Negotiating Strategies for Buying a New Construction Home

Are you in the market for a new construction home and considering negotiating with home builders? While builders are often reluctant to offer discounts, negotiating new home prices and upgrades is possible with the right strategy. ¹ ² New construction homes refer to properties built entirely from scratch, allowing buyers to customize aspects like floor plans, layouts, and designs. ¹ However, buying a newly-built home is a significant investment, so it’s essential to get the best deal possible. ¹

This article will explore effective communication strategies and key areas you can negotiate, such as home features and upgrades. ¹ ² Whether working directly with builders or hiring an experienced real estate agent, there are ways to secure a lower price or added value without sacrificing your dreams of a brand-new home. ² By understanding the negotiation process, you can increase your chances of success when negotiating with home builders. ¹ ²

Preparing for Negotiations

Before entering negotiations for a new construction home, it’s crucial to prepare thoroughly. This preparation involves several key steps:

Understanding Your Needs and Priorities

Identify what is most important to you in your new home. Whether it’s the location, specific home features, or the timeline for moving in, understanding your priorities will help you negotiate concessions that align with your interests. ⁹ Be prepared to compromise on less critical aspects to strengthen your stance on what matters most to you. ⁹

Researching the Builder’s Reputation

Arm yourself with knowledge about the builder’s reputation, past projects, and customer reviews. ⁸ Start by investigating the builder’s website and sales centers to get a sense of their current inventory, including how long homes have been on the market. ⁷ Next, immerse yourself in the builder’s reputation by searching for online reviews and asking for customer feedback directly from the builder. ⁷ Pay close attention to comments about the quality of construction, responsiveness to issues, and overall satisfaction. ⁷ This information is invaluable; it not only informs you about the builder’s standing but also arms you with potential negotiation points. ⁷

Knowing the Local Market Conditions

Before entering into negotiations, it’s vital to have a comprehensive understanding of the local real estate market. ⁹ Market dynamics such as supply and demand, average selling prices of comparable homes, and the builder’s inventory levels can significantly influence your negotiation power. ⁹ Engage with a knowledgeable local agent who can provide up-to-date market analysis and insights. ⁹ This data will arm you with the necessary information to discuss prices realistically and effectively. ⁹

Additionally, consider the following preparation steps:

Conduct Thorough Research: Research the current real estate market trends, similar properties in the area, and the specific property you are interested in purchasing. ⁶ This will help you determine what constitutes a fair price for your dream home. ⁶
Create a Budget: Once you have conducted your research, create a budget for your dream home purchase. ⁶ This should include not only the price of the property but also any additional costs such as closing fees, taxes, and potential repairs or renovations. ⁶
Work with an Experienced Agent: A seasoned real estate agent who specializes in new construction can be your strongest ally. ⁸ They have insight into the builder’s processes and can help you navigate the negotiation process. ⁸
Get Pre-Approved for a Mortgage: Having pre-approval for a mortgage shows builders you are a serious and financially stable buyer. ⁸ It also helps you set a budget for negotiations. ⁸
Understand Market Timing: Understanding market timing can give you a significant advantage when negotiating a lower price for your new home. ⁷ By keeping an eye on seasonal trends and economic indicators, you’re positioning yourself to make a more informed decision. ⁷

By following these preparation steps, you’ll be well-equipped to enter negotiations with confidence, armed with the knowledge and tools necessary to secure the best deal possible on your new construction home. ³ ⁴ ⁵ ⁶ ⁷ ⁸ ⁹

Effective Communication Strategies

Active listening is a fundamental skill that plays a crucial role in effective negotiation. It entails devoting close attention to the speaker’s words, comprehending their perspective, and demonstrating genuine interest and empathy. ¹³ By actively listening, one can establish rapport, foster trust, and cultivate mutual understanding with the other party. ¹³ Moreover, active listening facilitates information gathering, identification of interests and needs, and the generation of innovative solutions. ¹³

Active Listening and Asking Questions

Active listening doesn’t simply entail saying “I understand” or establishing good eye contact. Rather, it is a dynamic process that can be broken down into three different behaviors: paraphrasing, inquiry, and acknowledgment. ¹⁴

Paraphrasing: “It sounds as if you’re satisfied with our component overall. But if I understand correctly, you need me to assure you that we can increase production if large orders come in. You’re also concerned about our proposed per-unit price and our willingness to work with you to create an acceptable arrangement. Have I captured your main points?” ¹⁴
Inquiry: “You mentioned that you found our proposed price to be unacceptable. Help me understand how you came to this conclusion. Let’s also talk about how we might set up a pricing structure that you find more reasonable.” ¹⁴
Acknowledgment: “It sounds as if you’re quite disappointed with various elements of our proposal, so much so that you have serious concerns about whether we’ll be able to work together over the long haul.” ¹⁴

