How you choose to present yourself when negotiating a new construction home, makes a huge difference in your strategy. The first order of business is to list what you want out of the negotiation and what you do not want. There are several areas of discussion when building a home and only a few of them are related to cost, but cost is one of the major considerations. Here is a list of things to discuss.
Your presence must be welcome on the construction site
Make it clear that you plan to visit the construction site once or twice a week. Make it clear that you will not disrupt the work, and that you will only stay about ten or fifteen minutes on each visit, but that you want to photograph and view the process. Some homebuilders either forbid or discourage their clients from visiting the site, but if you have developed knowledge of what new construction should look like, then your viewings could save you a lot of heartache later on, if the company tries to scrimp on wall studs, or floor joists.
Arbitration clauses forfeit your right to sue, no matter how terrible your new home may turn out. Do not ever sign an arbitration clause. Have your attorney look over the contract, looking for arbitration clauses and other language that may be harmful to your position before you sign.
Many home builders and contractors want to choose the appraiser. The appraiser however is your last chance figure to verify that your home is worth the price charged for it. It is best if this person is not in any way prejudiced towards the builder. If the home does not appear to be worth the price, then the home builder has to drop the price to meet the actual value of the home. This is not a desirable situation however, because it means something is wrong with the house that makes it less valuable than one would expect. If this is the case then you have the right to know and be compensated. The bank will in fact not lend more than the value of the home, and the builder can charge no more than the appraised value.
Many builders want you to use their lender. There could be many reasons why a builder would prefer one builder over another, but some of those reasons may include a pay off or kickback. Other times the lender may appreciate their style of building. For example many log home builders prefer their lender because the lender often handles their loans and understands the value of log home building. Other lenders may not approve loans for this type of construction. The same may be true of other various non-standard or green constructions. Home builders also frequently find lenders that are less selective about past credit for an extra point of interest. If you have credit problems, you may choose to go with this lender, but if not you can get a better deal elsewhere. It is not always a bad idea to go with their lender, but do not give up the right to consider their rates and compare lenders fairly.
Most homebuilders offer a home warranty. Home warranties are generally for either five or ten years. Some home warranties are based on the ability of the builder, and a homebuilder or contractor must have a flawless record to offer such a warranty. These warranties are like gold because a prestigious warrantor who bases their warranty on risks, is willing to bet that you have no problems with your home, but if you do they pay eagerly in order to protect their spotless reputation. Other warranties are easily obtained by all sorts of builders. It is important to check the reputation of the warranty company in order to assess how good your builder is, and also to establish how easy or how difficult it is to get paid if there are problems. Sometimes home builders warranty their own properties. In this case it means that you have to trust that builder even more, to make good on claims.
Some builders routinely build shells. These builders come in and build the basic structure and leave the buyer to finish the dry wall, hire a plumber and electrician, install cabinetry and do all the rest by themselves or with the help of family, friends or hired workers. Other builders will be willing to leave at any pre-arranged point during the construction process. Leaving you to paint, install wallpaper and lay carpet. Most carpet dealers do not charge for installation anyway, so often it is better to at least complete the last stages yourself. It makes a lot more sense than the common scenario where new home owners agree to cheap carpets, only to rip them out immediately after closing. That’s just a waste, so why not negotiate to install your own carpets to begin with. Some builders however do not offer this option, and insist on completing everything.
How much you will pay is generally determined by a computer generated quote, however if the builder sees that you are ever so close to qualifying for the home of your dreams, but not quite he may drop the price just a bit, absorbing some of the cost out of his own profits. You could also suggest that you could lay your own carpets or paint or finish your own hardwood floors. Or you could ask him about ways to save money by, for example reducing the square footage, or simply saying, “How can we reduce the cost of this home?” If you say this humbly he may tell you something like, “The bathrooms could be placed closer to the kitchen to reduce plumbing costs,” or “by only placing hardwood in the living room, and carpeting the bedrooms you can save a few thousand dollars.” Since home builders and contractors know exactly how much each thing costs, he may be able to create significant savings for you. This is one of the advantages of using a small and honest quality homebuilding company.
The cost of upgrades is a major point of contention with many homebuyers who want to use larger builders, who control certain prestigious communities. It is a contention however, because the homebuilders want you to focus on upgrades. Being concerned with upgrades plays right into the builder’s hand. The best way to negotiate is to know what you want, and be willing to walk out if they won’t make it happen. Although there are many builders who use upgrades as a way to customize and allow selections, a few builders use them as a sales technique. These builders build a model home which has all the possible upgrades, and then tell prospective buyers a price that only includes the lowest priced selections possible. It is incongruous, and this incongruity is deliberate. It is a lot like the illegal practice of bait and switch, but with a few loopholes that protect them from legal problems. The intent however is the same. My advice would be to avoid homebuilders who try to trick you into spending more money, but I know that these builders control communities that can be irresistible to some people. In that case, decide which upgrades are most important to you. One important thing to remember is that while carpets and paint come and go, studs and insulation are forever, or it should be. Choose structural upgrades, and pay less attention to cosmetic ones.
The most important thing about negotiating is to remember that you are the customer. Some first time homebuyers are obviously intimidated by the salesmen of certain homebuilders. No one wants you to be intimidated, least of all the owners of the company. Remember the roles of the various actors in this drama. You are the customer, and that means you are the boss, and the builder is the expert. The salesman is a salesman trying to close a sale. Your real business however is with the people who will do the work of building the home. Your deal will be struck with the salesman, but he only wants a commission. He gets more commission for selling upgrades, so he’s going to push those. Deep down though, he really just wants to make a sale. Use your people skills to get him to cut the sales pitch and work with you on how to make this house affordable and still get what you want. If he doesn’t have the authority to cut the price, which is often the case, get him to ask his superiors about giving you certain free upgrades or other offers.
In the offices of smaller homebuilders and contractors you will deal directly with the homebuilder who will build your home. He and his very small company will be responsible for overseeing the job from start to finish. This man really knows what it takes to build a home. These sorts of builders are generally much more flexible and easy to work with than major corporations.
No matter who you are dealing with though, do not be intimidated, and stick up for what you want and need. It is important to listen carefully to others, but it is also important to be firm about protecting your rights as a buyer. It’s no time to get passive or aggressive. It is time to be honest about what you expect, firm about what you want and transparent about what you can afford, and what you are willing to pay. These three things should be foremost in your negotiation strategy. For more information about negotiating a new construction homeread our many articles on home building and download our 98 page free home building book.