What Is A Lot Premium?

Real Estate Agent with BHHS PenFed Realty 0225224571

So, you are ready to buy a new construction home.  You have toured models, browsed option prices, and devised a budget of what you think your costs will be.  However, were you aware of some of the hidden costs associated with buying a new construction home?  Often times, prospects see advertisements of various picturesque homes with a boldly advertised price next to it.  Rarely is this price indicative of the actual cost one purchases the home for. Why?  Because that showcased number is most likely referring to the base price of the home rather than the home you see pictured or the model you tour, full of builder options.  More importantly, it fails to include other unmentioned costs such as lot premiums, deferred water/sewer charges, and/or options that created the stunning home teased before your eyes.  This age-old marketing practice fuels a prospects eagerness to engage their preferred builder into a conversation about a potential purchase.  Doing exactly what it is designed to do.  However, now an eager prospect is greeted with the knowledge that their dream home may have a myriad of other costs associated with the purchase. Leaving everyone in the transaction feeling deflated and setting an improper tone for the rest of the sale.


So how can we negate this dilemma before it starts?  We have no control over how all builders advertise, right?  No.   What we can control is educating and setting the proper expectation with as many customers as possible prior to the sale.  Just by reading blogs such as the ones I write, you are armed with knowledge to fuel questions for your sales rep during each interaction.  Open dialogue between you and the chosen builder is the best advice I can give any prospect, along with hiring a seasoned realtor who has a vast amount of new construction experience.


One of the costs we will examine today is a lot premium.  This fee is a large profit center for the builder and is becoming common practice in almost every community I visit.  This premium is allocated for a home site that is deemed to be of a higher quality than other sites offered within that community.  For example, a site that backs to trees, corner home sites, or larger home sites might incur a premium.  However, I have seen in some markets that builders have become so bold as to add premiums to all home sites regardless of the perceived value due to demand.


The question tends to be if the value of the premium can be recouped.  That is tough to answer.  I can tell you that from years of selling new construction homes that a very large percentage of my client base were overwhelmingly concerned with the home site conditions.  It tends to be a primary factor when purchasing any home.  Just like any other upgrade, yes, it may lose value.  This is all going to be dependent on the current market conditions, your community, the actual community, and your actual home site. However, if your home resides on a desired home site it could differentiate itself in a slow-moving market or against a similar home on a lesser quality site.


So now you are wondering if lot premiums are negotiable.  My saying is, “Everything in life is negotiable, if you know how to negotiate.”  This requires intimate knowledge of the market conditions, builder pricing strategies, builder quotas, a working relationship with a builder rep, and the finesse of negotiating tactics.  These are the areas that an expert realtor can facilitate in saving you thousands on your new home purchase.  So, choose wisely, there are very few with new construction experience.

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Written by:  Nikki Lagouros, Realtor 

Comments (2)

Bob "RealMan" Timm
Ward County Notary Services - Minot, ND
Owner of Ward Co Notary Services retired RE Broker

Great post Nikki Lagouros, Reston Realtor . I am unfamiliar with the term lot premium but all real estate is unique and it only seems natural that a lot that is more desirable than another be priced higher.

May 04, 2018 07:13 PM
William Feela
Realtor, Whispering Pines Realty 651-674-5999 No.

I understand it, but I can't say I have heard this term used in my area.

May 04, 2018 08:31 PM