Focusing on curiosity and empathy is the first step of a two-step process. ¹⁷ Rapport will automatically develop if you are genuinely interested in the individual you’re working with, their reasons for moving, and the factors that drew them to this particular neighborhood. ¹⁷ Remind yourself to stay open-minded, sympathetic, and to listen more. ¹⁷ Ensure that the client understands you’re on their team. ¹⁷

A good place to start is with the question, “What made you get in touch with us today?” ¹⁷ This question is excellent for building rapport. However, it has one drawback—the prospect will probably offer us a cursory response. ¹⁷ Two questions that can come in handy are: “Tell me more,” they may talk about wanting to move into a larger home and being ready for one. When you ask for more information, they continue. ¹⁷ “Can you elaborate on that for me?” so you can learn more. They may answer, “I want to be near XYZ. For me, this is an important area.” Ask again, “Could you elaborate on that?” Rinse and repeat. ¹⁷

Remaining Calm and Professional

Maintaining a calm and composed approach is crucial when faced with difficult sellers or contentious situations. ¹¹ Employing excellent communication skills and maintaining professionalism can help diffuse tense situations. ¹¹ Buyers must stay focused on their objectives and avoid confrontations. ¹¹ When faced with challenging sellers, detaching emotions and maintaining a problem-solving mindset can facilitate productive negotiations. ¹¹

Be Professional and Confident. When interacting with other agents, always maintain a professional demeanor. Your personal brand and how you present yourself can leave a lasting impression. ¹⁸ Dress appropriately for the occasion and consider the image you want to project. Confidence and professionalism go hand in hand, so ensure that you exude both qualities in your interactions. ¹⁸

Building Rapport and Trust

Embrace a Positive Attitude and Personality. Negativity and bullying have no place in the real estate industry. ¹⁸ Instead, strive to be a positive and supportive agent. Recall the agents who have helped you in your early deals and aim to be that kind of professional for others. ¹⁸ Your attitude and personality should reflect the person you aspire to be, leaving a positive impact on those you encounter. ¹⁸

Showcase Consistency and Professionalism. Consistency is key in building rapport with other agents. ¹⁸ Aim to bring the same level of professionalism and style to every interaction, whether you’re showing properties or attending office meetings. ¹⁸ This consistency helps shape how others perceive you as an agent and builds trust over time. ¹⁸

Mend Fences and Show Appreciation. In the event of a failed deal or an impasse, tensions may arise between agents. ¹⁸ It’s essential to send an appreciation email to the collaborating broker, expressing gratitude for their time and effort. ¹⁸ This gesture helps mend any strained relationships and ensures that you maintain a positive reputation within the industry. ¹⁸

Leverage Reputation for Scheduling and Negotiations. Establishing a strong reputation and collaborative nature can prove advantageous when scheduling showings or negotiating multiple offers. ¹⁸ Other agents will be more inclined to work with you and accommodate your requests, knowing that you are reliable, courteous, and professional. ¹⁸

Key Areas for Negotiation

Price and Financing Options

New construction home negotiations may feel impossible when builders often set prices and floor plans way in advance. But, it never hurts to ask. Even if negotiations in price are off the table, you may be able to negotiate the floor plan, appliances, or other home features. ²³

Most builders have a preferred lender they work with, but that doesn’t mean you must use their lender. You should always shop around with a few different lenders to find the best rates on your home loan. However, using the preferred lender of the builder could help you in negotiating a good deal on the house. ²³

The preferred lender often offers buyer incentives to help sweeten the deal. If the lender doesn’t mention any of these incentives outright, you can still ask. Some options a lender may be able to offer include:

Covering closing costs
Lowering interest rates on your loan
Paying for a home inspection ²³

Many builders have partnerships with mortgage companies and might offer enticing financing deals to buyers who use their preferred lender. These incentives can include lower interest rates, reduced closing costs, or points bought down. While it’s beneficial to explore these options, ensure you shop around with other mortgage providers to confirm that you’re receiving the best overall financial package. ²⁴

Design and Customization Requests

Thirty percent of individuals who purchase new homes do so because they want to be able to customize design features in the home, according to a 2021 report by the National Association of Realtors®. If this also interests you, you might be looking to negotiate the overall layout of the home. This is definitely something you can try to negotiate, but it has to be the right moment in the timeline of the build. ²³

A builder is unlikely to knock down walls that have already been built — however, if the home is still in the beginning stages of the build, ask about reconfiguring the floor plan. It might not be possible to get added square footage for the same price, but you might be able to get a custom layout that will meet your needs by working with your builder. ²³

