Home Buying in 78261>Question Details

Michael D. C…,  in Universal City, TX

Hi What are the rules of engagement when making offers to new home builders.

Asked by Michael D. Carpenter, Universal City, TX Sun Dec 26, 2010

I am working with a client and we made an offer on an inventory home and everything fell through. My clients were out one weekend and found a home that they wanted to make an offer on. They contacted me and we went to take a second look at the home. My clients said they told the builders representative that they needed to be price wise under $210K. According to the builder the home had been reduced twice already down from $245K. The builder came back with $209K. We put an offer in offer of $204 plus closing. To make a long story short during the back and forth negotiation process the sales manager pulled the deal completely off the table at the $209K price point. This is the first time I've experienced this, hopefully this builder doesn't do this on a regular basis.

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It doesn't sound as if you handled the negotiations or your clients well. Did you research the neighborhood before going back with your clients to determine the selling prices of comparable homes? As your client s found the property on their own and were willing to essentially hand you a deal, it seems like the least you could have done would be to have become a quick expert on the pricing in that neighborhood. You owed it to your clients to be able to sit down and with authority go over the past several months of sales data specific to that neighborhood and builder. You should have been able to advise them if the offer of $209,000 was a good fair price or whether the facts showed that the builder reguarly sold comparable houses for less. It sounds to me like the Builder was motivated, explained the pricing on the house and you encouraged your clients to play hardball and it backfired.

You do not negoatiate for the sake of negotiating, you negotiate to get your client the best possible price, terms and conditions based on the specific market conditions while keeping in mind that it’s got to be acceptable to the other side. It sounds to me like you were trying to neogotatie when ther you had already been given the bottom line and simply managed to waste time and aggravate the Seller unnecessarily.

If your clients want the home I’d simply tell them, “The price is $209,000 it’s a great price and (assuming it it is) and you need to either step up and buy it or we need to keep looking.” If your clients are on board with paying $209,000 and closing costs, I’d simply call the sales rep and tell them, “If you’re ready to make a deal, I’ve convinced my clients to pay the $209,000. Let’s get it done today.” My guess is they will accept it as their objective is to sell homes. If they don’t you’ve learned a very valuable lesson, which is “Do your homework before counseling your clients on making or responding to an offer.”

Good Luck
2 votes Thank Flag Link Mon Dec 27, 2010

When working with a buyer on a new home, there are a number of factors to keep in mind:

1. As mentioned below, home builders are not very willing to lower the price on any specific home because that lowered price then becomes the baseline for all new buyers. Most buyers want to knock down the price because they want the bragging rights that go along with it. They fail to realize that they will usually be further ahead by going after as much soft costs as they can score and by playing by the builder’s rules. In addition, soft costs do not show up on tax records – prices do. Builders are usually not willing to knock prices down because they will become public record and will be viewed by every new buyer coming over the hill looking to hit the builder up for a deal.

2. Instead of trying to hammer the builder on price (hard cost), go after the soft costs instead. Ironically, these are often the areas where the builder makes the most profit and therefore are the areas with the greatest flexibility. These include things such as upgrades, prepaid HOA fees, closing costs and so on.

3. Many new home builders are publically traded companies with shareholders that are interested in Units Sold Per Quarter. There is often a push to get units sold at the end of each quarter, ESPECIALLY if there are units in standing inventory. The builder will usually establish sale prices for a few units they want sold quickly. In most cases, these prices are the best deals you will get during the quarter HOWEVER – they are not usually negotiable because they already represent the lowest point to which the builder is willing to go.

4. Consider going with the builder’s preferred lender: they will often provide significant incentives such as closing costs or a set amount of money you can use to buy down rates, pay for upgrades, pre-pay HOA fees, etc.
1 vote Thank Flag Link Mon Dec 27, 2010
Hi, Michael,

In any negotiation, you will do well if you work to the end that BOTH parties get what they need rather than "beating" the other side. Good Negotiators look for a Win-Win. Predators go for the Win-Lose. No good business is going to negotiate a deal where they lose.

Before entering into a negotiation, you should know clearly where your walk-away point is and have an alternative plan. You should also listen carefully to the other side and ask lots of questions, so you clearly understand what they NEED. Listening is a more useful skill than posturing. Look at your negotiating partner as a collaborator, not an opponent.

Then, always negotiate with a smile. Leave the door open, and build a relationship with the other side.

Builders need to sell their inventory homes before the end of the year. There are great incentives available now. It sounds like your Builder reached their walk-away point and pulled the deal when they realized they weren't going to make progress toward what they need to make the deal work. I'd go back and ask the Builder how you can get back on track. Be aware that there are many other items besides price alone that can add value for your client (Sod, Window Coverings, Upgrades, Water Softener, etc.) that the Builder can provide your client at a lower cost than a cash concession.

