Due to supply chain issues, construction costs have risen considerably over the last few years. I have heard horror stories from individuals that did not protect themselves against rising prices and wind up with a home that cost them $50,000 or more over what they had planned. I had friends that just had a home built with people in their development walking away from homes for that very reason. Having said that, you don’t necessarily have to pay more now, which is what we are going to look at so you do not get caught in this construction trap.
Market Turning
While the new home market was booming for several years, it came to a grinding halt during the COVID pandemic. Well, that would be a bit of an exaggeration, so let’s just say it dramatically slowed down in most parts of the country. In states like Texas, however, it continued to thrive. That is starting to change a bit now, with builders getting too aggressive, especially with pricing. Nationwide, home prices have come down six percent, which is pretty significant when you consider how hard it is to get a builder to reduce price in a decent market.
Builders do not like to cut prices for a reason, especially when they have homes in a housing development that they are selling. If someone comes in and pays less than you, well, you know they are going to be knocking on your door. To that point, you can save significant money by asking the builder to cover other costs and incentives to buy the home. For instance, closing costs, upgrades, and interest rates are all something that is on the table right now.
Reducing Costs
Almost a third of builders were willing to pay customers’ closing costs last year, which is a massive amount of money to save for a new home buyer. In this market, if they are not willing to budge on the price of the home, throw this on the table immediately. Closing costs are typically two to five percent of the mortgage amount, so you could be walking away from the table with as much as $25,000 on a $500,000 home.
If the home is not complete, you can also start talking to the builder about upgrading amenities in the home at no cost to close the deal. For instance, upgraded counters, extra pre-wired outlets with internet connections, energy-efficient windows, etc. Everything is on the table here because it never hurts to ask.
Another way to save money is by having the builder buy down your interest rate. This is becoming increasingly popular as a way for builders to keep their buying price intact while still saving the buyer money over the loan.