Making an offer on a spec home?

Asked by Gregory J. Mcmillan, Cottage Grove, WI Tue May 25, 2010

I’m seriously considering purchasing a spec home in a newer subdivision in Sun Prairie, WI. The house is due to be complete in a month and I have been to a similar version in a different city that the same builder built. I have two questions: In your professional opinion what is the typical profit margin of a builder for a home listed at $239,900. I want to know where to come in for an offer. Is it 10%, 20%, 30%, etc? I guess I rather pay a higher price and negotiate some simple upgrades such as a deck, kitchen island, appliances, etc rather than pay a lower price than have to implement them myself. What are your thoughts?

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Brent Dorner, , Sun Prairie, WI
Wed May 26, 2010
Hello Gregory,
I'm not sure if builders have a "typical" profit margin and if they do I'm not sure what that number would be. I will say the home is worth what it is worth based on comps and the builder will likely try to sell it based on that number. As the first poster answered, they would probably rather sell it higher and include upgrades instead of selling it lower and having that lower number work against them on future homes they will try to sell. I have also heard of some builders kicking back the buyer money so they can have a higher recorded selling price. This method would likely depend on your financing and what your lender will allow you to do. I live and make my office in Sun Prairie, so I would be happy to answer any of your questions and work with you in the buying process. Feel free to contact me anytime at 225-9966 or Century21SunPrairie@gmail.com

Thanks,
Brent
1 vote
James Gordon…, Agent, Hamilton, OH
Wed May 26, 2010
Gregory what I have run into is a builder is more willing to do upgrades than drop price. The problem is that if the sell to you under what they have sold in the area already your property will be used as a comparable for every appraisal in the next 6-12 months. The builder does not want to have sold, say a 2000 sqft home in a subdivion for 200,000 whan everything else has gone for 215,000. The reasoning behind it that the value of 2000 sqft homes has now been brought into question on future appraisals.
Get partnered up with a Realtor® that is familiar with your target area. I have been able to get some HOT deals for my clients that want to build by going into subdivisions where there are just a few lots left. Builders also normally want to work with Realtors® because we can be 2+ transactions a year for them where a normal buyer is a one shot deal.
Web Reference:  http://www.Find1Home.com
1 vote
Vivian Schm…, Agent, Madison, WI
Wed Mar 28, 2012
Hi Gregory...I work closely with a builder. The profit margin is different on every home. I do not believe the profit margin should have an impact on whether you purchase a spec home or not. There are many variables that determing the price point of a spec home. The materials, cost of the lot, the finishes the builder puts into the home. We try to make the home as neutral as possible...so it appeals to many buyers. If you are considering purchasing a spec home..the earlier in the building process the better. It will give you the opportunity to pick and possibly make some minor changes. Some times structural changes just can not be made once the home is framed. Meeting with the builder early, discussing what you would like to do and making sure those items can be placed in this home. An example is a kitchen island. There must be a clearance around the island for the dishwasher to open, the oven, the refrigerator. So the size of the kitchen will determine whether or not an island can be installed. Easy upgrades are counter tops, tile, lighting and flooring. I have a lot of experience dealing with new construction and spec homes. It is great if you can roll all the upgrades you-would like into your mortgage. Please feel free to contact me with any questions you may have @ -608-513-7989 or vschmelzer@restainohomes.com. I presently have a spec home listed in Providence. Beautiful 2 story, 4 bedroom , 2 1/2 bath...this may give you and idea of what you could purchase.
Best of luck...Vivian
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