When it comes to negotiating upgrades, you have a lot of options. And, you are more likely to find success with smaller option upgrades. Think about what matters most for your home, and ask away. Builders may be able to get a deal with a supplier that you wouldn’t be able to get on your own. This means they might be able to offer you a discount on an upgrade and they may even throw in an upgrade for free. ²³

Gore says you can ask for upgrades on pretty much everything — from appliances and countertops to lighting packages and paint colors. You can even try asking for upgrades to the landscaping or ask if the builder will add a security system. ²³

Rather than focusing solely on price, consider negotiating for upgrades and additional features. Builders often have more flexibility to offer incentives in the form of upgrades rather than price reductions. Request upgrades that enhance the value and enjoyment of your home, such as higher-grade appliances, superior finishes, or landscaping packages. These can often be more cost-effective when integrated into the original construction rather than retrofitting later. ²⁴

Timeline and Delivery Dates

Timing can be a critical factor in negotiations. Builders are often more willing to negotiate at the end of a financial quarter or during periods of slower sales. If you have flexibility in your timeline, consider timing your purchase to coincide with these periods. Additionally, understanding the builder’s timeline for completing the community can offer leverage, as builders may seek to close out phases of development favorably. ²⁴

If the new construction home you have your heart set on is in a subdivision, you will likely be responsible for paying homeowners association (HOA) fees when you purchase the home as well as on a monthly basis. Another assist you could ask for from the builder is for them to cover your HOA fees for the first year or more. Some builders will agree to do this in order to help offset the costs of buying the home. ²³

Sealing the Deal

Reviewing and Understanding Contracts

Always review your contract carefully—it’s a legally binding agreement, so make sure that you understand what is included in the contract about your new home. ²⁵ Depending on the stage of construction, you may be able to make customizations to your new home. For example, you may be able to personalize certain features and fixtures or choose from curated design packages that might include countertops, hardware, paint colors, and light fixtures. ²⁵ If you cannot make any customizations, ensure you know what the contract states is included in your new home. ²⁵

Negotiating Final Terms and Conditions

Good news: You’re in the home stretch! Once the construction of your new home is complete and all upgrades have been made, you may choose to schedule a home inspection. ²⁵ While not required for new builds, home inspections are nonetheless a good idea to ensure the quality and safety of your potential new home. ²⁵ Once the inspection has been completed and any outstanding issues have been remedied, a final walkthrough will be conducted before closing. ²⁵

You can submit counter offers with the builder if both parties want to go back and forth. ²⁸ Make sure your counter offer is reasonable by using a real estate agent with experience in new construction homes. ²⁸ From there, see if the builder is willing to add credits towards your closing costs or if there are other incentives you may be able to take advantage of. ²⁸

Additionally, consider negotiating the following terms and conditions:

Appliance Credit: You can negotiate for a higher appliance credit. ²⁸
Landscaping: Try negotiating for sod instead of seed and straw for your lawn, and consider more plants, flowers, shrubs, and even an irrigation system if not included. ²⁸
Windows: Negotiate for additional windows, as this will greatly impact the natural light entering the home’s interior. ²⁸
Interior Features: Interior features account for a large percentage of the cost when building a house. Ask for upgrades such as additional electrical outlets, upgraded cabinets, better countertops, premium hardware, more bathroom tiling, upgraded flooring, window coverings, and smart home features. ²⁸
Unfinished Spaces: Negotiate the finishing of unfinished spaces like basements or attics, as the added square footage will immediately affect the value of your home and improve the floor plan. ²⁸
Warranties: While a one-year builder warranty is typical, negotiate for an extended warranty, such as a 1-2-10 home warranty. ²⁸
Rate Lock and Float-Down Provision: Secure a rate lock from the lender to protect yourself against rising interest rates during construction. Many lenders offer a 90-day rate lock, but some may offer up to 180 days. You can also negotiate a float-down provision, which allows you to get a lower rate if they decrease during the rate lock period. ²⁸
Inspection Contingency: Ensure that your purchase agreement includes all inspections you would like to have, such as general, blue tape, septic, termite, and radon inspections. ²⁸
Financing Contingency: Also known as a loan or mortgage contingency, a financing contingency allows buyers to back out if they cannot secure financing, which is helpful if you suffer an unexpected financial loss during construction. ²⁸
Appraisal Contingency: An appraisal contingency allows you to get out of the transaction if the property appraises below the agreed-upon price, which is helpful in volatile markets. ²⁸
Sale of Home Contingency: If you’re worried about selling your current home and timing it with the completion of your new construction home, you can include a sale of home contingency, allowing you to wait longer to sell your home. If you don’t sell, you can walk away from the commitment to purchase the new home. ²⁸
Price Escalation Clause: A price escalation clause states that if materials or labor costs increase, you don’t pay more for the house—the builder takes on this extra cost, which is crucial in today’s world with supply chain issues. ²⁸

