Negotiating the purchase of a new construction home

Builders are extremely reluctant to negotiate the price point of their homes.
Zillow
May 20, 2013

 

If you are a home buyer in today’s market, chances are you’ve considered the option of buying a newly constructed home versus an existing home. Most buyers give pause to the idea that brand new might be better than existing. The truth is that one is not better than the other; it really depends on your needs as a buyer. However, if you decide that purchasing a new construction home is what’s right for you, there are a few cornerstones on which builders will try to negotiate the sale of a house.

Price is Non-Negotiable

Technically everything is negotiable, but builders are extremely reluctant to negotiate the price point of their homes – and for good reason. When you enter negotiations with a builder, they are very concerned about keeping the comps on an even playing field. Chipping away at their prices will not only devalue the product they are offering, but the overall value of a residential development will also slowly erode if prices follow a downward spiral. Imagine how you would feel if you purchased a home for $250,000 only to have the builder sell the same floor plan for $50,000 less to someone else in the future; it’s not a good scenario for the builder or homeowner. For that reason, builders have very little (if any) wiggle room when it comes to negotiating the price of a home.

It is Better to Negotiate Incentives and Upgrades

Since it is so difficult to negotiate price with builders, you’ll need to approach negotiations from a different perspective. If not price, what can you negotiate instead? The two best things to negotiate are incentives and upgrades. Typically, builders will offer some sort of incentive such as money to help the buyer cover closing costs. This type of incentive is usually offered to those buyers who finance their purchase through one of the builder’s preferred lenders. The amount credited to you at closing is a negotiable amount; you may be able to get the builder to agree to give you more. In addition to closing cost assistance, builders have far more negotiating room when it comes to upgrades and selections made at their design center. You might not be able to talk them down $10,000 in sales price, but you can ask for a $10,000 credit to spend on upgrades and/or items such as a washer/dryer or refrigerator when you make all of your personalized selections at the builder’s design center.

One more item worth mentioning is that as a potential home buyer you should remember that the on-site agent, while perhaps very friendly and welcoming, ultimately works for the builder. When push comes to shove, that agent is looking out for the builder’s best interests. So before you sit down to negotiate you should find a buyer’s agent who can equally represent your interests; hiring a buyer’s agent will cost you nothing because the builder will pay their commission. Take some time and find an agent in your area who is familiar with several of the local builders and their various contracts – it could save you thousands!

EDITOR'S NOTES: This story was written by Monte Mohr, who has sold more than 2,500 homes, making him one of America’s top Realtors for the last 25 years. This experience has given him a unique perspective on the Nashville real estate market where he can be found at http://www.tennesseedreamhomes.com. He is also a regular contributor of real estate information on Nashville’s NBC affiliate station, WSMV Channel 4. To learn more about Monte Mohr’s experience as a real estate agent, to get free advice about your biggest real estate challenges or to request an interview contact him at Info@TennesseeDreamHomes.com.