Negotiating New Construction: Tips Builders DON'T Want You to Know
Don’t be afraid to negotiate with the builder. Often people feel like they can’t ask for anything when buying a new house. And it’s true, many builders won’t budge on the sales price. But many will negotiate other aspects of the home buying process.
At Felix, we take the time to vet the top builders in the industry. We know what is typical during the negotiation process with builders. We’ve compiled a guide for you to use while putting together your offer.
- You may not be able to get a builder to budge on sales price because they want to keep the average price high in subdivisions they are actively building in.
- You can negotiate on upgrades, warranties, contingencies, and other fees related to closing costs.
- A builder is most willing to negotiate on houses that are already built and near their financial year-end.
- Use Felix as your buyer's agent and get up to 1% off the sales price via our Buyer Savings Program.
What Are The Advantages Of Buying New Construction?
Don’t be afraid of the new construction house price tag. These brand new houses pack a lot in for the price. You get a brand new house that you often get to customize depending on the type of new construction house you buy. New houses are lower maintenance and more energy efficient, and the savings that come from that increase over time.
Can You Negotiate A Lower Price On A New Construction Home?
You can’t always negotiate a lower price on a new construction home. It’s not in the builder’s best interest since the sales prices become public knowledge once the house closes. If a builder negotiates on the base price, then future buyers will also try to negotiate the sales price.
It doesn’t mean you can’t try. In areas with a higher supply of houses compared to demand, you may find new home builders who are more likely to negotiate on home price.
However, you will succeed more when you try to negotiate closing costs and other credits. We’ll break down the areas you are most able to negotiate for your new home construction.
Can you submit a counter offer on a new construction home?
You can submit counter offers with the builder if both parties want to go back and forth. Make sure your counter offer is reasonable by using a real estate agent with experience in new construction homes. 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.
Before You Start Negotiations, Hire An Experienced Realtor
Before you begin negotiations with the builder, choose a Realtor who has experience with new construction houses. Many of these Realtors will have the added certification of Certified New Home Specialist. At Felix, we've worked with builders across Middle Tennessee and are happy to be a resource.
An experienced buyer‘s agent will know what builders will budge on when negotiating your home purchase. They may have even dealt with that particular builder in the past. Realtors specializing in new construction homes understand what is or isn’t a good deal. Aside from helping you negotiate the best deal, they will also guide homeowners through the new home construction process.
We’ll walk you through typical upgrades, discounts, and contingencies you can negotiate with builders.
Can You Negotiate Free Upgrades On A New Construction House?
You have the most negotiating power when it comes to builder upgrades. Here are the places we recommend asking for a deal from your builder.
Waive the lot premium
Not all lots are created equal, at least not according to your builder. Your builder will attach a premium fee to lots considered more desirable. Desirable features include privacy, trees, views, and a corner location. You can ask your builder to waive this fee while negotiating.
You can negotiate on your appliance credit. Here are a few places where you can get more from your appliance credit:
- Refrigerator: Most brand new homes don’t come included with refrigerators– you can ask for one.
- Washer and Dryer: Similar to refrigerators, most new construction homes do not come with a washer and dryer. Ask your builder to include one in the purchase price.
- Water heater: Upgrade from a traditional water heater to a tankless one.
- Stove: While construction is happening, it’s the perfect time to switch from electric to gas.
- Appliance upgrade: Get upgraded versions of appliances you already receive, like the built-in microwave or adding a double oven.
Some builders provide you with a stipend called a lighting credit. You can spend it where it makes sense to you. But you can get more money added to your lighting credit if you know how to negotiate. With additional lighting credit money, you can add more ceiling lights, extra electrical outlets, upgraded light fixtures, under cabinet lighting, landscape lighting, and more. Plus, it’s easier to add these features during the building process.
Check with your builder to find out what comes standard. It’s typical to get minimal landscaping and seed-and-straw instead of sod. You can negotiate for more. Try going for sod in place of seed and straw for your law. Then consider more plants, flowers, and shrubs next. You may even have success negotiating for an irrigation system if one does not come included in the sales price.
