Are you thinking about negotiating the home price of a new home? You might be in for an unpleasant surprise. Unlike existing homes, builders don’t often negotiate on new homes. They have a precedence they need to set.
Unless you are the first person to buy in the development, other homeowners already agreed to a price. If the builder gives you the same home for less, they could have angry homebuyers on their hands. Second, the builder has to maintain a particular value in the development. If they start lowering prices for you, their future value will suffer.
Lower home values means lenders won’t approve loans for a higher amount. This can have a domino effect on the entire community. Suddenly home values plummet before the development is even a few years old.
In order to avoid this, homebuilders don’t often negotiate the home price. But, there are ways you can still get a good bang for your buck.
Help With Closing Costs
For some reason, it sounds pleasing to hear that you saved $5,000 on your home. If that’s not possible, though, what about saving on your closing costs? They can cost as much as 6% of the sales price of your home. Let’s say you agreed to pay $200,000 for your home. Closing costs could be as much as $12,000! There’s no shame in asking the builder to help you pay those costs. Before you do, though, check with your lender. Each loan program has a maximum amount of seller concessions allowed. Make sure you are within your allotted amount.
Ask for an Upgrade
Builders are often willing to give upgrades rather than lower the cost of the home. Get creative in your requests. What do you really want? A few simple ideas include:
- Upgraded kitchen cabinets
- Roughed-in plumbing in the basement or extra room upstairs
- Finished basement
- Addition on the upper level
Your builder may also have suggestions on upgrades they can throw in. They know what costs and what doesn’t. The expensive part of building the home is the foundation and roof. Once this is complete, they can easily upgrade the inside of the home for very little cost. Hire a plumbing contractor to check the place.
Buy Down the Interest Rate
If the builder won’t pay your closing costs, you can ask them to buy down your interest rate. This can be a win-win for both sides. If your debt ratio is close to the maximum allowed, you may not secure financing. If the builder buys your rate down for you, though, this lowers your debt ratio. This helps the builder know that you’ll get approved for financing.
Buying down the interest rate usually costs a point or two. On a $200,000 loan, this means a savings between $2,000 and $4,000. You won’t realize the savings right away, but it adds up over the life of the loan. Let’s say you save $100 per month with the lower rate. If you keep your loan for 30 years, that’s a savings of $36,000!
Buy Immediate Inventory for a Lower Home Price
Builders often have buyers that back out at the last minute. This is after the home is built or almost built. The builder then becomes desperate to sell the home to someone else. If you are willing to accept the choices someone else made, you may catch the home at a deal.
This is one home that the builder may happily negotiate. They know they will be stuck with the home if they don’t negotiate. They will often cut a deal in this unique circumstance just to get the home off their hands.
Use a Real Estate Agent
If you don’t want to negotiate the home price on your own, use a real estate agent. It doesn’t cost you any money to use one. The builder pays the realtor’s commission. In exchange, you get the realtor’s negotiation expertise.
If the agent is well versed in the area, he or she will know what the builder will and will not negotiate. The realtor also has other resources at his or her fingertips. These resources can help figure out what step is the best to take. Builders often respond better to the professionals anyways, since they know they risk losing their future business if they don’t at least meet halfway.
While you might not get the low price you wanted for a home, you can benefit in many other ways. Looking at the big picture, you’ll see how you can save. Whether it’s free upgrades, help with your closing costs, or a lower interest rate, you save in the end. The builder still sells the home for the price they think is fair and you get a deal out of it.
Stay strong when you negotiate the home price or the alternatives to it. Builders aren’t just going to hand the home over to you – they’ll make you work for those deals!