Negoitating w/ Builders? Need Advice (1 Viewer)

[Mathew Shelby]

My girlfriend and I are considering building a home. It will actually be our first home. We are currently renting a house which has turned out to be a disaster because the landlord will not fix anything and the house is falling apart. This new home is with a tract builder in the area whose prices are extremely reasonable (for the area). For those in the area, it is right off the Suncoast Parkway (near Tampa, FL). Anyways, it is a 4/2/2, 1975 square foot home for $149K. My question is-can you negotiate with a homebuilder? Can anyone give me any tips for doing this? I am not really that good at negotiating (but I know how to walk out). The thing is that the builder hasn't even broken ground yet on the subdivision and I don't know how negotiable he will be. Can you make a profit on a new construction house if you don't plan stay there more than 5-10 years?

 

[SteveA]

From everything I've heard, builders are not likely to negotiate on brand new construction UNLESS it's a house that someone has put a contract on and then walked away during the construction phase. If you can find a house that is already under construction, your chances for negotiation are much better than for an undeveloped lot.

 

[Angelo.M]

Can you make a profit on a new construction house if you don't plan stay there more than 5-10 years?

Yes. Of course, this depends on a number of factors like the market forces in your area, the rise/fall of interest rates and whether it's a buyer's or seller's market at the time you're looking to sell, the desirability of your neighborhood and, above all, location, location, location. But, absolutely, you can make a profit even if you stay less than 5 years. I made a profit in my last home in less than 3 years.

 

[Philip Hamm]

My house almost doubled in value in the five years I've owned it. The previous owner had the house for 5 years from new construction and sold it for the same price he had bought it for.

Right now, in general I believe that homes are overpriced. If you plan on moving in 5 years don't count on getting any money from the cost of your house. If you do, it's a nice bonus.

Whether you can negotiate depends on a lot of factors including most of all specific market conditions. In my market, Northern VA, I don't think there's any room for negotiaion. There is far more demand than supply. In other areas it's not so bad. I'm having a tract house built myself, and since it was one of the last lots the builder was anxious to sell, so they threw in incentives that ended up adding up to almost 10% of the price of the house. Plus, in the next section of the development the same home models are going in at $20K more than my section. Negotiation wasn't necessary.

 

[Patrick Larkin]

New buyer here. From what I have learned, there really is no haggling on new construction except in the case of spec homes or undesirable lots. builders doing spec homes are desperate for buyers, IMO so the pricing is usually agressive to begin with.

My BEST advice is to buy a house in a BRAND NEW development and get pre-construction pricing. Go into a subdivision as soon as it opens and buy. You have the choice of lots and most builders drastically cut the price because you are basically buying based on a plot of mud and a drawing. We were the first to buy in our development (currently under construction) and the price of our model NOW sells for $27,000 more than what we agreed to 3 months ago.

 

[Philip Hamm]

My BEST advice is to buy a house in a BRAND NEW development and get pre-construction pricing. Go into a subdivision as soon as it opens and buy. You have the choice of lots and most builders drastically cut the price because you are basically buying based on a plot of mud and a drawing. We were the first to buy in our development (currently under construction) and the price of our model NOW sells for $27,000 more than what we agreed to 3 months ago.

It's the same in a development where there are only two or three unsold lots left. And if you can jump on a lot that someone has bought but their mortgage fell through you're really golden.

 

[Keith Mickunas]

I can't really add much to this that others haven't said already except for my experience. It probably depends a lot on demand. I built a new house last year similar to what you're doing. My salesperson had 22 sales the month prior to when I signed my contract. Do you think she cared if she lost one customer because I wouldn't pay what they were asking? Probably not. The rate development went on in my neighborhood basically meant that the house would sell no matter what. I don't even think they were doing much negotiating on spec homes at that point.

As for selling it for a profit, it depends on how sales continue in your area. I think you might have a bit of a tough time in a new subdivision because people could either buy your house, or a brand new one built to their specs for a similar price. Most likely the builder will be increasing the price of your model as time goes on. So that will help, but only so much. After the majority of your area is sold out things will likely get better.

If you're not using a realtor, at least push for 3% since they don't have to pay commission. If they refuse that find a realtor who will give you a cut. My friend found a house on his own, then used my realtor, and is getting like half the commission back from the realtor since the builder wouldn't discount the house for him.

