I get this question all the time: How firm are the prices of new home upgrades? The short answer is that prices of new home upgrades are not very firm at all for the most part. Most home builders expect to haggle over upgrades. That’s why they want to talk about upgrades so much. If you notice most builders talk a lot more about carpet and refrigerators than they do lumber and concrete. Why? Because they cannot offer a lesser quality of lumber or concrete, or at least they shouldn’t. In most cases, cosmetic upgrade obsessed builders will use the cheapest lumber that passes code. That’s why they’d rather discuss cosmetic upgrades than building materials. Many of the bigger builders use upgrades as a distraction to avoid discussing what is really important. They hope you will not notice the language of the contract, or ask about the quality of actual building materials.
It has become a trend among the largest of the home builders to offer free upgrades in exchange for using their lender. This may not be advantageous to you at all. It could be that you will pay tens of thousands of dollars in extra interest and points, for a better refrigerator, when you could have simply bought one for about a thousand dollars. Do not fall for this scam. Use your own lender unless you have shopped around first, and the builder’s lender offers a better deal than anyone else.
Not surprisingly the same builders who hold upgrades over customer’s heads, to get them to sign with their lender, are the very same ones who slip arbitration clauses into their contracts, and then ignore warranty claims. A contract with an arbitration clause effectively relieves the legal obligation for customer satisfaction. Do not ever sign one. Read the contract and have your attorney read it as well, before you sign, no matter how much the salesman wants to push you to sign while talking about carpet and refrigerators.
Home buyers should take upgrades with a grain of salt. Generally most upgrades are cosmetic. They are what home builders call shiny stuff. Home builders use upgrades as a sales technique, to engage the buyer, discuss something they both know about, and give the impression the home buyer is getting a bargain. It’s a bit like a carnival game, where you give the game hawker ten dollars trying to win a two dollar toy. Then you get so distracted, by trying to upgrade to a fifteen dollar teddy bear, that you loose sight of the fact you just spent a hundred dollars, and an hour of time on baseball throws. At least that is what they hope you will do. Most people will be very proud of their hundred dollar teddy bear, and most home buyers feel like they really accomplished something to get all those cosmetic upgrades on a home without a single discussion of the actual house, or its true value or structure.
Most upgrades are merely used as a distraction or diversion, which takes attention away from the real issue. You are not just buying appliances, and carpets, you are buying a home, the least important aspects of which are the appliances and floor coverings. If the home builder is talking about better rugs, remember that you will be replacing carpets in about five or ten years anyway. This event may come sooner with cheap carpet, but not necessarily. At any rate this isn’t really worth discussing compared to the structure of the house.
The main up grades you need to be interested in are the ones having to do with structure, energy efficiency and insulation. If they offer an upgrade for a better R-value, take it. Upgrades involving heavier lumber are also important. Some companies offer a choice of two by four or two by six wall studs. Take the two by sixes even though you will pay more. They may also offer a choice between two by eight, two by ten, and two by twelve floor joists. Take the largest strongest floor joists they offer. The joists will be there long after the carpet has gone.
In today’s market most home builders are eager to make a sale. Many small home building companies are struggling, and some have gone bankrupt waiting for potential home buyers like you to walk through their office doors. Companies with long histories and great reputations are experiencing major financial problems, right along with their less adept competitors. Once you have walked into their door, no contractor wants you to walk out without striking a deal.
Even one of the big 10 national home builders recently went bankrupt. Ironically that home builder was also the J.D. Powers award winner for customer satisfaction. Being great home builders and offering perfect customer service is no longer a guarantee against the severe economic distress which plagues the housing market in many areas.
The fact is that most home buyers do not do their homework, and do not choose the best builders. Don’t be one of those buyers. If you are discussing upgrades with a builder, make sure the company has an impeccable reputation, and that you are not being distracted into signing something you shouldn’t with a company you should not be doing business with. There are many good and honorable builders. There are even builders who don’t keep bringing up the upgrades, and are able to discuss real construction. They will do so proudly, if you ask. There are builders who have built homes in your area for ten, twenty, or even 50 years, with generations of experience. They will talk to you about houses, not shiny stuff. Find one of those kinds of builders.
To answer the question though, most builders will be glad to give you a discount on your upgrades, especially if the price is still slightly above cost. As long as they can pay their expenses and make some profit, most builders will cut your costs if you insist. At the same time though, home builders are struggling, and they don’t make huge profits even when they have work, so there is a limit to how much they can cut your bottom line. Still upgrades are a minor consideration in most cases.
Other than the fear of loosing your business, the other incentive is the fact that most upgrades do not involve labor, only a purchase. This is especially true of appliance upgrades. Even with carpet, it costs no more to lay expensive carpet than cheap carpet. As long as they can make the purchase for the same or less money than you are paying for the item, it doesn’t really matter that much to their bottom line. On the other hand they cannot afford to just give away appliances and floor coverings which they have to pay for. It’s only fair that you at least pay the builder’s costs for your upgrades.
In striking a bargain with a builder, be sure to discuss a lot more than upgrades. Do not allow yourself to be drawn into long discussions about upgrading the carpet at the expense of clarity on construction quality and the details of the contract. Don’t agree to an overpriced loan in order to get an upgrade either. It’s simply not worth it. The prices of new home upgrades can be very costly indeed, but not in the way you thought.