Very well written blog on negotiating a contract with a builder - to be built homes vs.Inventory Homes.
Negotiating a Contract with a Builder ~ To Be Built Homes vs. Inventory Homes
This market has certainly given buyers the upper hand when it comes to negotiating a contract with owners of re-sale houses or with builders of residential houses. As a buyer's agent, the negotiating strategy may end up being different depending on if you are looking at re-sale homes or at new built homes or even a bit more different when looking at to be built homes.
Seller Mindset for Re-sale vs. New Construction
The owners of a re-sale will definitely consider the amount of equity that they have in their home. The amount of equity is an important factor to determine the purchase price that the owners can afford to accept. The sellers may also need to clear a certain amount of money so that they will be able to purchase their next property.
For a new construction builder, the sales price will need to equal the material & land cost, marketing cost (usually 5-6%), overhead, plus any builder profit. A typical profit for a builder is around 8%. In this market, builders are not producing the huge profits that most buyers think they are making. If all of the builder's costs are set, the only room they will have to negotiate is off of their profit margin. I have heard a few builder representatives in and around Charlotte mention that they are doing "market deals"...I take this to mean that they are willing to accept a lower percentage in profit to sell the property.
Negotiating Strategy when Dealing with To Be Built vs. Inventory Homes
If you are looking at To Be Built Homes, know that the builder may not negotiate as much off of the price. The price that they have offered to you will already be adjusted to fit what is comparable in today's real estate market. In this scenario you will have better luck focusing on the incentive money that the builders are offering. The builders will put a markup on the upgrades and options that they offer to the buyers with incentive money. If the builder gives you more incentive money, this will not affect his bottom line as much as a price reduction. Plus the higher price will help to keep the values in the neighborhood higher.
If you are looking at Builder Inventory Homes, then you should have more luck getting the builder to accept a lower offer. Builders have a set overhead cost (the amount that it cost them to hold the property on the market) and if the property has been sitting for a while they may have run through the amount they set aside for carrying the house. Every day that the house is on the market is eating into their profit so they may accept a low offer. Putting in a low ball offer may not be your best move. Instead you may want to ask the builder to come back and customize your house, or add a deck/screened porch, or to do extra landscaping. The builder will want to work with you on this because it will help to keep the values in the neighborhood up and in the long run will help both you as buyer and the builder.