Tips on how to negotiate with your builder the price and improvements of a new home

So he has decided to buy a new house and is researching all the new constructions in his favorite places. Or maybe you’ve already selected the neighborhood where you’ve decided to live, but haven’t closed the purchase yet. Regardless, you’ll want to get the best possible price for your new home. Some factors that influence prices include the following: location, cost of land, cost of building materials, labor costs, real estate market conditions and utility provision costs. When it comes to a resale home you have to deal with the seller’s emotional attachment to the home. Fortunately, the latter is not part of the equation with new home builders.

However, builders generally avoid lowering the list price they are asking for as this would set a bad precedent with other buyers. Doug Reynolds, a real estate agent in Sacramento, California says, “Normally getting builders to lower their prices is very difficult. It is generally better to focus on getting good credit applied to closing costs and/or getting free improvements. Builders protect their prices.” So how can you negotiate with a builder to get a good price? Read on for our top tips.

1. Hire an Agent

While working directly with the builder and the builder’s agent is an acceptable option, hiring your own agent will mean that someone is representing your best interests. No matter how prepared they seem to you, the builder and his agent are primarily seeking their own benefit. And there’s nothing wrong with that, it’s just good to understand! “Your real estate agent‘s job is to help you get the most bang for your buck,” explains Patrick Welsh, a real estate agent with Keller Williams in Houston, “with minimal hassle and frustration.” Hire an agent who has experience representing buyers in new home neighborhoods since that area of the real estate market has its own particular characteristics. Remember that the agent will earn a commission of 2% to 3% of the sale amount, so do not be afraid to put them to work. Get them information about similar sales in the neighborhood, how long the home has been on the market, how quickly the homes are selling, and finally have them research the builder’s negotiating style to determine what the most effective approach to negotiation would be. And although it seems to be curious, ask your agent to find out the true cost of the improvements against what the builder intends to charge, that is something perfectly valid since the improvements are part of the negotiation.

2. Get creative

It may be that the builder does not want to lower his list price because of the precedent it would set, but there are other less obvious ways to get a good deal. Perhaps the builder is willing to pay the closing costs. Or perhaps you can negotiate additional improvements at no or reduced cost. Keep in mind that even giving a 50% discount on improvements, the builder still has a good profit margin left. Have information on how much the improvements would cost you if they were made by other independent construction companies. If you really want to save some money on the purchase, forget about less expensive improvements and consider hiring someone after the closing of the purchase. Your new home won’t be 100% finished but you can save yourself a lot of money. The downside of this is that all the work that is done after-sales will not be included in your loan, so you will have to finance it in some other way.

3. Buy the Model House

Model homes come fully equipped with excellent upgrades and are usually sold at discount prices. There are certain reasons for this. First, it’s not a brand new home since the builder has been using it to sell, meaning it’s been their head office with a lot of people passing by. Second, everything is already installed so you will not be able to select finishes and improvements. This is not a problem if you like everything about the model house or if you are willing to make some changes after the purchase. Third, the warranties covering appliances and foundations will not last as long as new homes because they have been in use. Fourth, model homes are sometimes built in a hurry so that the builder can start selling as quickly as possible. This can result in some poor construction or finishing, so it is best to have a home inspection done before signing the contract. (In fact, an inspection of a brand new home should also be done)

4. Smart Financing

The builder may try to direct you to your preferred lender, so find out if there is any incentive for you to go for that lender. Even so, compare prices and educate yourself. The builder’s lender may not be offering you the best mortgage terms. Check with your bank or financial institution who can offer you good interest rates based on your history with them. Your real estate agent surely knows financial institutions, with which he works, that can offer you good interest rates. Here we offer you more information on how to finance your new construction.

5. Be Realistic and Willing to Retire

Stand firm if you have a maximum price set. You should always be willing to end a negotiation if the right combination of location, features, and price is not presented. If you are in a hurry to buy, chances are that you will not be able to get a good deal. If the homes in the neighborhood you’re looking for are selling like hotcakes, then not only are you unlikely to pay less than you’re being asked, but expect to pay 1% to 3% more. You may be one of several bidders for a house in this type of market. Alternatively, you can specifically look for new homes that have been on the market for more than 45 days as the builder is probably getting eager to sell.

If you suspect that homes in a certain neighborhood will sell quickly, you can get the best prices by buying early. If a neighborhood becomes fashionable, the same house, sold at a decent price in phase 1 can be worth 100,000 $us more in phase 3. Conversely, if sales go down, prices can fall. This is pure guessing, so keep in mind that taking risks may not work.

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By Catharine Bwana