Home Buying in San Jose>Question Details

Sigil, Other/Just Looking in Iowa City, IA

Home Builders rarely negotiate?

Asked by Sigil, Iowa City, IA Sun May 3, 2009

I was watching HGTV and they seem to imply that professional Home Builders are not very likely to negotiate. this true?

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>>>>I have visited several new home communities in the past month, and every single one was willing to negotiate on price and/or incentives (i.e. upgrades). Three were open to direct price negotiations and just said to bring an offer. One hinted that we could get up to $50K off on a model they were not able to sell. I was really surprised because in the past they were only open to a few builder upgrades.
~~~
LOL. No comment.

>>>Just remember these things:
1) You should always negotiate the PRICE first - you pay taxes on the PRICE, so if you save $20K in price, you get a reduction of about $250+ in taxes every year.
~~~
That would depend on where you live.

>>>2) Builders have a huge mark up on upgrades. So $20K in upgrades is only costing them about half that. Some upgrades you should do with the builder, but some really you can get cheaper elsewhere. So get the standard, see if you can live with it, and if you cannot, upgrade it later often for much less.
~~~~
Since the upgrade costs the builder “half” (you can document this how?) you should do them after you buy, and not thru the builder because you can get them for less than half?

>>>3) Builders have to pay your agent 3%. If you do not have a buyer's agent, they will typically give some of that back to you or be more willing to negotiate. But be careful if you do not have an agent.
~~~~
3% off what? A 20% overpriced house? A 5% overpriced house?

