New Construction Home Buying 101: Negotiating with a Builder

First thing’s first:


Negotiating the contract and upgrades:

I recently helped clients purchase a Taylor Morrison home at Whisper Creek in Arvada, Colorado. The home was inventory, not a semi-custom build, so it was easier to get price reductions. However, whether it’s a recently finished build or the builder has yet to break ground, you should be asking for big discounts across the board. For my clients Miguel and Cristina, we were able to negotiate significant discounts to base price, upgrades, interest rate, and took advantage of a $5,000 in-house mortgage incentive. Now their home is conservatively worth $20K-$40K more than when they purchased it just months ago thanks to buying it at the right price.

When buying directly from a builder, remember that every price the builder gives you is a retail suggestion (you wouldn’t pay MSRP on a car lot, right?). A good technique to reduce upgrade costs is to get a feel for what the same upgrades would cost you through indie contractors, then present your findings as you go through the upgrade list with the builder’s sales associate. Keep in mind, this rep has major incentives to get you to purchase upgrades (sort of like how the finance manager tries to hit you up for extras when you buy a new car), so be VERY stern in your negotiations. You will be able to get upgrades at a MINIMUM of 20% off, so demand the discount! Trouble negotiating yourself? Get a buyer’s agent on your side.

Negotiating Upgrades

The builder has a representative, why don’t you?

Builder’s sales reps, no matter how friendly they may seem, are there to do one thing: sell you the home for as much money as they can. They are paid by the builder and have only their interests in mind. A builder’s sales associate’s favorite words are “They won’t do that” and “I’m sorry but I’m not authorized…” shifting blame and responsibility to pressure you into buying at an elevated price point. In order to get to a yes, you need a seasoned professional on your side to cut through the objections. Hire a buyer’s agent and have the builder pay for someone to be in your corner. It’s fundamental!

Get a buyer’s agent now!

NEVER sign a contract with a builder without an agent to represent you. Buyers frequently think they don’t need representation when buying from a builder… WRONG! Builders will try to NAIL you. Besides, using an agent as a buffer will greatly strengthen your position; the threat of an agent taking you to look at a thousand other properties in the area is very real and menacing to a builder. Moreover, no matter how good of a negotiator you are, an unemotional third-party that’s your agent will give you a quantifiable edge at the negotiating table. Going it alone means paying far more for the build than you have to. Builder’s sales reps feel uncomfortable negotiating, and can’t pull the wool over a buyer’s eyes, when a trained professional is in the room.

Another misconception is that buyers will save money for the builder, thus themselves, by not using an agent. WRONG! Your offer will not be any stronger without an agent in your corner. Builders have already set aside about 3.0% (sometimes more) to pay buyers agents. I get e-mails every week from Taylor Morrison begging me to bring my clients to them, offering me great incentives to do so. Builders are in the business of liquidating their assets, and count on agents to sell their homes. Despite what you might think, builders are more than happy to pay agents very well to get their inventory sold and their lots filled.

Best of all, by using an agent, you can get money back after close. That’s right! You’ve already done all the leg work. Find a hard negotiating agent to get you a great contract on the house and have them rebate 1% of the purchase price back to you after close to add icing to your pretty new cake!

This cannot be stressed enough: Using a buyer’s agent as your representative will save you big money on your new home!!!


1 Comment

Jeff on said: Reply

I’m looking into buying a custom home in a gated community and want an agent but of course don’t want to pay them or if I have to pay as little as possible. What is your advice in getting one?

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