Monday, March 12, 2007

Sacramento Contractors Hammered by 'Retroactive Pricing'

From the Sacramento Business Journal:

Lennar nails contractors with rebate request

It's common for homebuilders to ask for price reductions from their framers, plumbers and roofers during a slump, but a construction trade association says housing giant Lennar Corp. has taken a new tactic that has trade contractors steaming -- lowering prices on work that already has been done.
Contractors and suppliers fear reductions on finished work could become a trend as builders slash new-home prices and increase incentives around Sacramento to stay competitive.

Some subcontractors reached by the Business Journal said they've been asked to drop prices for completed work or refund money they've already been paid. One trade contractor said the price changes were made without his consent. Another alleged the new tactic isn't exclusive to Lennar.

"There are other builders in the Sacramento market who are doing this," said the contractor, who spoke on the condition of anonymity from fear of losing business if he revealed his name. "I've been in the business for 25 years, and this is the first time I've ever seen retroactive pricing."
He alleged the company rebid his job without his knowledge, forcing him to drop prices 15 percent, and later applied reductions to invoices on work his company had completed, even though he assumed the price reduction would apply only to future work.
Don Harmata, an attorney who represents trade contractors, heard of Lennar's policy through his clients. He said it was highly unusual to ask for reductions in work that's already done.
[Marc] Chasman [president for Lennar's Northern California/Northern Nevada region] said he's pleased that a majority of the local companies have accepted the price reductions. Asked if he was surprised at the trade contractors' reaction to the policy, he said, "I'm not surprised. There's a disappointment on our side, too, that the market isn't better."
Since January 2006, the Sacramento region has lost 2,400 construction-related jobs, about a 3.5 percent decline.


chuck said...

where the devil do you find slimeballs like Marc Chasman of Lennar?

Even for "Living in Urban Sacramento" this is pretty low...and some of them are pretty cheesy characters...

How many rocks did you have to turn over to find these sleazeballs at Lennar?

Diggin Deeper said...

Just goes to show how bad the market's gotten for the majors. The give aways and the price reductions must really be adding up for a company to dig in the pockets of their subs. Never heard of such a ridiculous ploy.

Patient Renter said...

Too bad the subs probably don't have it together enough to collectively say no. Lennar has no choice but to finish building out a lot of the land they've already prepped. Basically, they're refusing to take a loss on their mistakes and are passing the losses down to their subs.

sf jack said...

"I've been in the business for 25 years, and this is the first time I've ever seen retroactive pricing."


What's that saying?

"Drastic times require drastic measures."

Jeff said...

SF Jack, you're correct, this is the first time this sort of "discounting" has ever been requested. Sounds to me that things are worse than what the NAR and other RE "experts" say publicly. Home builders supposedly always make money on homes, just a lower profit now than in the boom times, this sort act of desperation seems to contridict what conventional wisdom states. So if this is unprecendented, don't you think this RE market downturn will also be unprecendented?
Sippin, where are you?? You seem to take Mondays off when the bad news hits the wires...

sf jack said...

"So if this is unprecendented, don't you think this RE market downturn will also be unprecendented?"

As of right now, I have to say: "Without question!"


(I hope you don't mind this out-of-market info, lander)

What also is unprecendented is the SF Chronicle talking about renting (gasp!) as an alternative... and "protecting" oneself by lowballing if you're buying.


I'm really beginning to enjoy this.


"Rent or buy — timing is everything"

Arthur M. Louis - San Francisco Chronicle - Sunday, March 11, 2007

"If you have to sell the house when it commands a price of only
$750,000, your initial equity of $160,000 will dwindle further, to
around $60,000, after broker commissions and other expenses. No doubt
that would make you wish that you had rented instead. It appears that
we may be in that perilous kind of housing market right now, which is
why I have been warning prospective home buyers lately to consider
protecting themselves by making lowball offers."

drwende said...

Didn't your jaw just hit the floor with that article, sf jack? Two years ago, the Chronicle was finessing the numbers so that no matter how big the rent/mortgage gap, it always came out better to own.

Home price drops here in Phoenix just started showing up YOY (we're about a year behind Sacto in the whole bubble thing), so the newspaper is full of "experts" claiming that, since prices have dropped a teeny bit, this is the bottom of the market. Sipp'n would love it.

Diggin Deeper said...

The countdown begins for New Century. This market is beginning to escalate to the downside. Powder dry, eyes open, checkbook in the drawer.

Diggin Deeper said...

Retail sales for February were 1/3rd of forecast. Must have been the weather?... maybe the consumer is worn out, tapped out, or possibly directing more to pay the escalating mortgage. It's no wonder the homebuilders are using extreme measures to keep their boats afloat. Imho recession arrives by 3rd quarter.

Diggin Deeper said...

That should have read "up 1/3rd of forecast (.1% vs .3% projected)