Negotiating the New Home Sale

     You are negotiating for a new home to be built. The builder seems unreasonable. You can’t understand why he won’t pay for the Kohler Bowl you’ve picked out for the powder room. It’s only $350 above your plumbing allowance and is miniscule in comparison to the $400,000 you’re paying for your new home which doesn’t even exist yet. You also want to upgrade to Brazilian hardwood cherry flooring rather than the Evoke laminate that is part of your allowances. Oh, and you also want knobs and pulls on your cabinet doors. They only cost $2.75 apiece and there are only 24 of them and the builder is telling you they cost at least $3.00 each to install.

     There are literally hundreds of parts and pieces to a home that could be negotiated, but let’s  stop here. You and your builder are on the wrong track. Buyers need to understand that home building is a business and profit margins are slim and sometimes even non-existent due to weather and time delays. National statistics place pre-tax profits at 6 to 7% on new homes so although all the items listed above don’t seem like much when compared to the sales price, they dig pretty deep into the builder’s pre-tax profit of $24,000. In our real estate industry there is a significant misconception that the bottom line buyers and realtors see on HUD settlement closing statements is the builder’s profit. That bottom line is before the end of the month bills have come and doesn’t take into consideration ongoing expenses like rent, payroll, bank fees and interest.

     Builders are entrepreneurs. They are general contractors with a residential endorsement that requires ongoing continuing education courses. They have more education and testing restrictions on them than general contractors. It takes fewer qualifications to build the Dena’ina Convention Center than a new single family home. The builders who stay in business the longest are those who  run a tight back room and know how much it costs to install those knobs you’ve picked out.

     New buyers should not receive more concessions from their builder than their neighbor. That’s  the golden rule every builder should follow. It is inevitable that buyers will talk to one another. If a builder pays $3,000 in closing costs for one buyer, he should expect to pay it for each and every buyer coming in his door for the same plan in the same location for the next three months. Markets do change and smart builders make adjustments based upon the time of year, inventory, et cetera. However, the bottom line for a builder is to treat every buyer equally within a reasonable time frame. Even family and friends should not be exempt from this golden rule because “special deals” lower value for all buyers due to appraisal comparisons.

     Buyers do not really care about the cost of a winter build or the pending increase in price of lumber. What they care about is how their house looks to their family and friends and whether or not it reflects their personal lifestyle and taste. Builders need to save room in their pricing for a few items that are cosmetically important to the buyer and will make their home look custom. These small items mean a lot to a buyer who’s making the largest financial investment in their lifetime.

     Finally, there can be no “nibbling”on either the builder or the buyer’s part. Once the offer to purchase is signed by all parties, that should complete the financial arrangements for the home purchase. Everything should be in writing down to the knobs on the cabinet. Anything else is an extra and needs to be in writing with a change order.