Thinking about buying a brand-new home? There is definitely an allure to buying a sparkling new home that no one has lived in. You get a home with few maintenance concerns, plus the builder usually provides a warranty to help you with any initial problems that come up. Negotiating the purchase of home from a builder has some nuances to be aware of that are different than buying an existing home from a private party.
Here are some key things to remember when buying from a builder.
- Builders want to maintain their sales price – A builder has a inventory of many homes to sell, frequently in the same neighborhood as the home you are buying. Let’s say that a builder has 10 homes remaining in the neighborhood where you are buying. If they give you a 10% discount off of the sales price, all future buyers will be able to see that price concession in the county records and will ask for at least the same discount. By giving you a discount from the sales price, they are taking a hit on the 10 remaining homes as well, which amounts to a huge amount of money.
- Negotiate on items that don’t change the sales price – Because of the builder’s desire to maintain their sales prices, they are far more willing to offer alternative concessions. The easiest things to ask for are to have the seller pay your closing costs, buy down your interest rate, or include upgrades to the home. Having your closing costs paid or receiving a lower interest can be every bit as important as lowering the sales price, and in the case of a lower interest rate, can have long-reaching benefits.
- It’s all business – Builders have no emotional attachment to their homes. Negotiating is all about the bottom line for a builder. Builders have a few primary business motivations. First, they need to get the home off of their books so they can build another one. Second, their monthly payments on the construction loan are substantial. They are willing to give you a better deal if you can close quickly and get the construction loan payments off of their books.
- You don’t have to buy from the agent in the sales center – Many new construction neighborhoods have a sales center which is staffed by a real estate agent. That agent will show you model homes and likely encourage you to submit an offer directly through them. You are NOT required to use them as your agent. In fact, remember that they were hired to find qualified buyers willing to pay the highest possible price to their builder. There is an inherent conflict of interest here, and they will not be able to look out for both your best interests and the best interests of the seller.
- The agent in the sales center won’t get you a better deal – Oftentimes the agent in the builder’s sales center will say “I work with the builder every day and can get you a better deal than using your own agent”. While it is true that they know the builder well, you need to recognize their motivations to have you place the offer directly with them. When a property is listed for sale, the seller specifies a commission amount that they will pay to the listing agent and the buyer’s agent. If the listing agent represents both you and the builder, then they will receive more commission!
- Be sure to register your agent when you visit the sales center – Builders will often require that you declare you are working with an agent, otherwise they will substantially reduce the commission that they pay to the buyer’s agent. If you have negotiated a commission rebate from your buyer’s agent, there may not be enough commission to offer that rebate unless you properly declare the agent you are working with when you visit the sales center.
- Beware of the builder’s addendum – For private party transactions, we usually use standard Purchase & Sale Agreements that have been written to have terms that are well-balanced between buyers and sellers. Builders often require you to sign special terms either in the form of a “builder’s addendum”, or sometimes they even use their own proprietary Purchase & Sale Agreements. Beware that some of these have terms that are heavily slanted towards the builder. Be sure to thoroughly review these documents and seek the assistance of a real estate attorney if needed. Remember, these proprietary agreements can still be negotiated by your agent.
Our recommendation is to always procure your own agent when buying new construction. They will help you navigate the process, negotiate the best deal and ensure that someone is watching out for your best interests at all times.