for the practice, sadly.

Be cynical while dealing with cynics

Yes, I've heard the argument that most consumers should know by now that much of modern marketing is fairy tale puffery, but we're not all thusly jaded. So caveat emptor, my friends, whether you're buying "new" or "used." But if you notice anything that seems remotely deceptive in a builder's marketing materials or sales pitch, don't use that builder. And oh-so-carefully read the fine print on the sales contract before you sign. Some builder concessions and handshake agreements mysteriously get left off. And never use the builder's agent no matter what kind of line you're fed.

Good luck!

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