Leading Question

By Hannah Wallace August 31, 2005

Sort of. But it's not easy. Developers often rely on real estate speculators-also known as flippers-to fuel interest in their projects, push prices up and bring their percentage of buyers to a level that allows banks to provide construction loans. But too many flippers in a project can backfire.

Gil Alvarez, the developer of sold-out Burns Court Villas in downtown Sarasota, thinks flippers can hurt a project's sales because potential buyers are reluctant to buy when they think a high-rise condo or townhome enclave is going to be dark and empty. "Do you really want to live in a building where you don't know your neighbors?" he asks. "It's bad for the community, too. If no one's going to live in these condominiums downtown, who's going to shop in the stores and eat in the restaurants?"

Alvarez, like several other local developers, among them Piero Rivolta of Rivo at Ringling, Chris Brown of 1350 Main and Jan Smith of the Promenade at Riverwalk in downtown Bradenton, included a clause in his purchasing contract that prohibits buyers from assigning a contract to another buyer before closing. Here's how assigning works: If a buyer puts a deposit down on a $100,000 condo as soon as the sales office opens and before the project ever breaks ground, he can tell a friend he'll "assign" it to him for a $10,000 fee. This can happen minutes after he puts money down. The friend can turn around and sell it to yet another buyer at an appreciated price and for another fee. And while the developer usually takes 1.5 percent of this fee, it isn't always worth it.

Flippers don't own the unit and they don't always have the money to close; they're just holding paper, Alvarez says. If they can't get someone to buy before closing, the developer takes control of the product and keeps the deposit money, "but then he has to sell the unit again. It's like playing hot potato," says Alvarez. "When the last flipper can't sell, the building is minimally occupied. It makes the market too volatile."

Pat Neal, president of Neal Communities in Manatee County, goes further in his contracts to discourage speculation. About a year ago, he included a stipulation that prohibits buyers from reselling their homes for one year from closing. It's been controversial with realtors and it also makes potential buyers nervous, he says, so he waives the stipulation on a case-by-case basis. Neal isn't completely against speculation: In the past, he has reserved a block of units for realtor Mark Riley of The Riley Group in Lakewood Ranch, who puts together investor groups. But he says he won't sell more than 10 percent to 15 percent of a project to flippers, because that would adversely affect the sense of community.

How can he tell flippers from future residents? "They're pretty easy to identify," he says. "A buyer who wants to live in a home asks about views and whether the king-size bed will fit in the master suite. Speculators don't do that."

Most major national builders also include a one-year rule that can only be broken in case of hardship such as death or divorce. "It's a one-year deed restriction," says Mike Brown, director of marketing and advertising for DiVosta Homes. "The reason we did it is because of a report I have in front of me about our buyers. Almost all of them have purchased a home and lived in it. Forty percent are repeat buyers. If they can't buy a home to live in because there's too much speculation, our customer satisfaction goes down."

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