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Has anyone had any experience negotiating the base price of building a new home? If so, what percentage were you able to get off and with what builder? Thanking you in advance!!!
It all depends on many variables. Primarily what market you are looking to build in. The Houston market is still doing pretty well in relation to most of the US, but deffinately not as good as the past few years. Also it depends on the demand of the builder. If the builder is super busy, and in high demand he's less likely to discount....basic supply and demand. Fortunately there are many builders in the Houston area, and the market is deffinately good for negotiating. If the builder is an average builder who is feeling some effects of the market then I would offer him sometimes up to 15 or 20% below the price per square foot rate. Keep in mind many individuals in the Real Estate business are seemingly trying to ignore that the market is taking a hit, or flat out lieing and saying that the market is great here, and not in other areas. While I agree it has not hit the low of other states it is still being effected. For example if the builder is telling you he will build a home for $115 per sqft. try to offer him around $100. He will probably counter you, and declare that you are out of your mind, but give it a try. Many of the builders out there are looking for work, and it may only take a little shopping around. If they are not hesitant at all beware though that they are corner cutters. Get all the details in paper, and make sure you have some oversight.
I agree with everything TX AGGY said except for one thing. The % to offer.
First off are you talking a new tract home or a new spot custom home? In a tract home if it is standing inventory then yes you can make an offer simular to what TX AGGY suggests. If you want that one specific lot in the cul-de-sac in the next phrase then no the builder will not discount. What he may and probably will do is give you some free options like a whole appliance package or upgraded carpets and cabinets. But no, builders will not discount the set price on a to be built home. Even in this market.
A large builder needs to make say $20,000 to build a home. If he cant then he would just as well not build and lay people off. For smaller builders they may chose to build with a smaller profit margin just to keep their employees employed. The large builder could care less about their employees.
Spot custom builders your question is impossible to answer since they only build one home at a time and rarely build the same home twice in their careers. What you can try with this type of builder is to offer cost plus. So once you all agree on the home you want. The builder will give you a pretty good but not perfect estimate, then if you like that price range, he builds. You will pay the builder their exact cost plus say 10 to 15% of that cost as his profit margin. If your home cost the builder $100,000 to build then you pay the builder $115,000. This is a win win for everyone involved. This takes the risk from the builder from overruns and takes the incentive from the buyer of complaining about nothing just to get more.
Just a note to folks for custom building. Cost+ is a good way to maintain control of your house price and not feel scammed, however, if you build for cost+ you probably are overpaying. Most custom builders in the Houston area, especially in the suburbs, make less than 10% on a house, usually closer to 5-7% (many times they make less than the realtor fees), so if you pay cost plus 10-15%, you can FEEL like you won't get cheated, but you are probably paying more than if you just let a builder quote you a price and you negotiated.
Most well established custom builders will be able to quote you to within a couple thousand what it will cost to build a house and if he goes over his cost, he eats it, if he stays under, then he gets a little gravy, this keeps costs down overall. If you cost+ the builder has no problem trying to keep costs down and they tend to inflate over time, not because he's scamming you, but he's not trying as hard either. The way most contract-to-builds work is there is an agreed upon price for the basics of the house after you draw a plan, and then you as the customer, has "allowances" to make all of your selections as you build. Save money one place you can spend it elsewhere, go over, and you write a bigger check at closing. It helps keep YOU and the builder in budget and not go overboard.
I bought an imperial home inventory new construction, fully upgraded (3 fireplaces, hardwoods, granite grade I in kitchen,master bath, balcony and wrap around porch looking over the lake, lakefront in the Canyon Gate Park Lakes subdivision, 3800 sq ft. Listed 392,000, we closed at 340,000K, no closing costs except for basic prepaids (3 month property tax), they threw in sprinkler system, paid for HOA and bundle package for comcast for 2009. Wasn't going to do it to I did some research and compared it to similar tracts in summerwood, fall creek, and eagle springs and the same type of house,lot, upgrades were between 400-450K, still wasn't going to do it (worried about Humble schools) but then I researched and realized my kids are going to be zoned to the new Summercreek HS. I closed on Dec 29,2008. Hope that helps.
If you want a shot at getting a builder to come down on the base price you need to find someone who does not have a large inventory of spec. homes. If they have lots of specs built out then they do not budge on base price for a build job. This is because they need to move the spec home. Right now you can get awesome deals on spec homes in large part due to taxes coming due. If you want to swing a great deal find a spec home you like.