>>>>You should have someone on your side if possible. You are better off just negotiating with your buying agent and saying, "Hey I know I want plan 8 in this new community. Can we split the commission 60- 40 since you are not dragging me across town for 6 months?" :)
~~~~
“I know I want plan 8, you didn’t drag me across town, let’s split it 60-40?” I have no idea what that means but I think at this point I would ask you to get out of my car, LOL!
2 votes Thank Flag Link Sat May 16, 2009
Hello Sigil and thanks for your question.

As the others have noted, in the past, here in California, new home sales were so brisk that developers did not need to negotiate on the price and did not pay referral or buyer's commission to any agents who sent buyers to a new home development. Recently, things have changed, and for the past two years, developers have offered to provide Realtors who brought in clients a small referral fee, which varies from developer to developer from amounts as low as 1 percent to as much as 4 percent. While most are offering to pay a commission to the buyer's agent, the amount of the price that can be negotiated will also vary from developer to developer and housing complex to housing complex. At the beginning of a sales release, the amount that can be negotiated is likely to be less than it would be at the end of the release or new the end of the project's sales cycle--much like a car, you'll pay more at the start of the model year and less at the end.

Recently, developers have been negotiating with the banks holding their construction loans, and are working diligently to reduce prices on their products for the summer selling season. As a result, with reduced pricing coming now and soon to more developments, the amount that can be negotiated will likely only be for upgrades, interior finishes and closing costs rather than for pricing changes. This doesn't mean you should not ask for price adjustments, just be prepared if the only thing the developer can offer is non-cash incentives.

As always, for those who feel more comfortable doing this with a Realtor, then bring a Realtor with you to the FIRST visit to the complex to register the Realtor with the sales office. Otherwise, if you feel comfortable, you may certainly negotiate with the developer and call to their attention the fact that any savings that are realized since you do not have an agent could be passed along to you. If you need only a Realtor to be present to help facilitate the transaction, then consider using a licensed agent who will work with you to facilitate the transaction only. Check my blog here at Trulia for more information on facilitations.

Good luck in your home purchase!!

Sincerely,
Grace Morioka, SRES, e-Pro
CID/HOA Specialist, Forward Planning Consultant for New Home Developments
Area Pro Realty
San Jose, CA
Email: graceareaprorealty@att.net
1 vote Thank Flag Link Sat May 16, 2009
All depends on the location Real Estate is a supply and demand If an area is over buitlt you can bet they will negotiate. A savy agent can always negotiate. J Foshay ABR Broker
1 vote Thank Flag Link Sat May 16, 2009
Sigil,

This is the message builders across the country would like us to hear, loud and clear....no negotiations.... BUT this is essentially untrue. Eventhough, every single sales person you approach will state clearly, they do not discount their homes. As with regular real estate deals, it depends on the seller's level of motivation. If there is despiration to make the monthly numbers or pay the bills, the creativity may present itself when you speak with a manager with enough authority to make a decisiion. Of course the builders willingness to negotiate depends on the individual situation.

It is always helpful to use a local real estate professional to assist you, even when dealing with builders. These individuals, if informed will be able to refer to past insentives & promotions offered by the builder as well as sale prices for homes sold by the builder and resale homes within the community.

Always go into a situation with a builder with your own pre-approved funding source.....they love to preapprove you .....this essentially allows them to make money with your financing(you can nearly always do better elsewhere) and firms up the deal for them as soon as they approve you for financing and this no longer is an avenue for you to back out of the agreement without losing your deposit money......another important point is to resist giving them large deposit amounts, the smaller the better.

Good luck
1 vote Thank Flag Link Sat May 16, 2009
Hi Sigil,

As other below have indicated to you, it depends on market conditions. Right now in Silicon Valley, that is simply not the case. Here is an interesting fact: builder reps will treat you differently and offer you different incentives depending on whether you walk in alone or whether you walk in with a Realtor. All Realtors know this.

A client of mine recently walked in alone to a high end local builder and was told theirs was a "no haggle" policy: take it or leave it he was told. I walked in with him 2 weeks ago and was given the same line, but after a couple of hours of negotiations, he was able to "volunteer" information about how we could get nearly $10,000 of upgrades. Now we are in contract.

The builder rep needs to know that you are serious and that you have the ability to buy the units. They will not give up anything unless they have to. It's their job stand firm.


Steve Mun
408-802-5641
1 vote Thank Flag Link Fri May 8, 2009
Hi Sigil,
The other Realtors gave you correct the data, I would like to add that the new home builders are negotiating like crazy right now, not only price but sometimes you can also get free upgrades thrown in. If they have already drastically lowered the price they will most times negotiate with you on the upgrades. I suggest that you have a Realtor with you on your first visit so he/she can help you get the best deals available and it won't cost you a "dime" and could possibly save you thousands. If you are a 1st time home buyer and you qualify you can recieve a $10,000 ( Cal) plus the $8,000 Fed. tax credit when you buy New Constuction homes.
Thats quite a deal!!!
If you have any other questions on new or existing homes please feel free to contact me.

Regards,
Allyson
408-705-6578
allyson@homesbyallyson.com
1 vote Thank Flag Link Mon May 4, 2009
Contract negotiations vary depending on the current market no matter whether the seller is private or a builder. Here in Silicon Valley, there was a time, when the market was a hot sellers market, and builders wouldn't cooperate with buyer agent commissions. They cooperate now because the market is slow and they want us Realtors to bring them Buyers. A few years ago, they wouldn't let us in. So, it all depends on what the current market climate is in your particular area. In today's buyers market in my area, of course it would be wise for them to negotiate, there is so much to choose from if they won't give you what you want, just move on to the next one. HGTV (my favorite channel) airs a lot of shows from years past, and in different areas of the country, so what you see on their shows may not necessarily be the norm for today's market or the market in your area. It is best to speak with a Realtor near you who can let you know what the norm is for Iowa City.
1 vote Thank Flag Link Mon May 4, 2009
Hi Sigil,

A popular myth. I've represented buyers in new developments, and they will negotiate. On price as well as options. Especially so for built units, and ones nearing completion. They have a lot of carrying costs including (in some communities) HOAs to get rolling.

Thanks,

Patrick Johnson
Keller Williams Realty
(408) 410-9139
patrick@dreamsbytheyard.com
1 vote Thank Flag Link Mon May 4, 2009
That has been my feeling too regarding Home Builders. The will negotiate with certain small items such as upgrades, appliances, and they offer incentives to get you to commit.

My suggesting is to make them an offer and see what they say. From their response you may be able to negotiate some extras in addition to what you asked for before.

This all depends on the Builder. Small local builders can get more desperate than the large national builders like KB, Toll Brothers, etc..

Good luck
1 vote Thank Flag Link Sun May 3, 2009
No that is not true. In the past, it was fairly difficult to negotiate with a home builder when representing a client to buy a home. In the past, the home builder will not even pay a commission/referral fee. But now times are different and the market has plunged to an all time low and every builder is doing all they can to survive and relieve themselves of inventory. So at this time there are numerous home builders willing to wheel and deal to make a deal. Actually I was able to negotiate almost a $50,000 drop in price for my client for a new home. If not lowering the price, it's paying for "Non Recurring Closing Costs" or 1 to 2 years paid HOA if any. Plus, larger incentives, like, paying for the upgrades without adding it to the purchase price or even larger credits then before. When the economy gets better, and I'm sure it will, the builders will re-evaluate their business and may change but for now it's a good thing for the buyers.
1 vote Thank Flag Link Sun May 3, 2009
Lauren, you need an agent because some of your advice is plain wrong. You're assuming that builders are playing fair with you. A realtor may have told you you should have gotten MORE than 50,000 off on that model.
0 votes Thank Flag Link Sat May 16, 2009
No sure what JR is getting at, but I was just citing examples for the Bay Area. I am not an agent, just a real person looking for a house too (so please do not contact me asking for help with the purchase LOL!)

JR is right in that taxes are different by area. I am using a generalization for the purpose of the conversation. And for the buyer upgrades, I am citing my personal example of buying materials and hiring a contractor to do upgrades at my house. I met with contractors before doing our upgrade and got a sense of what it would cost and compared them to what the new homes builders were asking.

You should use an agent because you need someone on your side, but if you know the community you want , and you are otherwise using very little of the agent's time (rather than asking them do an intensive search for 6 months for you), you should try to negotiate the fee. You do not need the same level of service as someone who needs hand holding for months and weekly house viewings.
0 votes Thank Flag Link Sat May 16, 2009
I have visited several new home communities in the past month, and every single one was willing to negotiate on price and/or incentives (i.e. upgrades). Three were open to direct price negotiations and just said to bring an offer. One hinted that we could get up to $50K off on a model they were not able to sell. I was really surprised because in the past they were only open to a few builder upgrades.

Just remember these things:
1) You should always negotiate the PRICE first - you pay taxes on the PRICE, so if you save $20K in price, you get a reduction of about $250+ in taxes every year.
2) Builders have a huge mark up on upgrades. So $20K in upgrades is only costing them about half that. Some upgrades you should do with the builder, but some really you can get cheaper elsewhere. So get the standard, see if you can live with it, and if you cannot, upgrade it later often for much less.
3) Builders have to pay your agent 3%. If you do not have a buyer's agent, they will typically give some of that back to you or be more willing to negotiate. But be careful if you do not have an agent. You should have someone on your side if possible. You are better off just negotiating with your buying agent and saying, "Hey I know I want plan 8 in this new community. Can we split the commission 60- 40 since you are not dragging me across town for 6 months?" :)
0 votes Thank Flag Link Sat May 16, 2009
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