If you are in any way just a bit familiar with the new home buying process, you’re probably aware that builders are sticklers when it comes to their prices. The ‘Plan 1’ you’re interested in costs ‘X amount,’ plain and simple. Builders almost never negotiate on pricing.
And when the housing market is booming, those prices that builders almost never negotiate typically go up – just like any other home seller. But what happens when the market isn’t booming? What happens to those prices that builders almost never negotiate?
If you’re interested on how to win big with a new home, keep reading and you’ll find out!
I think consumers look at home builders much differently than they would look at an individual selling their house. There’s something more ‘official’ about a builder, and many in the industry are so ingrained with the status-quo of dealing with builders that when it comes to creativity, it’s in short supply.
But builders are people, too. And they operate under extremely tight margins with aggressive sales goals and they hate (and I mean hate) sitting inventory. And when the market shifts, builders shift with it and will change tactics when it comes to selling. And, they’ll negotiate. Big time.
Builders typically have cards up their sleeves. In a good market there’s no need to show them, and they won’t. But in a not-so-great market, when the builder is hungry for buyers, they’ll empty those cards like a bully just shook them down for lunch money. But not voluntarily, though. You (or your agent) have to know how to make that happen.
There are typically three cards a builder holds: 1) price, 2) incentives and 3) upgrades. Let’s take each of these one at a time.
- Price: This one is easy. Is the builder willing to sell the house for less than what they’re asking? Not usually. Builders will price drop their products if the market isn’t delivering the sales they need because consumers think they’re priced too high. But they’re extremely hesitant to allow a product to sell less than another because it starts a feeding frenzy – and it could easily upset another client who already bought that same house or is in contract to buy it at the higher price. But don’t give up. Remember – builders are people, and they’re typically pretty darn motivated to sell their homes. In most cases, who you’re actually dealing with (beyond the salesperson) is one or two individuals who are making the decisions regarding what they are or aren’t willing to do. If they really need a sale they may be willing to let the house go for less – but they’ve got to save face with their other clients, so try offering them a non-disclosure agreement regarding the price.
- Incentives: Incentives are carrots that builders hang on the end of a stick to entice you to buy. Some are absolute bullshit, while others are legitimate. For instance, a builder may artificially raise their lot premium by $10,000 and then offer you a $10,000 closing credit – that’s a bullshit incentive, but hey, it’s sales! Or they may offer a true, legitimate incentive. When builders feel the heat from the market, incentives can get big, especially depending on the price point you’re shopping in. They usually won’t volunteer what they can offer, though. The salespeople have a manager and that manager may authorize $50,000 of incentives, but obviously hopes their salespeople don’t need to utilize all of it to close the deal. It’s a case by case basis with consumers. So how do you leverage full incentives? You’ve got to be a hot, serious lead. You have to really create the perception for the salesperson you’re working with that you’re so close to buying, but you just need that extra friendly nudge (i.e. incentive) to close the deal. This isn’t a one-trip effort. It’ll take several trips into the sales office, several phone calls with the salesperson, and lots of back and forth to really convince the builder to show their cards.
- Upgrades: Upgrades, such as the nicer kitchen counter-tops or flooring, are where builders make a good bit of money, because their margins are typically large compared to their margin on the actual house. If builders are feeling the squeeze, they may be willing to offer you free or discounted upgrades – and some of these upgrades that they toss in could save you tens of thousands of dollars. There are also the homes that have already been started (and most likely upgraded in one way or another) but then fell out of escrow because the buyer couldn’t perform or backed out. Builders obviously have to still sell these homes, but it’s harder to sell a home with less options than it is a home where you get to choose all of your options, so builders always anticipate taking a hit on these semi-finished homes. There’s usually also some drama occurring behind the scenes because these semi-finished homes were homes the builder already counted as a sale and forecasted and now they’re losing that sale, so they’re extra motivated to get it back under contract. Builders will almost always let these homes go for less, unless it’s a model that sells extremely well.
So there you have it (in a nutshell). There are plenty of nuances involved and different situations and different builders (people) that can impact your ability to negotiate and your leverage to snag a killer deal. Right now, in our current housing climate, there is ample opportunity for you to win big with a new home. And if you need help doing it – give me a call!