Upgraded home elevation
House elevation refers to the design of the exterior of the house. Home elevation upgrades include decks, porches, additional windows, and more premium materials. Upgraded materials include brick and stone instead of vinyl siding. You can even negotiate for more hose bibs if that’s high on your priority list. We recommend negotiating additional windows as this will greatly impact the natural light entering the home’s interior.
Upgraded interior features
Interior features account for the largest percentage of cost when building a house. That’s because there are a lot of interior features to consider. This would be a great place to ask for upgrades because you can put money towards things like additional electrical outlets, upgraded cabinets, better countertops, premium hardware, more bathroom tiling, upgraded flooring, window coverings, and smart home features. The options are endless, and this is where you can customize your house to make it yours.
Additional finished square footage
Many homes come with unfinished square footage. These are potential living spaces like bonus rooms and basements that the builder doesn’t finish as part of the base package. You can negotiate the finishing of these spaces. The added square footage will immediately affect the value of your home, and you will appreciate the improved floor plan.
Extended home warranty
Warranties give you peace of mind. You're not left high and dry if something goes wrong in the first few years of homeownership. Getting a one-year builder warranty is typical, but you can negotiate more. Negotiate for an extended warranty such as a 1-2-10 home warranty.
Can You Negotiate Reduced Closing Costs When Buying A New Construction Home?
You can save a lot of money on closing costs if you negotiate right. Some of these savings come from other parties besides the builder. So consider these fees as you negotiate.
It’s always wise to shop around for the right mortgage rate. You have to get the best deal for your situation.
But don’t rule out using the builder’s preferred lender. This is a mortgage lender that the builder has partnered with, and they may offer a discount or credit if you use this lender. Preferred lenders usually offer competitive rates, and the incentives can make choosing them worth it. In many cases, a preferred lender may be willing to provide a credit in the amount of $5,000 - $10,000, which can be applied towards your closing costs.
Like a builder’s preferred lender, the builder may also have a preferred closing agent who works with the title insurance company. The preferred closing agent may offer to pay the cost of title insurance, which typically costs a few thousand dollars.
Extended rate lock
You don’t always know your exact closing date when you buy a new build. It can be challenging to secure a rate lock for more than 90-days, and your mortgage rate can go up before you close on your house.
You can secure a rate lock from the lender to protect yourself against rising interest rates during the buildout. Many lenders will only do a 90-day rate lock, but some, such as the builder’s preferred lender, may offer up to 180-days. You can also negotiate a float-down provision which allows you to get a lower rate should they decrease during the rate lock period. You can save a lot of money in the long run by having the best possible interest rate for your mortgage.
Prepaid HOA dues
You can ask your builder to prepay HOA fees. It is something worth asking for if your community has high monthly dues. Many HOAs will also charge transfer fees and working capital contributions. Ask your builder to pay these on your behalf.
General credit towards closing costs
It is common in negotiation to ask the seller to pay for closing costs. This credit can come from the builder, preferred lender, or closing agent for a new construction house. You can even ask all three parties. This can really help when you’re handing over money for your down payment. Be sure to read the builder’s purchase agreement carefully. Some builder contracts stipulate that you must use their preferred lender and closing agent to be eligible for any credits towards your closing costs.
Can You Negotiate More Buyer Contingencies In The Builder’s Purchase Agreement?
A contingency is a clause you and your builder agree to in your purchase agreement. It states that a requirement must be met for the sale to be legally enforceable. The builder and buyer both need to agree to the contingencies. You can negotiate additional contingencies into your purchase agreement.
Home inspection contingency
An inspection contingency states that a buyer has a right to conduct an inspection, and the builder must fix issues found during the inspection. Make sure to include all inspections that you would like to have in your purchase agreement. This includes the general, blue tape, septic, termite, and even radon inspections.