 

[Keith Mickunas]

You may also want to check out this thread. I got a lot of good advice from some folks on this forum about what to do when building a new house. Also, if you visit my website you can see my journal I kept during the build. It'll give you some ideas on what kind of things can occur while building a house.

 

[John Kilroy]

I'm from Sarasota, south of you, and there is zero negotiation with builders here. Real estate is a seller's market in Florida right now. The good news is that you should get asking price if/when you sell your home, so it works out in the end.

I recommend staying away from upgrades, and focusing on the per-square-foot cost of your home, and getting the most square footage you can buy. You can always do tile, and corian, and new paint later, but it's much harder to knock down a wall.

$149K seems really inexpensive for that kind of square footage. Does it include the lot?

 

[Mathew Shelby]

Yes, the lot is included. The streets haven't even been put in for the new subdivision yet and they are preselling-so I believe this is the ideal time to buy. After examining everything, I think it is a go. I am not expecting to make a fortune when a sell the house in fiver years (maybe I won't-who knows) but at least I won't lose money because a 5 year old house is "practically" brand new. I agree with one comment not to do all the upgrades and just get in for the cheapest price per square foot. The only upgrade I will consider is the garden bath tub as my girlfriend said that is a dealbreaker, so I will try to negotiate that option in. They don't seem that negotiable on the price-I was just looking for options. I have heard of some builders eating the closing costs, but then again, those were in more established subdivisions which makes sense now.

 

[Philip Hamm]

I agree with one comment not to do all the upgrades and just get in for the cheapest price per square foot.

I personally disagree with this stance for a large part.

Some things like Corian make no sense to buy from the builder. They'll charge you $6000 and give you 12 choices, where a kitchen design center would charge $3500 with 112 choices. You could have the builder's formica removed and replaces with Corian a day after you close for minimal inconvenience.

However, If the builder offers something like a wet bar in a finished basement, look into how much it will cost to get a plumber in there with a jackhammer to rough in the plumbing after the house has been built and finished. All of the sudden the builder's price looks damn good.

Think that's bad, try installing that additional upstairs bathroom after the fact, it will cost a hell of a lot more than the builder's rate to do it as part of the original construction.

On the other hand, the washer/dryer option is probably greatly overpriced and you'd do better from Best Buy or Sears (unless you want/need to put it in your mortgage).

You really have to take upgrades on a case-by-case basis, some make sense, some don't.

Carpet is one thing that you'll do -much- better from the aftermarket than the builder. Upgrading builder's carpet is questionable, look at prices for better carpet from your local flooring store. Our house has a very modest builder's upgrade to the carpet with the intention that it not last more than a few years.

The previous owner of my 10 year old townhome had a lot of upgrades installed, like tile and hardwood, and it made the house -really- stand out on the real estate market. Our house is having a lot of upgrades installed also. We plan on living in the house for 30 years and are upgrading to suit our preferences.

 

[Keith Mickunas]

I agree with Philip on the upgrades. Certain things aren't worth it, but others it's just a lot easier to have the builder do it. Anything that doesn't require ripping out walls, go ahead and do later. Here's a few of my recommendations:

Do: Tile, major bathroom features (double sinks, shower/tub upgrades), better insulation, gas runs for dryer and stove if available

Don't: Carpet, counter tops, faucets, light fixtures/fans, paint, wallpaper, garage door opener, sprinkler system, landscaping, towel hangers and such

Of course, you have to look at their prices, somethings may not be bad. I found my builder's costs for better doorknobs and a nicer kitchen sink to be reasonable. Sodding my backyard was an option and I had them do that, as I figured I would never get around to doing it myself.

I also didn't think their tile selections were to bad and figured it was easier to get it done before I moved in. I put vinyl flooring in the utility room, and tile in all the other wet areas and entrances.

Be sure and check on what it costs for them to pre-wire plenty of coax and cat5, as well as speaker wire. And see if they'll let you go in and do some wiring also. Officially they may not, but they may be ok with speaker wire and such, but you'll most likely get in trouble if you try to do electrical wiring on your own.

 

[Marc_Sulinski]

I just moved into a new house about a year ago. I did most of my upgrades through the builder, like hardwood floors, solid surface countertops, and tile. I agree that many of the upgrades are overpriced, but before you dismiss an a builder's upgrade, you should price out what it would cost to do it on your own. Make sure the price includes the removal and disposal of old materials. For example, some countertop installers will charge about $1000 to remove and dispose of your old formica countertops.

