The market has slowed, prices have leveled off &/or fallen, and every seller is trying a little bit harder to sell their house. Well, considering the New Home Builders have multiple homes to sell, they’re having to work even harder to sell their excess inventory, and are using pricing & incentives as their main tool for doing so. The question is, when the builder is giving away all sorts of incentives, is the buyer really getting a great deal? The answer is, maybe – and maybe not; I’ve seen recent examples on both sides of the equation.
Great Deal: I was out with a client, and we stopped by a new homebuilder’s site, and the salesman told us about a special deal that was going to be available tomorrow. They were going to make a spec home available, and it was going to be priced well below the market. My client liked the floorplan, so we decided it was worth researching further. One look at the comps showed it was a heck of a deal. I couldn’t find another home of similar size selling for less than $300K anywhere near this subdivision, and many were selling for over $400K. The builder’s price on this spec home was $220K. My client showed up the next morning before the doors opened and bought a great home at a great price.
Average Deal: I was in a new home subdivision recently and the salesperson was telling me about the fabulous deal they had running; almost $100K worth of incentives to the buyers. I had a client who was looking in this part of town, and I was getting excited thinking about breaking the great news to her. Unfortunately, my comps showed that the builder’s base price was about $110K too high – we would probably be better off buying a re-sale in the same neighborhood.
No Deal: Another builder, in another part of town, was telling folks in their sales office about the smoking deal they had running on one of their particular models. The salesperson was pushing really hard to put a deal together, and something about it struck me, so I wanted to check out this great deal for myself. Turns out that after some research, this was one of the worst deals I have ever seen being offered. There wasn’t a similar size housed priced anywhere near what the builder was asking within 3 miles in any direction. The buyers could have bought a home 40% larger for the same price if they had just done a little more research (or talked with a professional for advice.)
Buyers beware! Now is not a good time to take what the builders are saying at face value. Contact your Realtor to get the full picture of what the builder is selling.
-Chris
Chris Butterworth is: Realtor. Analyst. Husband. Father. Writer. Amateur Photographer. Triathlete. Soccer Dad. Big fan of technology, efficiency, and the Arizona Wildcats.
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Excellent point. I received an email from a builder last week promoting one of their spec homes “regularly” priced in the $800s. Their current offer advertised a price in the $600s only good through the end of this year because as they stated, “they would no longer need to offer incentives.” Many builders are offering incentives that are only good through the end of year. Why is this? As the end of the year approaches, so do 4th quarter sales, and the builders’ need to meet certain quotas. Will builders need the incentives in 2007? As much as we would like to see supply and demand balanced in the housing market, it’s not easy to accomplish. Just as we often make New Year’s resolutions, I think many builders will scale back or even eliminate their gigantic incentives in early 2007. Can it last? Only if their prices reflect current market pricing. If prices don’t change, and no incentives are offered I predict that the incentives will be back come spring time. So how does the general public know if the home is priced according to the market? Call your realtor (hopefully it will be someone from the Butterworth Group!) and get his/her expert advice. Buyers, your realtor’s commission is paid by the seller (builder or individual owner) unless otherwise stated. Our service to you is free! Allow us the privilege of assisting you with your purchase.
Great point Chris! I’ve had clients ask me why they needed to use a Realtor when buying a new build. This is just one of the many good reasons to employ the services of a realtor when buying a new build. A buyer walking into the sales offices of a new build community is walking in very unprepared. The builder has access to information that they may or may not feel inclined to share with the buyer. When you’ve got a real estate agent by your side it’s now a “fair fight”. We’ve got access to all of the information the builder does and can validate the information being given. I would venture to guess that most of the time the builders are being very upfront and honest, but that one time when they aren’t can cost a buyer a lot of money.
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