A financing contingency is also known as a loan or mortgage contingency. A financing contingency allows buyers to back out if they cannot secure financing. This contingency is helpful if you suffer an unexpected financial loss during the construction process.
An appraisal contingency allows the potential buyer to get out of a real estate transaction if the property appraises below what you agreed to pay. An appraisal contingency is helpful in volatile markets, especially if you think you overpaid for the house. If the appraisal value comes in lower than the asking price, you will have an opportunity to negotiate a new price with the builder or walk away from the contract.
Sale of home contingency
Are you worried about selling your current home and timing it right with the completion of your new construction home? You can wait on selling your house if you put a sale of home contingency into your contract. This allows you to wait longer to sell your home. If you don’t sell your home, you can walk away from your commitment to purchase the new home.
Price escalation clause
A price escalation clause isn’t technically a contingency clause, but it is still something you should include in your formal agreement to protect yourself. A price escalation clause says that in the event of materials or labor increasing in cost, you don’t pay more for the house. The builder takes on this extra cost. In today’s world, we see a lot of supply chain issues, so this addition is key to any new construction house negotiation.
When Is The Best Time To Negotiate On A New Build House?
Many real estate markets see slowdowns at the end of the year. If there is a time of the year to find a deal, this may be it. There are a few reasons for this slowdown. First, many people opt to move during the summer, so they do not disrupt their children’s school schedule. Second, it’s harder to build in many areas of the country during the winter.
But the best reason to buy at the end of the year is that builders are approaching their financial year-end. They will be more willing to make deals to reach year-end goals. So if you have flexibility, this may be the best time for negotiating with a builder.
How Much Should You Negotiate On A New Construction Home?
It depends on the market and local conditions. This is where relying on a local real estate agent can really pay off. The market favors the builder or seller in many parts of the country. That’s because more people want to buy a house than houses available for sale. It becomes a simple supply and demand issue.
So before you go into any negotiation, think realistically about market conditions and the home's value. Ask yourself, “is it a buyer’s or seller’s market?”
How To Determine If A Builder Is Open To Negotiation
Your Realtor will have a much better sense of how far to push negotiations. They will know how much negotiation is typical and work on your behalf to get the best deal. Better yet, the builder pays your agent’s commission so it is not an expense you have to worry about.
Tips And Strategies For Builder Negotiation For New Construction Houses
How can you ask for something during a negotiation if you don’t know what’s on the table? Our biggest tip is to educate yourself on what you can potentially ask for during bargaining. (We’ve outlined many of the major places to negotiate above.) After doing this, consider some of these tips before submitting your offer.
- Understand the cost of building a house. There is only so much a builder will say yes to before it cuts into their profits.
- Understand the local real estate market. Is it a buyer’s market or a seller’s market? This will affect who has the upper hand.
- Research builders before starting negotiations. Not only is it essential to choose a reputable builder, but you may gain insight into what others were able to ask for during negotiations.
- Go for houses that are already complete. Builders are more eager to sell completed houses and more likely to negotiate.
- The first few homes in a new development are always cheaper. You may have to put up with construction noise, but getting in early could be well worth it.
- Wait for the end of the year when builders are more desperate to reach sales quotas.
- Get everything in writing as you negotiate.
- It’s ok to walk away if you feel you’re not getting the right deal.
- Work with an experienced Realtor who knows the norms of your market and can negotiate on your behalf.
Most importantly, be realistic. You’re not going to get a dramatically lower price point on the house through negotiations. But you will succeed in getting additional builder credits, helpful contingencies, longer warranties, and closing costs covered. These add up to significant savings.
Get More Out Of Your Deal With Felix
Your home is a long-term commitment. Make sure you get what you want from the builder. Next time you’re browsing model homes, don’t take what the builder’s sales agent says at face value. You can get more out of your deal with Felix. We help buyers find the perfect builder whether you’re interested in a spec house or fully custom home.
When you sign up for Felix, we will guide you in the right direction. We will help you find the perfect builder from our vetted builder database. Felix will walk you through the negotiation process so that you’re able to get the best deal possible.