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Is there a market for new homes under $200,000?

Damon Doty and Steve Overton aren't considering it an impossible task when it comes to building two- and three-bedroom homes for less than $200,000 in Rochester. However, they do understand it's a risk.

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Damon Doty and Steve Overton aren't considering it an impossible task when it comes to building two- and three-bedroom homes for less than $200,000 in Rochester.

However, they do understand it's a risk.

In a city where building a new single-family home typically starts beyond $225,000, the team made up of a Rochester real-estate agent and a home builder had to make choices when planning its experiment in lower-priced housing, and with those choices comes risk.

"I don't know if I will actually make any money from these, for sure," said Doty, the real-estate agent.

One of the biggest risks may be building homes without basements in a market that favors finished basements.

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Another risk could be location. The pair is building in a housing development north of Shoppes on Maine, which has become known for manufactured homes rather than traditional structures built on site.

Both choices help keep the price down.

As Overton's construction crew frames the first buildings, he and Doty acknowledge at least one risk wasn't worth taking when trying to keep prices down.

"I'm not going to build on spec a one-car garage," Doty said, using jargon for a house build on speculation that an as-of-yet-unknown buyer will be there when the home is complete.

As a Realtor, he said he knows anything without a two-car garage becomes difficult to sell.

"It will sell, but it's a matter of how long," he said, noting added time needed to sell a house would eat into an already-thin profit margin.

Overton and Doty said they'd prefer to be working with the some of options they have in the past, when higher planned prices meant they could make different choices and not worry so much about the bottom line.

At the same time, they said they're glad they took on the challenge.

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"These are something we can feel proud of in a different way," Overton said.

Growing effort

The challenge is being joined next week. Rochester Area Foundation has purchased three nearby lots, which will eventually include homes built by Overton and Doty. A groundbreaking for those homes is planned for 11 a.m. Dec. 5.

While Overton and Doty's three spec homes will be sold on the open market, the foundation's houses will become part of the First Homes program, with income guidelines in place.

Doty said the partnership means they can consider the three foundation homes as pre-sold homes, reducing some of the risk. Another home has also been pre-sold to a future owner.

The foundation's participation also is helping keep the price of the homes at their $186,900 listing. Doty said similar homes elsewhere in the market would cost $225,000, but he wants to meet the challenge.

It's not easy, he added.

"Expenses have gone up on everything," he said, noting those increases range from fees to rising construction costs in an active market.

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At the same time, he said, some of his fellow agents are showing tentative interest, but they want to see a completed home before deciding on the next move.

Overton offers assurances that the results won't be reduced-rate homes, even at the lower prices. He said the hands-on approach is letting him cut out the middleman when it comes to purchasing materials, but those materials still include stainless steel appliances, tiled floors in bathrooms and other amenities found in higher-priced townhomes.

Market risk

However, the question remains whether there's a market for the homes.

Tom Hexum of Hexum Properties said he believes so. He and his wife, Barb, are supporting Doty and Overton by providing financing for the lots in the Gardens, which his company originally established as a manufactured-housing community.

Hexum sees a need for smaller, one-level homes at lower prices. He said they will be ideal for retirees who are in larger split-level homes in the Country Club Manor or Elton Hills neighborhoods.

The lower prices could allow older couples on fixed incomes to make a transition, freeing up their larger homes for resale.

"Right now, they are staying in their houses, so they are not freeing up the housing stock," he said.

Steve Borchardt, housing initiative director for Rochester Area Foundation, said he also sees opportunities for first-time homebuyers with limited incomes. At prices below $190,000, monthly mortgage payments could be less than $1,000, depending on a buyer's circumstances.

Borchardt said the foundation's goal is to make them affordable to people with household income at 80 percent of the area median income.

Next steps

If the risk ends up being worthwhile, Doty and Overton said they hope to expand the project. About 20 additional lots are available in development.

After that, finding lots that can be developed in the needed price range could be difficult, since some estimates put the cost of creating a lot in Rochester at $30,000 to $40,000, without property costs.

They said they'd be interested in finding outside support when that happens, but for now they are concentrating on keeping the hammers swinging and gearing up to market the first homes.

Overton said he expects the first house could be finished within the next four weeks.

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