If you’re in the market to buy a home, but aren’t sold on the idea of living in someone else’s, then a new build home might be the right choice for you. But before you sign on the dotted line, you should know that purchasing a new construction home has both its pros and cons, especially when it comes to negotiating the best deal.
When buying a new home from a builder, it can be tough to get them to budge on price. Builders are hyper-aware of their bottom line—after all, they are in it to make a profit. You’ll find that most builders are very resistant to lowering the price, and will often refuse to negotiate on the base price except in certain circumstances (more on that later). Even still, there are a few ways you can make the deal a little sweeter for you.
If you’re set on buying a new build, you need to be able to walk the walk and talk the talk, so when it comes time to negotiate, you know how to leverage your options. To help you negotiate the best deal, we’re dishing out seven tips to keep in mind when negotiating with a builder.
Just as you would if you were buying an existing home, it’s important you understand the seller’s motivation. The same goes with builders. The largest incentive a builder has is to make a profit. To do that, they need to maximize the price point of their properties, which is why they’re often reluctant to reduce the price.
When they sell new homes, builders are looking to keep the sales price high. Selling a property at a higher price not only means they’ll realize a profit, but they’ll also have established a baseline for their other properties. Which means they can justify selling their similar new builds at the same price point.
So, if a builder is unwilling to lower the price of your new construction, what can you do to negotiate the best deal? Well, there are a few ways both you, as the buyer, and the builder can meet somewhere in the middle.
When you’re looking to finance the purchase of your new build home, you may be tempted to work with the builder’s preferred lender. Production builders typically have a preferred lender they like to work with or they may even have their own mortgage company. To incentivize you to work with them, they’ll often offer incentives to buyers. In other words, they try to make it more expensive for you to not use them.
Although it may seem like a no-brainer to use the preferred lender, take a closer look at the terms they’re offering. Preferred lenders will often offer a credit at closing, but they don’t always offer the best mortgage rates or terms. And as a buyer, it’s in your best interest to shop around for better rates with lower origination costs. Origination costs are the costs you’ll pay for obtaining a loan. Typically, banks will charge 1-2%, but if you work with the builder’s preferred lender, you’ll likely get a discount on these costs.
If you find a lender with a better offering, that lender may even agree to provide you with a credit for the same amount that the builder’s preferred lender offered.
Pro tip: If you get a better deal with an outside lender, take it back to the builder and see if they’ll beat it. You may be able to get the builder to extend the incentives offered by their preferred lender to the outside lender.
Why would they do this? Well, the longer a builder has a home in their inventory, the more they need to pay to hold onto that property (and the less profit they’ll make once it’s sold). The faster they can sell the home, the quicker they reclaim their capital and the sooner they can start on their next project.
When you’re trying to negotiate a deal with a builder, the best place to negotiate is on finish upgrades and change order items. Finish upgrades include things like upgraded lighting fixtures or floors. Change order items include custom items like non-standard build-ins or built-in speakers.
If there are any changes you’re considering making once you’re all moved in, see if the builder will work with you on making those changes now (without you having to pay extra). Focus your attention on items that the builder can do during construction and that would be more expensive for you to do yourself.
Sometimes builders will also throw in upgrades like a landscaping package, appliance package, upgraded appliances, or a washer and dryer. If you take this approach, just be sure to ask for these changes upfront before you agree to sign anything.
If you’re looking in a community where there’s a Homeowners Association (HOA), as a homeowner, you’ll be responsible for paying HOA dues. These dues typically cover the costs associated with the upkeep of common areas, shared structures, and exteriors. HOA fees can range anywhere from under a hundred to a few hundred dollars a month.
If you’re purchasing a new build in a planned development community, there’s a good chance a Homeowners Association will be present. One way to negotiate with the builder is to ask if they’ll pay your HOA dues for a year in advance. Depending on your HOA fees, this could amount to a significant cost savings.
Another way to get the most bang for your buck is to ask the builder about getting a premium lot for not-so-premium pricing. Lots on cul-de-sacs, corner lots, larger lots, or lots that don’t have any rear neighbors are often classified as premium. If the builder won’t budge on the base price, you may be able to negotiate a more desirable lot for the same purchase price.
In most cases, builders won’t be swayed when it comes to negotiating the price of a new build home, but every so often, you may luck out with a discount. When the builder has an excess of inventory of completed homes—more homes than there are purchasers—they may apply a discount to those homes. But this only applies to completed homes, not homes under construction.
Another reason builders may be willing to give a discount is to avoid upcoming debt or taxes. Typically, at the end of the year, builders are more motivated to get a home off their books for tax purposes. Or, if they have a loan payment or construction note coming due, buyers may be put in a unique position to negotiate a lower price in exchange for a quicker close. If this is the case, just make sure you’re able to close in the allotted time or you may end up losing your earnest money deposit.
Occasionally, builders—like car dealers—will also offer buyer incentives to meet year or quarter-end sales quotas. Incentives may take the form of cash back at closing, a free security system, built-in speakers, garage door openers, ceiling fans, and more, so take advantage of that if you can.
In addition to your down payment, when you buy a home, you’ll also need to pay for closing costs. Buyer closing costs include items like application fees, attorney fees, inspection fees, and more and typically add up to 2-5% of your purchase price.
Rather than ask a builder for a discount off the base price of a new construction home, try asking for help with closing costs instead. Builders may be more willing to pay additional closing costs in the form of credits at closing.
Although negotiating with a builder may take a little out-of-the-box thinking, if you know how to approach them the right way, you may end up walking away with a great deal. If you’re considering purchasing a new construction home, it’s wise to partner with a real estate agent who has worked with builders in the past and is familiar with negotiating these types of deals.
At Jovio, not only do our REALTORS® have a wealth of knowledge, but we also have experienced builders on our team with an abundance of expertise in this area. Plus, when you partner with Jovio to buy a home, you’ll receive 1% cash back at closing. So, if you’re still hoping for a little extra cash to lower your closing costs or put towards those new build upgrades, our 1% rebate program can help you make that happen.