GREG SPIER
Ways to ‘fight back’

In an age where customer service counts, homebuilders are competing not just over how well they construct homes but also how many services they can offer their clients. The struggle has existed for years on a local level, but larger, national companies with deeper pockets are adding a twist to the equation: In recent years several have begun to offer in-house mortgages in an attempt to attract customers.

Smaller companies and individual builders that don’t have the ability to offer such means of financing are now being forced to ask themselves how, if at all, such competition is affecting their business and what they can do to keep up.

“Being able to offer in-house mortgages is definitely a benefit for national homebuilders. It’s the ultimate in one-stop shopping,” said Greg Spier, past president of the Home Builders Association of Massachusetts.

Pulte Homes Inc., a Michigan-based national building company with a presence in Massachusetts, offers in-house financing options in an attempt to ensure that their customers get their homes on time.

“One of the benefits to a Pulte homebuyer of originating a loan with Pulte Mortgage is that it streamlines the loan and home completion process, especially during the critical closing stage,” according to a statement issued by a Pulte Homes spokesman. “Pulte has learned through its own internal research, as well as through the annual J.D. Power and Assoc. national survey of new homebuyers, that completing and delivering the home when promised is one of the leading drivers of a customer’s level of satisfaction with their homebuilder.”

Being able to provide a homebuyer with the possibility to finance their purchase in-house may be a benefit to the customer, but in the end is also an advantage to the builder.

“It’s a great way to offer additional services, but ultimately it’s just another profit center,” said Jeff Rudda, a developer with Symes Assoc. out of Beverly and a former representative for HBAM.

National builders are able to offer these services simply because of their size, which puts these options out of the reach of most, if not all, local builders.

“The homebuilding industry in Massachusetts is a cottage industry comprised of small builders who build in a handful of communities and just don’t produce the kind of volume of units that would enable them to offer [in-house mortgages]. That’s the real bottom line on this,” said Benjamin Fierro III, legal counsel to HBAM.

Recent weeks have brought a measure of concern from The National Mortgage Complaint Center proclaiming the probability of a “mortgage monopoly” from larger builders who can offer in-house financing.

“Millions of new-home purchasers have been overcharged after they felt like they were forced into using the mortgage product of a regional or national home builder,” said Thomas Martin, president of the National Mortgage Complaint Center. “The reason most national and many regional homebuilders have become mortgage lenders can be summed up in two words Â… more profits.”

While such services may help to produce income for national operations while possibly giving them an edge over smaller operations, area builders are quick to point out that bigger is not always better.

“I guess you could look at this situation as a monopoly. It’s obviously not something I can offer being a small-time operation,” said Spier. “Massachusetts is so different than elsewhere in the country, though. In some places the big players dominate, but in the Northeast some of the larger builders may have a presence but they certainly aren’t putting the little guys out of business. It’s a convenience for the end-buyers, but I don’t think I’m going to lose a sale simply because I can’t offer financing.”

The “mortgage monopoly” fear may be unfounded, not just because of the state of the market in Massachusetts, but also because of a medium that makes many traditional boundaries and limitations obsolete.

“There’s a thing called ‘the Internet’ that completely destroys any talk of monopoly. My 15-year-old can go on the Internet and get 15 mortgages in 15 seconds. This is the information age,” said Rhuda. “A lot of mortgage companies are just fearful that the building industry will be establishing a point of first contact, which is really what it’s all about in terms of customer service Â… Customers have the ability to shop the deal and I think most do today. Customers have choices and it makes sense to offer them.”

Who’s Got the Edge?

Many local homebuilders also have established enduring relationships with area lenders that may help to combat any crunch felt by national companies while providing alternatives to buyers.

“If you can form a good relationship with a mortgage company, then that’s something we can fight back with. If they give me a special rate because I help them in some way and I can therefore give a better situation to a client of mine, then it may not be equivalent [to in-house mortgages], but it’s competitive,” said Spier.

Many local builders, town planners and real estate professionals have been known to bemoan the zoning, permitting and approval processes in Massachusetts, although when vying for business, it may actually serve as a benefit for smaller companies.

“It’s so difficult to get things approved in Massachusetts. It’s like an old boy’s network. The planning board just trusts the local guy more than the national player. Sure, we can’t walk up to a site and write a check for $10 million and buy a large parcel of land, but we have to work with what we have,” Spier said.

Another condition that may be evening out the scales is record-high home prices in the commonwealth. Many area homebuilders hone their focus towards smaller, but more expensive, homes. Bigger developments that national companies usually produce are not necessarily an option in Massachusetts both because of pricing and lack of available land.

“The national companies, the Pultes, the Toll Bros., who are doing larger developments – even they would tell you that even large developments in this state can still be considered small in comparison to other states,” said Fierro. “It has a direct bearing on the services offered. Because our housing is what it is and is on the scale it is Â… a lot of builders here are building expensive homes for affluent buyers who clearly qualify for a mortgage from traditional lenders and have equity. Especially with the appreciation in Massachusetts there is a lot less demand [for in-house mortgages].”

Currently in the commonwealth supply is nowhere near close to meeting demand for new homes, indicating that attempts to attract buyers through services like in-house financing, while important, may not be what determines what gets sold and who sells it.

“Right now, with low interest rates and such a strong market, builders are able to sell whatever they can build because the pipeline is so restricted in Massachusetts,” said Fierro. “If interest rates start to go up or another shift occurs, the advantage [of in-house mortgages] may be greater, but right now people are just waiting for homes.”