How to negotiate a better deal with homebuilders

That sharp buyer pullback comes at a less than ideal time for US homebuilders. See, a combination of pandemic-related supply chain constraints and an overabundance of eager buyers during the boom, saw the total number of units built has reached historic levels last year. And that historic backlog, along with the rising cancellation ratesmeaning buyers ultimately have some negotiating power with builders.

To find out how buyers can make a better deal with builders, luck came to John Downs, a certified mortgage advisor and senior vice president of Vellum Mortgage.

The first trick is to simply use raw negotiation tactics, such as low offers, or using outside lenders “to keep borrowers honest,” says Downs. The second trick is to see what incentives the builders can offer.

Unlike homeowners—who are less likely to give away the equity they have—builders simply throw in the profits. So when the market changes, builders can drop prices and/or drop incentives like paying closing costs (which can be between 2% to 5% of your mortgage debt), offers buy mortgage rate (Builders pay the lender a lump sum of money to reduce mortgage payments for future buyers), pay home owner association dues, or make upgrades to entire construction process.

“For builders, it’s a business,” Downs said. “Which is very different from regular homeowners where it’s their network storage. So for a builder, it’s just a raw business decision—am I still making money? And if I lose, what I get the loss?

Getting builders to offer incentives can vary depending on the market, season, individual builders, and whether a buyer is looking to purchase standing inventory versus asking to build a home.

And for individual builders, they may have different mindsets about inventory. For example, in the first few months of the year, one prefers to hold on to a house until they get the price they want because there is time. Meanwhile, another builder may be fearful of the future and offering aggressive incentives.

There is also a clear difference between small builders and larger builders with greater financial support, and that can be translated into the incentives they can offer. So as a buyer, it’s important to understand the market, the inventory, and the homebuilder you’re working with—to get started, at least.

As for home improvement or improvement, builders sometimes use the fact that “they can make things cheaper and the perceived value of [buyer] bigger,” Downs said luck. He gives an example: if a buyer is quoted $ 50,000 to build a patio but the builder can do it for $ 15,000 — as a consumer analyzed it, and the builder basically uses “raised values ​​to provide the prospect of greater savings.”

So improvements like, tied to the physical home, are not considered seller concessions by lenders. Lenders instead view anything that changes money, such as covering closing costs or offering rate buyouts, as a concession to the seller. But that doesn’t mean builders still can’t use strategies to attract buyers—rather, the buyer just needs to qualify for incentives and that may depend on the type of loan.

However, incentives are not forever—they often depend on the market, which is cyclical. There are times when builders are not required to offer incentives (usually in a competitive market when there are multiple offers at the asking price).

But Downs told luck that he thinks we’re in a “deal-making sweet spot,” at least for a few more months until the market balances out and becomes more in line with pre-pandemic normal. However, affordability is still a problemsaid Downs—meaning the sweet spot will likely last a little longer.

“When I quote the fees, people still get choked up when they hear it,” Downs said.

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