Some essential upgrades that you should get through the builder would include double vanities (plumbing and the extra sink), additional Cat 5 / cable / phone outlets, and any structural add-ons.

For those of you who didn't upgrade the carpet, did you find that it was cheaper to get the old carpet ripped up and the new installed than it was to just get the carpet upgrade? And you still got a better quality carpet than the upgraded carpet from the builder?

 

[Keith Mickunas]

Marc, I think if you go through any decent carpet company removal of the old carpet is included. It would have cost me $2000 to get to a 40oz carpet, which according to a friend of mine in the business is the lowest level you should get. Builder's grade is 25oz. My mom put 65oz carpet in her house for around $3000, which would be close in square footage to mine. Considering I was already paying the builder for the standard carpet, $2000 for that upgrade was ridiculous. There wasn't going to be anymore work involved, so you can see that it was just a lot of profit for them.

Another example of overpriced stuff was the front door. My builder had three different style doors they'd put in instead of the standard solid door. They ranged from $750 to $850. Home Depot carries a larger selection of doors, with more glass and such, for around $350. Even if I had to pay $100 to $200 for installation, if needed, I still be ahead plus I'd have the old door.

Of course this stuff varies a great deal from builder to builder. I got 3 or 4 phone and cable drops included in my house, and the phone was Cat5, extras were $60 a run. My friend who is building with another builder in my same area only gets 1 or 2, and they want $100 a run, plus extra if they use Cat5.

 

[Patrick Larkin]

I personally would rather pay the upgrade costs and have it totalled in with the mortgage. I really don't need carpet being installed after I move in. I got granite countertops from the builder - mostly because when I move in, I want a KITCHEN -and- I don't want to pay that expense out of pocket. I'd rather use my out of pocket money for upgrades that DON'T make any sense from the builder - such as appliances, patio/deck, fence, garage door openers, lighting fixtures....

Oh, I also got faucet packages in the full baths. While I can probably do sink faucets myself, I don't know if I can do tubs and showers. That's all I need is a water issue in my brand new house!

Absolute musts: structured wiring package (since most builders won't allow you to do this), recessed lighting, outdoor lighting, extra windows (most builders really skimp on windows) and some other stuff i can't think of....

 

[Leila Dougan]

I personally would rather the upgrades NOT be included in the mortgage. My feeling is why pay interest on a few thousand dollars over the coarse of the entire mortgage term when I could pay it off within a few months (or pay it all upfront). Unless, of course, the mortgage company can work something out where all the upgrades are paid through a loan with a much shorter term AND the price of the upgrades are reasonable.

 

[Marc_Sulinski]

Well, for those that can affod it, it may save you some money in the long term to not include upgrades in your mortgage, but the cost of upgrades can add up to be quite a lot, sometimes $30k or more. Also, your mortgage will be a better interest rate than a credit card. If you want to pay it off quicker, you can just send additional principle to the mortgage company. Your interest is also tax-deductible.

 

[Patrick Larkin]

You can drive yourself crazy thinking of the financial implications of building a house. Personally, I'd rather have a NEW house with most everything I need and enjoy it. As I've posted earlier, my new house already appreciated quite a bit and the roof isn't even on yet. The appreciation paid for the upgrades already.

I would never do the upgrades I had done on the side after the fact. Its just too much money to not be rolled into a 30 year low interest mortgage.

 

[Mark Frank]

Some good posts so far...

My two cents:

"Can you negotiate with a homebuilder?"

Definitely, although it depends on the market. Here in Indianapolis, it is definitely a buyers market. We built our first house almost two years ago and negotiated a significant discount (IMHO).

"Can anyone give me any tips for doing this?"

Get a realtor! It doesn't cost you anything! The builder will pay the 3% fee, but only if you tell the builder you are represented up front. Not only did our realtor negotiate a nice discount on our new house, he got us out of our original neighborhood choice to whom we had already given a $1000 deposit. Looking at where we were originally going to build and what we ended up with, I'd say he easily saved us $20K.

 

[Mathew Shelby]

Thanks guys for all the great tips. I agree with only doing upgrades that make sense. I will take that into consideration as I scan through the 25 page lists of available upgrades. The builder has agreed to let me run speaker wire. As I said before, this will be the first home I have ever bought, so my HT will finally have a home. In fact, the master bedroom had the perfect dimensions for the HT, but my girl wouldn't allow that. So we have already agreed on the option of extending the 4th bedroom in the back to make my HT. I think this is going to be a lot more fun than I originally thought.