Most of the builders are offering large BTSAs which are basically bonuses to a real estate agent for selling the home. I am a real estate agent here in Houston and I am offering between 2-5% rebates if someone buys a spec home through me. The percentage is based on what the builder is offering for compensation. I am very open about what they are offering and willing to share it with the buyer since I think the BTSA is their money.
If you want a shot at getting a builder to come down on the base price you need to find someone who does not have a large inventory of spec. homes. If they have lots of specs built out then they do not budge on base price for a build job. This is because they need to move the spec home. Right now you can get awesome deals on spec homes in large part due to taxes coming due. If you want to swing a great deal find a spec home you like.
Most of the builders are offering large BTSAs which are basically bonuses to a real estate agent for selling the home. I am a real estate agent here in Houston and I am offering between 2-5% rebates if someone buys a spec home through me. The percentage is based on what the builder is offering for compensation. I am very open about what they are offering and willing to share it with the buyer since I think the BTSA is their money.
I assume you unintentionally said that wrong. Realtors know better then that. Im sure you meant to say if a builder has a large standing inventory then they are more likely to drop the price. If a builder has standing inventory then there is no question at all he will drop the price. Why would he play hard ball while he is stuck paying the carrying costs on that standing inventory? Of course they drop the price.
The very fact that the builder is offering you bonuses suggests desperation that they must dispose of standing inventory very fast.
Just a note to folks for custom building. Cost+ is a good way to maintain control of your house price and not feel scammed, however, if you build for cost+ you probably are overpaying. Most custom builders in the Houston area, especially in the suburbs, make less than 10% on a house, usually closer to 5-7% (many times they make less than the realtor fees), so if you pay cost plus 10-15%, you can FEEL like you won't get cheated, but you are probably paying more than if you just let a builder quote you a price and you negotiated.
Most well established custom builders will be able to quote you to within a couple thousand what it will cost to build a house and if he goes over his cost, he eats it, if he stays under, then he gets a little gravy, this keeps costs down overall. If you cost+ the builder has no problem trying to keep costs down and they tend to inflate over time, not because he's scamming you, but he's not trying as hard either. The way most contract-to-builds work is there is an agreed upon price for the basics of the house after you draw a plan, and then you as the customer, has "allowances" to make all of your selections as you build. Save money one place you can spend it elsewhere, go over, and you write a bigger check at closing. It helps keep YOU and the builder in budget and not go overboard.
Dont underestimate what the builders are making. Your 10% suggestion for a builders profit margin is pretty dead on with large tracts where there is only 3 to 5 models. With just these models that the builder builds over and over and over again they have developed a take off list that is pretty much to the dime. A take off list is a list of every single piece of material and fixed negotiated labor costs to build that house. The very fact that the builder knows his cost up front allows them to set the profit margin at just 10%.
Custom builders might have a markup of 25% over cost. Do you think a spot builder that might build perhaps 2 to 6 homes a year can survive on a 10% profit margin? If you were a builder, would you build a $200,000 home that takes 6 months or more for a mesly $20,000 profit? No one can stay in business very long like that. A tract builder who builds 1000 homes can thrive on 10% of 1000 homes.
Condo and townhomebuilders make much much more. One tract of condos that I contracted with to supply my product for, the builder told me those 5 unit buildings they are building, once they sell the first 3, the last 2 are pure profit. Those end units that people snap up first cost really nothing extra to the builder yet all builders charge a $10,000 and up premium for that end unit.
I assume you unintentionally said that wrong. Realtors know better then that. Im sure you meant to say if a builder has a large standing inventory then they are more likely to drop the price. If a builder has standing inventory then there is no question at all he will drop the price. Why would he play hard ball while he is stuck paying the carrying costs on that standing inventory? Of course they drop the price.
The very fact that the builder is offering you bonuses suggests desperation that they must dispose of standing inventory very fast.
I think you miss understood me. The reason the builders do not budge on the base price when they have a large inventory of spec homes is that they have limited funds to start new builds and so push their specs. If they were to drop pricing on new builds they would first of all make less on the new build. Second they would loose a possible buyer for their specs. Third they would have more money tied up at the very time they need cash the most. This is why they are less likely to deal when it comes to base price when they have alot of specs.
I think you miss understood me. The reason the builders do not budge on the base price when they have a large inventory of spec homes is that they have limited funds to start new builds and so push their specs. If they were to drop pricing on new builds they would first of all make less on the new build. Second they would loose a possible buyer for their specs. Third they would have more money tied up at the very time they need cash the most. This is why they are less likely to deal when it comes to base price when they have alot of specs.
I trust your word but Im sorry. I been building for 27 years and I never heard of such a thing. That is just nuts. Is your builder one of the few who bit the dust this year?
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