New Home builders in DFW Tip #1
Get help! Builders spend a great deal of time researching before they select an area to build new homes. They commission financial viability studies, look at absorption rates, carefully weigh product offerings to maximize ROI (Return on Investment) to investors, and complete in depth demographic studies to ensure the desirability of the homes they build to you! Having the REALTOR who knows how to help you select and work with a builder will make the process easier and more rewarding for you.
New home builders have a margin of profit on every home that they build. The amount of that margin varies widely by builder, plan, community and even time of year. While those of you with an accounting background may be very excited about an in-depth discussion of margins, we will for the sake of simplicity break margins into two categories: gross and net. Gross margins include the builders fixed costs for a home, these items are easily estimated before construction begins and then there is the net margin which is what the builder actually makes when the contract is negotiated, written and closed. Builders typically will not directly share these numbers with you when you are buying a home but they will be the basis for all negotiations between you and the builder. When you are going to build from the ground up the builder must use their gross margins and then assume where the "net" margin will be, this may make them more conservative in the negotiation process. If you are building from the ground up you may want to look at the base "standard" home itself in the same way you think of a "loss leader" at a grocery store. The margin that the builder will make is often dependent on upgrades that you will choose for the home including, exterior elevations, structural options and modifications, and designer options i.e. lights, carpet, cabinets, granite etc. This is why when you are building, incentives are usually offered on one of those areas and not base price. Negotiating on a completed home has fewer variables but still there are a number of variables to consider. Completed homes cost more money, just because it's built does not mean it is no longer costing the builder money. Most builders finance construction with loans and they pay costs to "carry" these homes on the books which can significantly erode margins and negotiating room. But more basic and often as expensive are maintenance and operational costs such as mowing, cleaning, electrical, water and gas. Understanding how margins affect pricing will help you negotiate from a position of knowledge and power to separate the good deal from the bad one.Â In the next installment I will talk about the pricing differences between new builder pricing in DFW and resale pricing.
I hope you have enjoyed new home builders in DFW and found the information informative.Â If you have any comments on the material or questions please do not hesitate to contact me directly 817-729-4281 or firstname.lastname@example.org.