What is the best way to negotiate with home builders?
You are looking to purchase a branch new home. You already find the floor plan and you got the price from builder’s agent. Now you are wondering if if there is any room for negotiation on price or on incentives. Can you negotiate on the price of a new house? what kind of things can you negotiate?, does it make sense to hire a Realtor to do the negotiation for you? And how would you know if you are getting a good deal?
While each builder works differently, and the kind of market you’re in will ultimately determine your negotiating strategy, we compiled this guide to share our tips, advices and strategies that worked for us in the past.
Enter your negotiation at the quarter or year end
It’s no secret that the best time to buy a car is at the end of the month, when the dealerships are trying to meet their monthly quota and are more willing to negotiate. Builders don’t usually have sales quotas like car dealerships do, but many of them have sales forecasts and projections for their fiscal quarter or year. Being able to meet and exceed these sales projections make builders’ businesses look attractive to their shareholders and lenders. When it’s close to the fiscal quarter or year end, when builders need that extra push to meet the sales forecast, they tend to be more willing to negotiate with you.
Don’t expect to walk into a sales office the first time, and start the negotiation
Even in a slow market, builders only negotiate with serious home buyers. If you just walk into the sales office, see the floor plans and model homes for the first time, and try to negotiate $100k off the purchase price, you will likely get a firm no, even when the builders are otherwise open to negotiation .
To show your interest, you must be involved and show your seriousness. Have your pre-qualification letter ready, get to know the salesperson, ask about standard or upgraded options, and what the future of the community looks like. Also let them know about you, why you are looking, when you are thinking about moving, and what are your must-haves. Work with the salesperson and narrow down your interest to two or three homes. Only then you can think about entering the negotiation phase.
Know that the purchase price isn’t always easy to negotiate, but you can still save ten of thousands from other costs
A lot of new home buyers focus their negotiation on the purchase price of the home. This is usually a mistake. The builder doesn’t like to lower the purchase price. Offering you a lower price will surely upset previous buyers, and, more importantly, it will make it harder for every buyers to get loan due to increased appraisal risk Lenders are more cautious about lending out money in a market in which the home prices are trending downwards. So, when you start the negotiation, don’t be surprised if the builder is firm on the purchase price, and be prepared to negotiate on other things, such as upgrade credits, closing incentives, and other closing costs. Builders are usually more flexible when negotiating these costs with you.
Reserve your home before you start negotiate
We’ve seen this happen way too often: home buyer falls in love with a particular house in a new home community. They started the negotiation with the builder, before they reached an agreement, the builder told them another buyer has paid full price and the home is no longer available. Would they have been willing to pay a few thousand dollars more to get the home? Absolutely. Now, they don’t have that chance.
While it’s part of the game when you negotiate, someone else can always come in and undermine your position. There are a few things you can do to limit that.
If the builder allows you to reserve the home during the negotiation, reserve it first. This way, the builder takes the home out of the available home pool for up to three days while you and the builder work on the deal. If you can’t agree on the price, you can still back out without losing anything (because you haven’t signed a purchase contract yet). The nice thing about this is that during the time you are negotiating, you don’t risk having someone else cutting in front of you.
Not all builders allow you to reserve a home without agreeing on price. If that’s the case, you will need to ask the builder to notify you if they get a better offer and give you a chance to match it. Builders are not obligated to call you, but they often will in order to give urgency to all potential buyers.
You can be aggressive when asking about upgrade incentives
Upgrade credits are one of the first things that you can negotiate, and you should be asking a lot of it. In the price range of my local market ($1M - $1.5M), it’s common for us to get $50k+ upgrade credits towards home option upgrades. Because builders usually enjoy a sizable margin on these upgrades, $50k worth of upgrade credits often cost the builder much less than their face value. It’s not uncommon for builders to give out tens of thousands of dollars worth of upgrades credits when they are motivated to make the sale.
Don’t drag out your negotiation for too long
Ideal negotiation happens at rapid-fire speed. If both parties are fully engaged, most of negotiation can be done within three business days. Try not to drag out the negotiation for longer than a week. Not only will you lose momentum; the builder will often stop engaging if no progress is made with you.