Is it better to have closing costs covered or ask for upgrades in new construction?

Asked by Lisa, Cleveland, OH Mon Feb 9, 2009

We are considering building new construction and we are looking into negotiating options. I wanted to know if it is better for the buyer to ask for closing cost assistance or ask for upgrades. Which would be in the best interest of the buyer?

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Heather Srod…, Agent, Strongsville, OH
Mon Feb 9, 2009
Good question Lisa and it the answer to that would be buyer specific. It's all really going to depend on your financial situation. Do you have expendable cash to make the improvements you'd like on your own? If so, then it will very likely be less expensive in the long run if you don't pay a premium on such improvements by rolling them into your purchase price.

Can you cover your own closing costs? Closing costs can range depending on the purchase price of the home (usually between 2-4% of the purchase price) and will very likely be rolled into your total purchase price. When considering closing costs, you can include such things as closing costs (costs associated with doing the title work, your loan, etc) points (monies used to buy down your interest rate, thus resulting in lower monthly payments and an overall interest savings) and/or pre-paids (appraisal fees, if the lender will let you roll it in, etc.) To show what it can really mean to roll in your closing costs, here is an example: if you have $4500 in closing costs now, it will cost you close to $10,000 over a 30 year period to pay that off at 5.5%. It seems nice up front and if you don't plan to live in the house for 30 years, I say ask for the moon!! However, if you have the cash....fork it out! Why spend money you don't have to down the road?

There still exist low down payment programs out there that can get you into a home for as low as 3.5% down and even lower! When dealing with lender related issues, it's best to go to the experts.

Either way, costs are being rolled in, so it's really going to depend on your own, personal financial situation.

In a market like this, it's a great time to buy! I feel confident that the market will turn around, but it would be in your best interest in any market to have enough equity in your new purchase to be able to cover the costs of selling, if for some reason you should suffer a job loss or illness. Always look to the future and consider all the possible scenarios!

I hope this is helpful Lisa!
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Lynn Semer, Agent, Wooster, OH
Tue Feb 10, 2009
Depends on your builder and your lender! There are many variables to this - seek a professional - Really - I do agree with the last answer to your question. Find a buyers agent in your area that works with new construction, get someone that knows how to negotiate with that builder and they too can assist you with lender issues! Will not cost you a cent for representation! But, keep in mind that if you have already registered with that builder he may not allow the agent to be the middle man!
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Brittany Sim…, , Columbus, OH
Tue Feb 10, 2009
Definitely the upgrades. There is alot of markup in these items and you will be better off negotiating on this point. I just negotiated $16,000 in options to be paid by the seller AFTER we were in contract with the builder. This is in addition to the 25K discount upfront. This condo was listed at $205,000.

If you are not working with a buyers agent, please get one. It does not cost you extra as builders rely on real estate agents for 75% of their business. Also, they offer thousands in bonuses to agents that you may be able to use in negotiations. I rebate any bonuses to my clients above and beyond my standard 3% commission so that my clients know I am not steering them to a property for my own benefit. Check with the builder to see what incentives for agents there are currently. (these are typically disclosed in writing at contract signing)
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Edward D. Ni…, Other Pro, Milford, CT
Mon Feb 9, 2009
I'm a Custom Builder & I'll suggest to try for both ! It is the Best Time to buy as Builders are lining up their spring starts in a weak building market ! Find the Best Builder in your market & work out a deal ! Don't make a deal with a desperado as you'll get burned ! Keepin' it Green !
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David M. Chi…, Agent, Uniontown, OH
Mon Feb 9, 2009
I recently was successfull in a new home for a client in Avon Lake and we got both covered. The market is such that builders will surprise you with concessions! We also got 4.5% for a 30 year fixed loan!!! You need a really aggresive agent to help you. Good luck.
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Art Hotes, Agent, Cleveland, OH
Mon Feb 9, 2009

I would suggest negotiating BOTH, but it's up to you and whether or not you have the cash on-hand to pay your own closing costs. Builders are eager to put deals together, so they may work with you and try to negotiate a reasonable deal.

Art Hotes
RE/MAX Classic ~ Serving Northeastern Ohio
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