Securing Warranties and After-Sales Support

New construction homes typically come with a home builder warranty to ensure the quality and performance of your new build. ²⁵ For example, Brock Built offers a comprehensive one-year limited warranty that covers repairs that may arise in your new home during the first year of ownership. ²⁵ Learn more about new home warranties here. ²⁵

Builder warranties for newly built homes generally offer limited coverage on workmanship and materials for specific components of the home, like windows, heating, ventilation and air conditioning (HVAC), plumbing, and electrical systems. ²⁹ Warranties also usually spell out how repairs are made. ²⁹

The length of coverage varies depending on the component of the house:

One year: Coverage for workmanship and materials on most components usually expires after the first year, such as siding, stucco, doors, trim, drywall, and paint. ²⁹
Two years: Coverage for HVAC, plumbing, and electrical systems is generally two years. ²⁹
10 years: Some builders give coverage for up to 10 years for “major structural defects,” sometimes defined as problems that make a home unsafe and put the owner in danger, like a roof that could collapse. ²⁹

Most new home warranties don’t cover out-of-pocket expenses resulting from a major construction defect or warranty repair, like the cost of moving out of your home and living somewhere else while repairs are made. ²⁹ Builder warranties also usually don’t cover household appliances, small cracks in brick, tile, cement, or drywall, and components covered under a manufacturer’s warranty. ²⁹

If you have a defect in your home that may be covered by your warranty, check the warranty to make sure the problem is covered, paying particular attention to the length of specific types of coverage. ²⁹ File your claim using the instructions in your warranty, and keep a record of your correspondence and conversations with the company. ²⁹

Disputes sometimes happen between a homeowner and a builder or third-party warranty company over whether a defect is covered or whether repair work was done properly. ²⁹ Many warranties on new homes offer or require mediation and arbitration for disputed warranty claims. ²⁹ In mediation, a neutral third party helps the homeowner and the company resolve the problem, but it’s up to the parties to reach an agreement. ²⁹ If mediation fails, the homeowner would likely have to submit any claim to arbitration instead of going to court. ²⁹ Arbitration is generally less expensive than going to court, but you can expect to pay up to several thousand dollars, depending on the complexity of the arbitration. ²⁹

Conclusion

Negotiating the purchase of a new construction home requires diligent preparation, effective communication strategies, and a clear understanding of the key areas open for negotiation. By researching the builder, local market conditions, and your own priorities, you can approach discussions with confidence and a solid grasp of your objectives. Building rapport, actively listening, and remaining composed are essential for fostering a positive relationship with the builder and facilitating productive dialogue.

While negotiating can be challenging, exploring opportunities to secure favorable terms, upgrades, and incentives can ultimately enhance the value and enjoyment of your new home. Remember to carefully review contracts, consider extended warranties, and leverage contingencies to protect your interests. With patience, persistence, and a collaborative mindset, you can navigate the negotiation process successfully and make your dream of owning a brand-new, personalized home a reality.

FAQs

1. Is it possible to negotiate the price of a new construction home?
Yes, buyers can certainly negotiate the price of a new construction home. Just like with existing homes, it is common in some real estate markets to request a lower price on newly built homes.

2. What common errors should buyers avoid when purchasing a new construction home?
Buyers often make several costly mistakes when purchasing a new-construction home, including:

Not thoroughly checking the builder’s reputation and previous work before signing a deal.
Focusing negotiations on less important aspects rather than key financial or quality issues.
Overlooking the possibility of construction delays and not planning accordingly.
Assuming they have complete control over all aspects of the home’s design and features.
Believing that all changes and upgrades to the plan will be provided at no extra cost.

3. How can you effectively negotiate construction costs?
To negotiate effectively with a contractor, consider these strategies:

Compare multiple contractors to find the best balance of price and quality.
Conduct thorough research on potential contractors to ensure reliability and skill.
Choose a time of year when contracting services may be offered at reduced rates.
Propose to purchase supplies and materials yourself to potentially reduce overall costs.

4. What is the best approach to negotiate the purchase of a spec home?
When negotiating the price of a spec home, it is advisable to communicate directly with the builder. Clearly explain your financial situation and discuss possible price adjustments. Remember, it’s always worth asking if the builder is open to negotiation.

References

3902

Navigate

Contact