10 Questions To Ask Before Purchasing a "Discounted" Home - Some Bargains Not as Big as They Sound

You've just found the deal of a lifetime - and can increase your net worth in one easy step.   Quick, honey, grab the checkbook - we've just hit the jackpot!  But have you really?

A home builder advertises they're knocking $38,499 off their price!  Wow - that's amazing!   "Originally" $389,900, this home is now "on sale" for $351,401 - $38,499 instant equity, right?  Be careful - like any slash-rate bargain, you might want to check it out before you go for that deal.

Ask for Comps

If this builder is cutting prices locally to recoup losses in other, more stagnant markets like Florida, Nevada, and California, they may have been running these kinds of promotions for a while, which could be reducing the value of the neighborhood.  Ask the selling agent in the model home how the neighborhood is doing, and they may say "Great!"   Ask them to pull comps. If they give you generalizations or change the subject, call up your friendly neighborhood real estate agent (which won't cost you anything - the builder will be required to share their "selling commission" with them - just let the builder know you're working with an agent) and ask the agent for the comps. 

If comparable homes in the neighborhood, on similar promotions, have been selling for an average of $355,450, that $38,499 "discount" on that home that's originally $389,900 isn't as good a deal as it seems.  Any bank or real estate agent, when valuing the home, will not go to the builder and ask how much that home is worth.  They'll pull the past six months of sales in that neighborhood, and compare.  If the average home with similar features and size sold for $355,450, that's what the house is worth.  Your home is valued at $4,049 more than you paid for it. That's something to consider. But it's not $38,499.

While you're at it, ask your agent to find out if the home you're looking at was ever even listed at $389,900 - and if not, what the actual original list price was.     

Read the Fine Print

Read carefully - way down the page on the other end of that 72 point font headline that's screaming "buy now" is the small disclaimer that narrows down the possibility you'll actually get that discount.

Extra-Quick Closing Dates

An advertisement boasts of several homes available at bargain prices. IF you close by three weeks from today.  Are you ready to buy the house and close in less than three weeks? Is your bank?

Large Down Payments

Some of these incentives require down payments of 5-10%, or require that the loan amount be no greater than $417,000 - the maximum amount for a non-jumbo loan (which has fewer qualification requirements).   Do you have that kind of money on hand?

Mandatory Lenders

What is this going to cost - long term? Many builders have their own lending divisions.  They offer reduced prices on homes - as long as you use their lender.  They may even be able to get it closed in 20 days. But what kind of interest rates are they charging? How fast will that profit be eaten away? Ask about the interest rate. If they tell you, "Everyone goes with our lender - it's so easy and of course they're competitive," ask for details.  Then shop around with at least three other lenders.   On a $349,900 home, even a quarter point difference in interest rate will save you $20,596 over the life of the 30 year loan - which may be several times the amount you think you're saving with their bargain price.  If there is a half point difference between their lender and yours, the difference doubles to a $41,192 savings over the life of the loan! Compare this to what you've saved up front, on that bargain price.  

If you're required to use their lender, check on the overall health of the homebuilder. If something should happen to the company, what happens to your loan?  Is that rate guaranteed?  Is there anything in the contract to ensure that your interest rate won't increase by 1, 2 or even more points?  Is massive home discounting a sign that this builder is struggling to stay in business?   You may want to check out their holdings in other areas - and make sure the incentives that they are offering aren't to shore up a shaky position elsewhere. 

Available Inventory - those "Quick Delivery" Homes

What if you want to choose your own floor plan? Check that fine print - the biggest discounts apply only to completed or nearly-there production homes.  You're stuck with somebody else's upgrades - and the bill for that stuff you may not even want. When a builder says, "select homes, only" what they're really saying is that you don't have any say in the selections - or how much those add-ons cost. Be sure to ask a lot of questions, like: "What's the base price of the home?"  "Can I get a detailed list of the options that have already been added?"  

You may find that the "base price" of the home, in that neighborhood, is $309,290.  To get to the "original" price of $389,900, the builder may start with a "lot premium", of anywhere from $4K to $20K.  Ask which lots don't have "premiums" - you may be surprised to find that every lot has a premium - making it impossible to actually buy a home for the base price!  

Is that $389,900 home really worth more than $80,000 over the base price for that model?  Or are you looking at true market value?  Ask for a pricing addendum - on which you can find a line by line detail of each option added to the base price of the home, and the amount charged for each one.  If you've ever done any remodeling, you may be surprised to find, for instance, that "adding" a microwave costs an extra $449. That upgraded carpet is an extra $7921. Hardwood floors cost an extra $8149.   And then there's a lot of little stuff you wouldn't even notice. You may find that even with all those upgrades, you still have linoleum, basic countertops, and very little trim - a typical tract home.  But you're paying for a whole lot more. Was that list of upgrades really worth the extra $70K, on top of the base price and the lot premium?   Are those upgrades going to recoup their value at resale time?  If you've got more upgrades than the rest of the neighborhood, chances are you won't get that money back when you resell.  You'll probably find that the biggest discounts apply to the homes with the most upgrades - which may be nice, but don't count on the overall value of the home being that much higher. 

Ask plenty of questions

Here's a handy list you can take to the builder, when you're ready to have an incentive's chat.

•1.       Can you give me a list of comps for this neighborhood for the past 6-12 months?

•2.       Do I have to use your lender?

•3.       What is your lender's interest rate? 

•4.       How much will I save over the life of the loan by going with my lender, who can offer a lower interest rate?

•5.       What is the minimum and maximum lot premium?

•6.       What is the base price of the home being promoted?

•7.       Can I have a pricing addendum showing all the options in this home?

•8.       Can I make any further changes to the home?

•9.       What if I don't want to make a 10% down payment?

•10.   How healthy is national home builder XYZ?  Are you at risk due to overbuilding in other markets?  Why are you doing so much discounting?

Serious about buying? Think about taking along a real estate agent. The seller pays their commission - not you - that's the way home sales work.  But the agent will work for YOU and watch out for your interests.  They'll run comps for the neighborhood, as well as let you know about other homes in the same price range.

Remember, there's more to a home than its price. Looking for more space, on acreage? Is the neighborhood in the right location, with the right schools?  Need someone to negotiate closing costs?  Want a second opinion regarding that bargain price? A good agent will work to get you the best home for your money. 

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Articles copyright Stanton Homes 2006-2012.  Unauthorized use is not permitted.  Provided for informational purposes only, no claims are made by Stanton Homes regarding the validity of any statements.  Please note:  all listing information per MLS, and current as of posting date.  Information subject to change.  Stanton Homes does not make claims to ownership of  any lot listings, but can work with homebuyers to purchase available lots and build.  Home plans to be approved on an individual basis, subject to neighborhood restrictive covenants and lot restrictions.  Ask for further information regarding any community, lot or floor plan.  Photos represent typical homes and details of each neighborhood, to help highlight different options available in the Raleigh/Triangle area.  No claim of ownership is made to homes or land pictured.