Builders are desperate to sell homes — giving buyers an edge

Homebuilders aren’t exactly bullish on the new construction market right now. Slowing buyer demand is causing inventory to pile up in some parts of the country as builders race to sell new homes.

Builder confidence in November remained relatively stable, increasing only one point to 38, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) survey.
But how serious is it? According to the survey, 41% of builders reported reducing their sales prices in November – a record level. At the same time, manufacturers reduced their prices by 6% in November, as they had done the previous month. To sweeten the deal, 65% of builders said they added sales incentives in November, matching the share from September and October.

6 Tips for Shopping for a Newly Built Home

Although new homes have always cost more than existing properties, the median sales price for new homes was $28,000 less than existing homesaccording to Realtor.com. This represents a notable 6.5% discount that the market has not seen in 25 years.

For some homebuyers, this could be a window of opportunity if they play their cards right. Here are some tips to help you negotiate with a builder.

1. Hire a real estate agent with new construction experience

New construction is a different animal with unique issues. A real estate agent who has experience with local builders can guide you through each stage of construction, said Tiffany SearsCEO and broker-in-charge of Sears Group Real Estate Advisors in Charlotte, North Carolina.

“Everyone who lives in this model home works for the builder; they don’t work for you,” Sears said. “Their job is to sell you a house and get the most out of the company they work for.”

2. Find out about builder incentives

Typically, builders offer incentives such as temporary interest rate reductions or closing cost credits to attract new buyers, said Keri Hollandglobal real estate advisor at Summit Sotheby’s International Realty in Park City, Utah. But this varies depending on the manufacturer and location.

However, these benefits often come with a caveat: You must use the manufacturer’s in-house financing, Sears pointed out. Some builders may also offer move-in packages, such as blinds, a refrigerator and a washer and dryer — items that are not typically included in new construction, Sears added.

Lennar, for example, offers a Black Friday deal on new homes in the Orlando area with a 4.990% FHA fixed-rate mortgage (with 5.920% APR) and up to $25,000 in closing credits to put toward the buyer’s closing costs or home price reduction. The trap? Borrowers must use Lennar financing.

3. Think about small builders

Even though large national manufacturers are more recognizable, don’t settle for small manufacturers, Sears said. These companies can offer more flexibility on home pricing and improvements because they typically don’t have massive in-house loan departments.

“They’re more willing to negotiate higher prices because they don’t have a connection to the lender like some other builders do,” Sears said, adding that the quality of their work is comparable to that of some national companies.

4. Look at Quick Move-In Homes (or Specs) First

If you’re not super picky about finishes, already-built homes tend to get bigger price reductions than those that haven’t yet been built, Holland said.

“Because the finishes are already installed, builders can’t offer design credits, so incentives usually appear in the form of price adjustments or more negotiable terms,” Holland said. “Move-in ready homes give buyers the greatest leverage because once a home is completed, it becomes a cost of ownership for the builder and that’s where bargaining power tends to surface. »

5. Always have your home inspected (yes, even for new construction)

Hiring your own independent building inspector is essential at every stage of construction to ensure the builder delivers a quality product done the way you want, both agents said.

Generally, these are done in three steps: before the foundations are poured; before drywall goes up to check framing, exterior walls, and HVAC system rough-ins and ductwork; and before your final visit to check the final product. You should do a fourth inspection before your builder’s warranty expires (usually one year after move-in or closing).

“Even though new homes undergo several required inspections during the construction process, items can still be missed or overlooked,” Holland said. “A third-party inspector can spot issues that might not be visible during walk-throughs, and resolving them before closing is much easier than after move-in.

6. Understand your manufacturer’s warranty conditions

Manufacturers generally offer a 1-2-10 home warranty on new constructions. During the first year, coverage generally extends to visible issues related to the quality of the builder’s work, Sears said. This is why a fourth inspection just before the warranty expires is essential. For the second year, the warranty covers defects in major systems behind your walls, such as electrical, plumbing or HVAC. And in the tenth year, if offered, the warranty covers major structural defects, Sears explained.

However, most manufacturers’ warranties do not cover normal wear and tear, appliances or damage outside of warranty periods. After closing and move-in, Sears advises new home buyers to obtain their own third-party home warranty that covers appliances and other major systems for added protection. Without it, repair or replacement costs for newer appliances and modern home systems can add up quickly.