How to Get The Best Deals with New Home Construction!

Buying a new home is scary already and trying to make sure you get the best deal can be hard to figure out if you don't know what the best deal looks like! If you've read my other story, "Tips for Your First Time Homebuyer - Things You Should Know Before You Buy!", then you know that deciding on new construction means you're deciding on a long term living situation.

The problem with this is, new construction is not like resale in the fact that you cannot really "negotiate". Whether you have a realtor or not, new construction companies have shareholders and/or must hit certain profit margins to maintain business. Many times, not hitting these margins can cause them to panic and raise prices. Nobody wants that, but in some situations, it is a necessary evil (that is a subject for a different time).

With resale, it is a private owner (usually), and they can make whatever decisions about their home that they want. This gives them the freedom to choose credits, price changes and accept offers (if they want to). This also gives them the freedom to choose higher bidders than you, even in the contract process (again, another topic for another day).

Knowing that you will have limited to no ability to negotiate allows you to be at an advantage. Even though you cannot strong arm a builder, you can still rest assured that once you make the decision to buy, you don’t have to worry about losing it unless YOU decide to walk away.

So how do you make sure you are getting the BEST deal possible?

A realtor is nice in new construction because they can set an appointment for you, but all new construction companies hire sales reps that are licensed in real estate so that they can be your agent for you. This makes a realtor, pretty much useless, throughout the grand scheme of the interaction.

The sales rep’s job is to help you locate the best community, home style, price point and lender for your new home. They are required to walk you through the entire process. Because of this, builders are starting to pay realtors less and less. Why pay a realtor when they are already paying the sales rep to do the realtors’ job? To a builder and their shareholders, this doesn’t make financial sense.

So how can you use this to your advantage?

Most incentives for a builder are based around closing costs, HOA, and/or options. Many builders will avoid option incentives if they can because they make the largest profit on them. Paid HOA is not going to be quite as common depending on the community. If there is a $500 a month HOA, you are most likely not going to see that deal on the table, but a $100-$200 HOA could see some incentive tied to it. The most common and easily acquired incentive is based around closing costs.

Closing costs are the price of the loan itself. So, it is basically the amount that the lender is going to charge you to create and service (or find a servicer) for your loan. The closing costs are tied to your “Total Cash to Close”, or the total amount of money you will have to spend to get the keys to your new home.

Any time I have seen a builder offer an incentive it is almost always in the form of closing costs. The more closing costs you can get, the more you can distribute them as desired. For example, let us say your total cash to close is $19,500 and broken down as the following:

$8,000 [down payment]

$3,000 [pre-paids]

$8,000 [closing costs]

$500 [appraisal]

In this scenario, if the builder was offering you all closing costs paid, that would be awesome! The only problem would be that there is still quite a bit of money on the table that can still be covered.

Although the builder is not allowed to cover the down payment [that must come from you], they can cover pre-paids and HOA as well as the closing costs! This means that even though you are only coming to the table with $11,500, you could be coming to the table with only $8,500 and your first two years of HOA paid! The true question is how do I make this happen?

Cash Back Realty is by far one of the best examples in making this a reality.

They offer a realtor AND a realtor credit which means if your home is going to cost you $400,000 and the builder is paying the realtor 3%, they would be paying the realtor $12,000 to JUST be on the deal.

With Cash Back Realty, the realtor would immediately turn around and send a Realtor Credit Letter to your loan officer letting them know that they are ONLY going to be keeping, $2,000 (0.5% of the 3%), while offering $10,000 of it to you in the form of a credit.

Imagine getting back an additional $7,000 (after covering pre-paids) to cover HOA or be provided back to you at closing? How amazing would it be to spend almost nothing to buy your home and then turn around and get furniture with the leftover money! Can anyone say, YES PLEASE!

A realtor credit is always a benefit so do your best to find a realtor who can offer one, or register with Cash Back Realty and I'm sure they will be able to help!

- Naomi