Builders are desperate to sell homes — giving buyers an edge

Home builders aren’t exactly bullish on the new-construction market right now. Softer buyer demand is leading to a pileup of inventory across parts of the country as builders pull out all the stops to sell new homes.

Builder confidence in November remained relatively flat, only rising one point to 38, according to the National Association of Home Builders (NAHB)/Wells Fargo Housing Market Index (HMI) survey.
But just how dire is it? According to the survey, 41% of builders said they slashed sales prices in November — a record high. At the same time, builders cut prices by 6% in November, as they did the previous month. To sweeten the deal, 65% of builders said they added sales incentives to the mix in November, matching the share in September and October. 

6 tips to shop for a newly built home

While new homes have historically cost more than existing properties, the median sales price of new homes was $28,000 less than existing homes, according to Realtor.com. That represents a notable 6.5% discount that the market hasn’t seen in 25 years.

For some home buyers, 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 builds are a different animal with unique issues. A real estate agent who has experience with local builders can walk you through each stage of construction, said Tiffany Sears, CEO and broker-in-charge of the Sears Group Real Estate Advisors in Charlotte, North Carolina.

“Everyone that's in that model home works for the builder; they don't work for you,” Sears said. “Their job is to sell you a home and get the most for the company that they work for.”

2. Ask about builder incentives

Typically, builders will throw in incentives such as temporary interest rate buy-downs or closing cost credits to entice new buyers, said Keri Holland, global real estate advisor with Summit Sotheby’s International Realty in Park City, Utah. But this will vary depending on the builder and location.

However, there’s often a caveat with these perks: you have to use the builder’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 not usually included in new builds, Sears added.

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

3. Consider smaller builders

While large national builders are more recognizable, don’t sleep on smaller builders, Sears said. These companies may offer more flexibility on the home price and upgrades because they typically don’t have massive in-house lending arms.

“They’re more willing to negotiate price at a heavier rate, because they don't have the tie-in with the lender that some of the other builders do,” Sears said, adding that their work quality is comparable to some national companies.

4. Look at quick move-in (or spec) homes first

If you’re not super picky about finishes, homes that are already built tend to have deeper price discounts than those that haven’t broken ground yet, Holland said.

“Since finishes are already installed, builders cannot offer design credits, so incentives typically appear as price adjustments or more negotiable terms,” Holland said. “Move-in ready homes give buyers the greatest leverage because once a home is finished it becomes a carrying cost for the builder and that is where negotiation power tends to surface.”

5. Always get a home inspection (yes, even for a new build)

Hiring your own independent home inspector is critical at each stage of construction to ensure the builder is delivering a quality product done the way you want it, both agents said.

Typically, these are done in three stages: before the foundation is poured; before drywall goes up to check framing, exterior walls, and rough-ins for the HVAC and ducts; and before your final walk-through to check the final product. You should do a fourth inspection again before your builder’s warranty expires (usually one year after move-in or closing).

“Even though new homes go through multiple required inspections during the build process, items can still be missed or overlooked,” Holland said. “A third-party inspector can catch issues that might not be visible during walk-throughs, and addressing them before closing is far easier than after move-in.”

6. Understand your builder’s warranty terms

Builders typically offer a 1-2-10 home warranty on new builds. In Year 1, coverage usually extends to visible issues connected to the builder’s workmanship, Sears said. This is why a fourth inspection just before the warranty expires is critical. For the second year, the warranty covers defects in major systems behind your walls, such as electrical, plumbing or HVAC. And in Year 10, if offered, the warranty covers major structural defects, Sears explained.

However, most builder warranties don’t cover normal wear and tear, appliances or damage outside of the warranty periods. After closing and move-in, Sears advises new-home buyers to get their own third-party home warranty that covers appliances and other major systems for added protection. Without it, the costs to repair or replace newer appliances and modern home systems can add up fast.