Good luck,

Doc Stephens, REALTOR®
Web Reference: http://TellEllen.com
1 vote Thank Flag Link Mon Dec 27, 2010
Builder's primary interest is in keeping the sale price as high as possible so they don't shoot themselves in the foot with later buyers. One technique that works well is to request upgrades instead of discounts. This way the builder can demonstrate a higher price and your clients get some benefits they can enjoy.
1 vote Thank Flag Link Sun Dec 26, 2010
Frankly, I can't believe that you "low balled" the builder even tho they came down almost $40,000. It was an insult to them to offer $204,000 + closing. No wonder the builder walked away. If your client's really want the house, you need to call the builder agent and see if the house is still on the market and offer a most reasonalbe offer.
0 votes Thank Flag Link Wed Dec 29, 2010
Hi MIchael, The answers below are great, and working with a builder is usually pretty cut and dried. You just didn't pony up where they needed to be. It sounds like your clients could still have the home at 209K. Do they want it that much? Do they need help with the closing costs? You could offer more than asking and roll the closing costs in - builders have room to play with the numbers, particularly if you are using "their" lender. They also expected it to appraise at 245K, so 209 + a little closing should still appraise. If that doesn't happen then it should be reopened for negotiation.

Is there another party that is interested in the same home? Like PJ said, when you threw in the closing costs you just upped the costs to the builder. Was the home listed in MLS where you could see the price reductions? The original price had some profit built in, but it doesn't sound like they were willing to cut their margins any more. If your buyer really, really wants the house and somebody else hasn't snatched it up at bargain prices, go back with a better offer. If its gone, you have to start all over again. . . .bummer.
0 votes Thank Flag Link Mon Dec 27, 2010
With an sales there is consider "the bottom line" . Builder does not pocket the entire $209K he has overhead and expenses PLUS closing costs, agent fees and etc.

Lynn911 Dallas Realtor & Consultant, Loan Officer, Credit Repair Advisor
The Michael Group - Dallas Business Journal Top Ranked Realtors
0 votes Thank Flag Link Mon Dec 27, 2010
If you still have the buyer there's no time for post mortems.
Start again fresh, re-present an offer and close the deail.
Web Reference: http://www.321property.com
0 votes Thank Flag Link Mon Dec 27, 2010
The better question is: why if represented by you, are your clients telling the builders representative anything? QUOTE: "My clients said they told the builders representative "

If your clients are telling you that they are communicating with the builder outside of your representation, either you were not the procuring cause, or you have not educated / informed / instructed your client what your role is and that all communication should pass through you, or are they indirectly telling you that they lack confidence in you.

What value are you bringing to this transaction? Does the builder see your clients as with you, or do they see you as (tagging along) with your clients?

The goal of the builders representative is to sell the home as fast and for the most money they can. Your job is to find the best home at the best price for your client. When the builder's rep separates you from your clients they are "doing their job" , when you allow this to happen, you are not doing yours.

When the builder came back at $209 was it because your clients said they wanted to be under $210? The last time I checked 209 was less that 210. The fact that your clients communicated this to the sellers rep and then the builder agreed to your clients terms, and then your clients did not accept the 209 . . . . If I was the builder I would have taken the 209 off the table as well.

Your clients have showed their cards to seller, they did that because they weren't taught to play by you.

Education and experience is what YOU are selling, if your clients do not value those two items, you need to find another client, or figure out why they didn't value them from you?
Web Reference: http://www.halfpriced.com
0 votes Thank Flag Link Mon Dec 27, 2010
If it was there once, it is likely still there. They want to sell homes, so if you client now wants the home at $209K and is willing to pay the closing costs my thought is the builder will still sell it to them. There's really no reason they wouldn't, unless they are negotiating with another buyer or think they have one ready to make an offer.
It is also possible the sales rep does not have the power or knowledge and the 209K was a mistake. Often on builder homes the builder expect the buyer to pay title, survey, HOA transfer fees and most of the closing costs. It may be dependent on using their lender or additional upgrades.
At some point as with all sellers, there may be no more negotiating room....just as with some buyers they may tap out at $209K and don't have additional money for closing costs.
I'd go back to the buyer and see what they can work with and then go back to the builder and get them to make one last offer and see if you can't try to make something work for everyone.
It is also possible at that price they needed it to close by Jan 30th and now think they will have at least another month of carrying costs.
Web Reference: http://www.teamlynn.com
0 votes Thank Flag Link Mon Dec 27, 2010
Bruce Lynn, Real Estate Pro in Coppell, TX
Unfortunately each time an offer or counter offer goes back to the other side, they have the opportunity of rejecting it or walking away. When that happens, the process either ends or starts all over again. You didn't say how much you were asking for in closing. If it was say, 6K, then the other side sees an offer of 204K with 6k in closing as an actual offer of 198K - 11K below his reduced price of 209K. My experience with builders is that they generally don't like to negotiate their price very much (more willing to get upgrades as the other answer indicated) and sounds as if he felt the negotiations weren't headed towards something he could work with. Depending on what the comparable properties in the area showed would determine if he was justified or not.
0 votes Thank Flag Link Sun Dec 26, 2010
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