Home Buying in Denver>Question Details

SanFran, Home Buyer in Broomfield, CO

What the heck is lot premium?

Asked by SanFran, Broomfield, CO Fri Jan 23, 2009

Do the builders and sellers have to charge it or is it just a way to charge another junk fee? Is it illegal for a builder/seller to charge you a lot premium if they don't tell you about it when you first check the place?

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As the name somewhat implies, this is an amount (can vary from $0 to well over a quarter million dollars) added by the builder to the base price of a home, based entirely on the desirability of a particular lot (premium lots get the highest lot premiums). Thinking about it, this makes sense. If you have two identical homes, one that backs to another home, small not very usable lot and the second that backs to open space with a majestic mountain view, the second home would be worth a lot more than the first.
In my experience, builders will readily tell you what their lot premiums are, and can break those down by location when looking at a map. Builders also are very good at getting buyers into a development by advertising low prices ("From the low $200's) when in reality when you start adding lot premiums, charges for walk-out basements and upgrades, this probably doesn't represent the reality of what the buyer will actually pay.
Hope this was helpful. .
By the way, a Realtor can help you with the purchase of new construction as most builders belong the BRC and will pay commissions. These builders will not lower your price if you DON'T use a Realtor. A Realtor can help you negotiate with the builder, and explain the costs and fees involved in buying a new home.

Chuck Strauss
Keller Williams DTC
720-318-7598
CStrauss@kw.com
2 votes Thank Flag Link Fri Jan 23, 2009
Hello & thanks for your question. When a developer/builder is carving up the land that is going to be built on they determine the prime lots in the subdivision. Because those prime lots can usually bring a premium price, they tack on a "lot premium". Sometimes that lot is something that is very attractive to one person and they are willing to pay extra for it. Other people do not see the value in it. Because I work a lot with new construction, I know how buyers react to those price differentials. Some times it is difficult to see why a builder puts a premium on a lot and one that doesn't have a premium can be just as attractive. The lot premium doesn't always get recouped on resale of that home. Golf course, open space, view lots, etc. can bring up to $150,000 premiums. Hopes this helps. Linda Alexander 303-475-3078
1 vote Thank Flag Link Sat Jan 24, 2009
I've noticed that you're asking a lot of questions, I'm glad you're getting yourself educated on the issues. One thing I wish all buyers realized, is this: There is a state agency called the Colorado Real Estate Commission that oversees the activities of real estate agents. They have pre-approved contracts that we use when a client is buying a house. Those contracts heavily favor the buyer. When you buy new construction the contract you're given to sign is prepared by the builders attorneys and heavily favors the builder. With that contract you give up several rights that are yours in the state-approved contract. I'm not saying people shouldn't sign a builder's contract, just that they should be aware of everything it says. Most buyers just sign or initial where the person on site points, and they don't realize what they got themselves into. Here's where you can get a free copy of the state-approved contract. Reading through it is one good way to educate yourself. http://www.dora.state.co.us/real-estate/contracts/contracts.htm
1 vote Thank Flag Link Sat Jan 24, 2009
Bobby already answered what the lot premium is, and he's right that everything is negotiable. But in asking if it's a junk fee - there's usually a pretty obvious reason why a particular lot is worth more. It might be bigger, or have a great view. Usually, there's a reason why you wanted that lot, and the builder figures you're willing to pay to get it. The thing is, you can't always assume you'll get that much more for your house when you sell it, so don't fall for that line of thinking.

As far as the legality of when they disclose a lot premium, hopefully you knew about it before you signed a purchase agreement contract. If the contract specifies a certain lot, and no premium is mentioned in the contract, then they try to add a fee after the contract is signed, you should speak with an attorney.

A lot of people believe they don't need a real estate agent if they're buying new construction, but having someone go through the contract with you and point out red flags, and to interpret the builder's lingo, can save you thousands of dollars.
1 vote Thank Flag Link Fri Jan 23, 2009
Redsleek,
the typical definition of lot premium is: a premium paid by the buyer for a special, unique home site that may be either larger or in a more desirable location.

typically this amount is 'built in' to the price of the home. individual builders/sellers may choose to 'add' it to the price of the home so that it can be highlighted to potential buyers. of course any charge including lot premiums should always be disclosed up front.

also, don't forget that EVERYTHING is negotiable in real estate. you and/or your agent have to the right and ability to negotiate the price, terms and inclusions (via the contract) right up until both sides have signed.

bobby verenna
keller williams realty, dtc
303.995.8786
http://www.blueroof.com
1 vote Thank Flag Link Fri Jan 23, 2009
Premium lots are those sites that are considered to be highly desirable to potential home builders. They may include additional size, lake view, golf course view, proximity to community services etc.

The luxury of owning a premium lot is normally accompanied by a sizable additional fee.
0 votes Thank Flag Link Sat Jan 24, 2009
Great strategy, Redsleek; as an informed buyer you will be able to make a great purchase.
Best of luck.
Chuck Strauss
Keller Williams DTC
720-318-7598
CStrauss@kw.com
0 votes Thank Flag Link Fri Jan 23, 2009
Hi all,
Thanks for all your answers. I don't know why its being presumed that I have already signed a contract or its late. I have not signed any papers or contracts yet. I am shopping around extensively and trying to learn as much as I can about seller, lender and even real estate agent's strategies so when its time for me to find a Realtor, a seller and a lender/broker, I can an informed decision. I never heard of lot premium and wanted to get personal thoughts from good folks like you than just google it.
Thanks.
0 votes Thank Flag Link Fri Jan 23, 2009
I always recommend that you have a Realtor represent your interests when working with a builder. It sounds like it may be to late in your case but for future reference: First find a reputable Realtor then have your Realtor make the first contact with the builder. If you do it this way the then Realtor will be paid a fee from the builder and will represent your interests. If the Realtor does not make the first contact with the builder then often the builder will not pay the fee and you will have to pay someone to represent you.

I do agree with everyone's comments below regarding the legality of the lot premium. LOCATION, LOCATION, LOCATION there is a reason you want the particular lot and your new home will most likely sell easier and possibly at a premium for the LOCATION
0 votes Thank Flag Link Fri Jan 23, 2009
Dear Redsleek:

A lot premium is a charge on a lot that is more special than others in the subdivision. It may have a wooded or scenic view, etc.

If it is something your builder is trying to sneak by you in contract negotiations, do not sign! Everything is negotiable, especially a lot premium.
0 votes Thank Flag Link Fri Jan 23, 2009
All good answers so far. Lot premium is not a junk fee and it is by no means illegal. They only have to tell you about it once you get down to the point of negotiating a purchase contract or actually talking price.

Like everyone else said, if you're new to the process I'd definitely recommend enlisting the help of a buyer's agent or a real estate attorney
0 votes Thank Flag Link Fri Jan 23, 2009
GREAT QUESTION: Bobby is correct on his information in some areas there are lots sold as a premium due following examples: Mountain/ ocean / golf / river/ forest/ views.

OR if the lot is larger than any others in that particular area
Web Reference: http://www.lynn911.com
0 votes Thank Flag Link Fri Jan 23, 2009
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