Who can resist the vicarious fantasy of a model home? These upgraded examples of the builder's work at its best are downright seductive, encouraging prospective buyers to linger, daydream -- and spend more.

Today, clients aren't just drooling over models and making upgrade choices from them -- they're standing in line to buy them. But who are these clients, and what motivates them?

Time and convenience motivate model sales for some. Mary Rossiter, relocating to the Washington, DC-area from Philadelphia, didn't think twice about her model investment. "In Philly, I had a condo furnished with rented furniture," she says "Going for the model was a no-brainer. I entertain a lot for work and have no time to wait for workmen and deliveries."

For some buyers, the model home represents a happy medium between standard housing and a custom home. "Some clients think that building their dream home and putting in exactly what they want is their ultimate goal," says Robin DiSabatino, based in West Chester, PA. "Yet, there are other clients who do not have months to build and cannot make timely choices. All the decisions have been made for them (in a model) and they know exactly what they are buying, how the house sits on the lot and its relationship to the surrounding homes and to the environment."

Ironically it's getting more difficult to find models to buy. For builders, rising construction costs have made models less desirable, while the hot housing market made them less necessary as a selling tool. As builders scale back, demand for models grows. For instance, when Pulte initially marketed its Stonegate community in the Cascades area of northern Virginia, two models were built -- and they went fast.

Small investors continue to be attracted to the sale/lease-back arrangements often available with models.

Ideally the investor buys at pre-ground-breaking prices and covers costs through a lease-back to the builder to use as a model and sales office. When the builder has sold out, the investor can hopefully turn the unit over at a tidy profit.

The model home investment eliminates much of the tenant/maintenance hassle of investing in rental property. "With a model home, you usually have a several year lease at favorable terms and you know it will be kept in pristine condition to showcase the product," points out agent Trena Hansen-Kelly of Rehoboth Beach, DE. "What a great investment in today's market."

Some builders see the lease-back as a win-win situation, taking costly inventory off the books early. On the other hand, others find models such a good investment these days that they hold onto them until the end, aiming for bigger returns.

Second home markets also benefit from the model concept.

In Rehoboth Beach, Delaware, a couple hesitating about purchasing because of the added expense and annoyance of furnishing the place walked into a "stick built" house fully furnished from the upholstered rattan living room to dishes and towels. They bought it. "The price was right, the place was ready to move in and we would have spent at least $12,000 and hours of aggravation setting it up," they say.

The cost of setting up a model isn't cheap. Estimates vary depending upon type of home and market, but $50,000 is not uncommon in major metro areas, escalating to six-figure costs for upscale larger homes. Potential buyers may come out way ahead if the upgrades are to their liking (and maybe if a few are not) through negotiated savings.

"Model homes aren't for everyone," says Sharon Maher, Sales Manager and Associate Broker for Avery-Hess Realtors in Springfield, Virginia. "But for flexible buyers planning ahead, they can be a great investment."

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Tracey Meloni, a former Capitol Hill press secretary, purchased many homes in the Washington, DC area before moving from the Nation's capital.

Published: September 11, 2001

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