NEWSFLASH – Builders are better at negotiating than you are.
Builders negotiate for a living. They negotiate all day long. The entire process of building a home is one big negotiation.
- negotiate lot purchases with developers.
- negotiate lumber prices with suppliers.
- negotiate labor prices with their subcontractors.
- negotiate closing costs with their ‘preferred lenders’.
- negotiate interest rates on their construction lines with their banks.
- negotiate commission rates with their sales force.
And THEN they negotiate prices with the public.
They negotiate quite a bit…and in doing so, are quite adept at the practice.
So here are a handful of helpful tips to help you when working on the new home contract.
Know Your Builder ’Type’
Builders tend to fall into two basic buckets…those who are ‘Production Builders’ and those who are ‘Custom Builders.’ Production builders (in Richmond) may build anywhere from 40 to 200 houses in any given year and will build at price point where absorption is greatest. Custom guys tend to build less than 10-15 (or sometimes less) and usually in the upper price points.
Negotiating with each is different as the a custom builder’s business model differs greatly from a production builder’s model. Thought of differently, do you find deals differently in Carytown than you do in Short Pump Town Center? Obviously.
Production builders will offer incentives, often around fiscal reporting dates or on the last few lots in a section of a neighborhood. Custom guys will be more willing to negotiate on any given home, especially if it is complete and standing.
Ground Up or Spec?
A speculatively built home (the ‘spec’ home) is a home built by a builder in the hopes of someone coming in prior to completion and purchasing it. In other words, the builder begins to build the home before there is a buyer, and thus the word ‘speculative.’
Often times, a smaller builder’s credit line terms will limit the number of ‘spec’ homes that can have under construction at any one time. If you can find a smaller builder with several homes completed but unsold, you may find a greater willingness to negotiate.
If you are building a home and starting from scratch, you are not going to find much of a discount. The tradeoff, obviously, is that you are going to get exactly what you want and have input into the design. Buying a speculative home does not typically allow for buyer input, other than some decor selections.
Beware the Lion’s Den…The Builder Showroom
Ever been to a builder’s selection showroom? For a new home buyer, it is a combination of Disney World, FAO Schwarz and Cancun. You walk in with a firm budget and you walk out with remote controlled platinum bidets.
The most successful builders have the most amazing showrooms. Do you know why? It is where they make their money. When you come in at the appointed time to make your selections, a ‘design consultant’ will help you decide what to put in your new home. Know that they are trained, quite adeptly, to take you from the base model to the premium package.
If you are presented with all of the latest and greatest options, at some point, you are going to cave…and the design consultant will be happy to help.
Walk the Builder’s Model and then a Spec
The greater the difference in finishes between the model home and the standing spec home, the more you need to beware of the selection session (see above.)
If a builder’s model looks like HGTV just filmed there and the spec looks like Cable Access, you need to be extremely careful. The larger builders generally offer base models with few inclusions and are going to upgrade you at the selection center. The custom guys tend to include more in the standards.
Use the Preferred Lender as Leverage
Most think using the builder’s preferred lender is a bad idea…it isn’t. Generally, they are paying some money to the builder to be preferred. We have written numerous articles about how to negotiate with a lender and using the preferred lender’s incentives to drive down the rate or gain concessions is very legitimate.
If you wish to to know the best way to negotiate with your lender, call 804.767.7566 to discuss.
Drive By Their Older Works (Cannot Stress this Enough!)
The number one way builders can cut costs is through the use of inferior materials. The local building codes largely govern the techniques builders use…but not the materials.
Most sidings look the same when installed…as does a roof, windows and flooring. The useful life of each component of a home can vary greatly yet will not become apparent until long after the warranty period is over.
An agent worth their salt can show you a list of properties built by a specific builder that are approaching 10-15 years old (we can show you how…) Do a drive by and you will know whether or not the builder is selecting the materials which will endure. Any builder can make a home look great on the day it is sold…how does it look 10, 20 or 30 years later is what really matters.
Want to know more? Let’s chat. The list above is enough to get you started, but we can help in many more ways. Our analysis of the Metro’s pricing is another huge input to helping you make the best decision.
Thanks and we look forward to hearing from you. You can reach us at 804.767.7566 or at email@example.com.