Does a custom builder have leverage if... (cul-de-sac, sales)

[eagle]

Does a custom builder have leverage if they own a lot that we buy and we must go with them? I know some communities may have a few builders to select from, but would think this would still be the case as they probably would not compete against each other too much (so they all make good profits). My question - it seems to me the builders would have a lot of leverage against me in terms of pricing. Is this the case? In other words, if I am locked into a lot and I must go with with the builder that owns that lot, they could charge me much more vs. say bringing my own builder.

[PDXmom]

Originally Posted by eagle

Does a custom builder have leverage if they own a lot that we buy and we must go with them? I know some communities may have a few builders to select from, but would think this would still be the case as they probably would not compete against each other too much (so they all make good profits). My question - it seems to me the builders would have a lot of leverage against me in terms of pricing. Is this the case? In other words, if I am locked into a lot and I must go with with the builder that owns that lot, they could charge me much more vs. say bringing my own builder.

I am no expert. However, my sister was in your situation. They found a lot that they liked in Chatam Co but wanted to use a different builder. The custom builder who initially owned the lot sold it to my sister's preferred builder who then built a home for my sister & hubby. Now I don't know if they were better off with pricing... but I do know they got the home and builder that they wanted. Good luck!

[VickiR]

Most of the developers have a group of builders for their neighborhood. Thus, they won't allow you to bring in a different builder...usually. It never hurts to ask.

Sometimes the builders in the neighborhood have already chosen a lot. If you choose a lot but don't want that builder, most of the time they'll switch with each other but only the builders in that group.

Vicki

[Johnhw2]

Originally Posted by VickiR

Most of the developers have a group of builders for their neighborhood. Thus, they won't allow you to bring in a different builder...usually. It never hurts to ask.

Sometimes the builders in the neighborhood have already chosen a lot. If you choose a lot but don't want that builder, most of the time they'll switch with each other but only the builders in that group.

Vicki

It's not rare for there to be a side agreement between the developer and home builder to pay the developer a fee as a % of home price like a realtor who sold the lot might get.

[Funky Chicken]

Originally Posted by eagle

Does a custom builder have leverage if they own a lot that we buy and we must go with them? I know some communities may have a few builders to select from, but would think this would still be the case as they probably would not compete against each other too much (so they all make good profits). My question - it seems to me the builders would have a lot of leverage against me in terms of pricing. Is this the case? In other words, if I am locked into a lot and I must go with with the builder that owns that lot, they could charge me much more vs. say bringing my own builder.

Right now there is a shortage of custom lots in favored locations/zipcodes. Not being willing to sell the lot to you or to the builder of your choice is their decision as the owner of that lot.

Builders don't buy specific lots to extort higher prices from clients. They DO buy specific lots with the endgame of building the right home for that lot and getting as much for it as is reasonably possible given many variables-the market, mortgage rates, the rate of sellthru in the neighborhood, how many spec homes thay may be carrying at that time, plus many more things they don't have full control over.

There is the element of timing involved. If you wanted that lot badly enough you could/would have been in touch with the onsite sales team before the lots were released. The builder may have had a specific client or plan in mind for that lot before he ever bought it. The lots may have been doled out in a lottery between the builder team in a neighborhood. Sometimes a builder gets "stuck" with a white elephant lot in exchange for being awarded the heavily treed lot at the end of the cul-de-sac. Are you looking at a premium lot? If so, you can't blame the builder for expecting to finish what he started. Are you looking at a compromised lot? If so, the builder may be willing to release it or trade lots with another builder within the "team".


Most neighborhoods within any town limit won't let you arbitrarily bring in just any builder. You don't get to put up a home that might alter the overall appearance of the streetscape or potentially pull down comps because of lower build quality.

Most custom neighborhoods have a parity of builder quality built in. You may end up with a preference based on a specific plan you have seen or the vibe you get from meeting a specific builder, but it's not like there are any wild swings in quality or price per square foot in any homogeneous custom neighborhood that I can think of.

[VickiR]

Originally Posted by Johnhw2

It's not rare for there to be a side agreement between the developer and home builder to pay the developer a fee as a % of home price like a realtor who sold the lot might get.

Although this thread was started years ago, it is still relevant.

Developers typically get 1% back from builders. There are usually other fees involved but this is 1% that they get back on the sale of each home. It is known.

Another reason why if a buyer thinks they are saving money when buying new construction, without a buyer's agent, it just isn't so.