The Lottery

To lottery, or not to lottery? That's the question facing many new-home buyers as builders hustle to keep pace with demand in a wild and woolly housing market unlike any other in the region's recent history.

With demand soaring and supply shrinking, some builders are reporting lags of almost a year between the time buyers sign contracts and when they can actually move into their new homes. Many builders are coping by holding lotteries—luck-of-the-draw events that might attract hundreds of prospective buyers vying for what may be only a few dozen homes or home sites.

"With the way the market is, lotteries have become standard operating procedure for us," says Linda Bisset, vice president of sales and marketing for Morrison Homes, which has conducted about 40 lotteries at its residential communities in Central Florida over the past year and a half. "We looked at all the options and decided that lotteries offer a fair solution. Plus, it helps us maintain a steady flow for the building process while not forcing buyers to wait and wait until they can move into their homes."

Certainly, holding lotteries is preferable to having eager families pitch tents outside new-home sales centers—which actually happened earlier this year at one popular master-planned community in Orlando. Nonetheless, enthusiasm for the approach isn't universal.

"My feeling is that builders who conduct lotteries are using a shortsighted approach and taking advantage of a temporary imbalance in the market," says Bill Silliman, president of the Home Builders Association of Metro Orlando. "It often puts the buyer in the extremely uncomfortable position of having to make a snap decision, a decision that they might later come to regret. Buying a new home is often stressful enough without adding a lottery to the equation."

At KB Home, which is active in 18 Central Florida communities, including Mallard Pond, The Orchard and Amber Point, prospective buyers are placed on a waiting list.

"We gave a lot of thought as to what was the fairest approach and we decided not to go with the lottery," says Cara Kane, marketing director of KB Home, which plans to open 11 new communities by the end of 2005. "In a lottery, you can be the 30th person to sign up and then be first in line for purchase. It's just not fair to the people who committed first."

Under the KB Home guidelines, customers who are interested in a new home can call and ask to be placed on an "interest list."

"As we move closer to opening the new community, we contact each interested buyer on that list and provide them with information on progress toward the opening," says Kane. "Customers who are still interested are then required to provide pre-approval documents and are placed on the list to purchase."

When a home site becomes available, a sales counselor contacts the next person on the list and gives that person an opportunity to write a contract for the property.

Would-be buyers have the opportunity to decline one such offer without sacrificing their list position. Two such passes, however, and it's time to move to the back of the pack.

Those who favor the lottery approach say it's a reasonable response to the boisterous market, and offers a chance for homebuyers to capitalize on investment opportunities.

"What we are witnessing is a market where the average homebuyer now has the chance to become a real estate investor, and lotteries often present an ideal opportunity for them to do this," says Robert Kanjian, president of Building Solutions a West Palm Beach-based real estate marketing firm that has conducted several lotteries in Central Florida, including events at The Sanctuary in Oviedo and The Retreat of Wekiva.

Kanjian, who also conducts popular "How to Conduct a Lottery" seminars for builders and developers, says that the main tools lottery participants need to have are "pre-preparation and flexibility."

"In order to make a lottery work to your advantage, you can't just walk in cold," says Kanjian. "You have to study, study, study. You have to know all your options and you have to be thinking one move ahead at all times. If someone's name is pulled before yours and they choose the home you wanted, then you have to know what your move is going to be if your name gets pulled next."

Participants often need to shift their goals during lottery events, Kanjian says. His advice: If someone else snatches up your dream home, then consider switching into an investment mode.

"I've seen many times at these events where people have a fantastic financial opportunity in front of them, but they don't go through with it because it was not the exact home they were looking for," says Kanjian. "But they're just leaving money on the table. If your name gets pulled in a lottery, then you should take advantage of the inventory that's before you, whether it serves your personal needs or your investment needs."

At Morrison Homes, which is conducting, on average, a lottery a week in communities like Greystone, Keene's Point, Kensington Manor and Arlington Bay, prospective homebuyers are first asked to pre-register on the company's Web site.

In a typical scenario, says Bisset, there might be as many as 3,000 registrants who ask to be notified as home sites become available.

"As months pass and we draw closer, we send out notifications that inform people about the pricing and ask them to re-register, in which case the number might drop to something like 300 or so," Bisset says. "Those who decide to take part in the lottery must all be pre-qualified with lenders. We then take the names of everyone who followed all the rules, all along the way, and on the day of the event we put those names into one of our Morrison Home purple buckets and start drawing them one by one."

The lottery winners then sit down with a sales counselor, says Bisset, and typically have about 15 minutes to make a decision whether to proceed with the purchase. In some Morrison communities, the model to be built on the home site has been predetermined to speed up the permitting process.

"Critics of lotteries would say that's putting a lot of pressure on buyers, but that's not the case, especially if prospective buyers do all their homework before the actual event," says Bisset. "And we're always happy to answer all their questions and help them prepare in any way we can, so that they can come away from the experience feeling good about their purchase."

HOW TO PLAY THE GAME

Considering taking part in a lottery to buy your new home? Central Florida builders and real estate specialists offer these tips:

• Do your homework. Know all the options available to you in the community that is being offered for sale.

• Be flexible. If someone buys the home or home site that you had your eyes on, then be prepared to shift gears if your name is drawn. Always enter a lottery with several choices in mind and prioritize them.

• Bring money. Even if you are pre-qualified by a lender, builders will require a deposit that can range anywhere from $1,000 up to 5 percent to 15 percent of the purchase price. These deposits are typically refundable, but check to make sure.

• Show up early. "If a lottery begins at 10 a.m., it's a good idea to arrive at least an hour in advance, just to go over your game plan," says Morrison Homes' Linda Bisset.

• Be flexible . again. Don't get hemmed in by a single specific floor plan or décor choice. Be willing to shift when you need to shift.

• Don't be disappointed. Chances are that you might not walk away a winner. "You've got to learn to hang in there and keep trying. Don't be dubious of signing up for another lottery," says Bisset. "The reason so many people put their names in these lotteries is because they do, indeed, offer good properties and solid investments."

WHAT'S GOING ON?

Q. Why is the supply of new homes so limited?
A. There is a myriad of reasons. Continuing low interest rates and the desirability of Central Florida as a relocation destination have combined to keep demand red-hot. But on the flip side, labor and material shortages, combined with delays from last year's hurricanes, have caused many builders to accumulate backlogs. Further complicating matters is a shortage of buildable land and worsening up-front delays in permitting.

Q. What has the effect of all this been?
A. For buyers, it often means participating in a lottery or placing your name on a waiting list to get a new home. Plus, strong demand combined with weak supply means higher prices for any commodity—and homes are no different.

Q. Does this mean I should wait to buy?
A. Quite the contrary. If you're in the market for a home, you need to take advantage of low mortgage interest rates and sign on the dotted line—even if it means waiting for a home to get actually built. Rate increases are inevitable under the current circumstances, which means the home you covet now may be out of reach next month or next year.

Q. What if I need to move in now?
A. It's not out of the question. There are, in fact, new homes available for immediate occupancy all over Central Florida—particularly in outlying counties. But the best bet is to identify where you really want to live, make your interest known and be patient. When move-in day arrives, you'll be glad that a delay of a few months didn't cause you to settle for something other than what you really wanted.

Q. When will the market get back to normal?
A. Nobody knows, but builders are now working down backlogs—in some cases limiting or even suspending sales until they get caught up. Once that happens, and assuming the region experiences a relatively uneventful hurricane season, next year should be more typical. "We always come back to equilibrium," says Bill Silliman, president of the Home Builders Association of Metro Orlando.