I Think We Need to Rethink the Whole "New Construction Isn't Negotiable" Thing

I've been thinking about something since I wrote my last piece for Vicinity, and I'm probably going to irritate some people with this one.

I've heard the phrase "new construction isn't negotiable" for so long that I think we've stopped thinking about what we're actually saying when we repeat it.

I understand where it came from. I really do.

I worked with builders. I worked with buyers. I've sat through enough builder sales meetings to know that the person sitting across from you is not a homeowner who needs to sell the house because they've already bought another one and the movers are coming next Thursday. A builder is running a business. There are hundreds of other houses involved. Pricing matters. Inventory matters. Appraisals matter. The next phase matters.

So no, I'm not suggesting that your buyer should walk into a new-home community and start throwing out offers like they're negotiating for a used car.

That's not what I'm talking about.

What bothers me is what happens after we tell agents that new construction isn't negotiable.

They stop looking.

That's the part I don't like.

Because apparently somewhere along the way "the builder isn't going to negotiate the base price" became "there's nothing to negotiate."

Those are not the same thing.

And the market we're in right now is making that distinction pretty hard to ignore.

Builders are offering rate buydowns. They're helping with closing costs. They're throwing in upgrades. They're reducing lot premiums. They're cutting prices in some communities. They're offering incentives on inventory homes. There are preferred-lender incentives and all kinds of variations depending on the builder and the market.

Yet we're still telling buyers, "Well, you know, builders don't negotiate."

Okay, but what exactly do you think all of that is?

Maybe we're just uncomfortable calling it negotiation because it doesn't look like the negotiation we're used to.

That's what I've been chewing on.

In resale, we tend to think of negotiation as a number. The house is listed at $500,000, the buyer offers $475,000, the seller comes back at $490,000, everybody goes back and forth until somebody either agrees or gets mad and walks away.

We understand that game.

New construction doesn't usually work that way.

The builder may be perfectly happy to tell you the price is $500,000 and not move an inch. But then they'll tell you they'll buy down your interest rate, pay some of your closing costs, include upgrades, or do something else that changes what that $500,000 actually means to the buyer.

That's still changing the deal.

And I think agents need to get comfortable with that.

Because if I'm representing a buyer, I don't really care whether I can brag that I got the builder to take $10,000 off the price. I care whether I got my buyer into the house they wanted on terms that make sense for them.

Those aren't necessarily the same thing.

And this is where I think we get ourselves into trouble with incentives.

We love big numbers.

"$35,000 in incentives!"

Everybody gets excited.

I'm not particularly impressed by the number until somebody tells me what it actually does.

If the buyer doesn't need the closing-cost assistance, that's one thing. If the buyer is going to be in the house for ten years and the rate buydown makes a meaningful difference to their payment, that's something else. If the $20,000 "upgrade package" consists of things the buyer never would have chosen, I don't care that the builder says it's worth $20,000.

It may be worth $20,000 to the builder's marketing department.

It may not be worth $20,000 to the buyer.

That's where the agent is supposed to come in.

And I think this is where we have a bigger problem in our industry than the negotiation question itself.

We keep telling agents that new construction is different, but we don't always teach them what to do with that difference.

So they go into the sales office and ask, "What incentives are you offering?"

The sales rep tells them.

They go back to the buyer and repeat it.

And I'm sorry, but that's not representation.

The builder's sales representative is very good at explaining what the builder is offering. That's literally their job.

Your job is to figure out whether what they're offering makes sense for your buyer.

That requires knowing a little more than the incentive sheet.

You have to pay attention to what is happening in the community.

If there are twenty completed homes sitting there, that's different from a community where everything is selling before the foundation is even poured. If the builder has just released another phase, that's different. If they're closing out a section of the community, that's different. If they've got an inventory home that's been sitting for four months, I want to know about that.

If they're protecting the base price but getting aggressive with incentives, I want to understand why.

I'm not saying that means we're automatically going to get something extra. I'm saying I'd like to know before I tell my buyer there's nothing to negotiate.

That's a pretty low bar, isn't it?

Just ask the question.

And sometimes the answer will be no.

Good. Now we know.

I've never understood why people seem to think a negotiation only counts if the other side gives you something. Sometimes the information is the value.

If the builder won't move on the price, won't move on the lot, won't add anything, won't change the financing incentive and has three other buyers waiting for the same house, that's useful information. Now we know the buyer doesn't have much leverage.

But if the builder has inventory sitting there and they're offering incentives because they need to move it, that's useful information too. Now we have something to work with.

The trick is knowing the difference.

And that's really the part I keep coming back to.

I don't think the problem is that agents don't know builders won't always reduce their prices. Most agents know that.

The problem is that we've made that fact so definitive that it has become the end of the conversation.

It shouldn't be.

Because if I'm sitting across from a buyer who wants a new home, I'm not going to tell them, "Sorry, it's new construction, so there's nothing we can do."

I'm going to find out what's happening.

I'm going to ask what's available.

I'm going to look at the inventory.

I'm going to find out what incentives are actually being offered and whether they're available on the home my buyer wants. I'm going to look at the financing because a $30,000 incentive can mean very different things depending on how it's structured. I'm going to pay attention to whether that house has been sitting there or whether somebody else is probably going to buy it tomorrow.

And then I'm going to have a conversation with my buyer about what actually matters to them.

Maybe we don't need to negotiate anything.

Maybe the house is already priced correctly and the incentive is good.

Maybe we find out the builder isn't giving another dollar and there isn't a thing I can do about it.

Fine.

At least we know.

But maybe we find something.

And that's the part I don't want agents to miss.

You don't have to walk into the sales office looking for a fight. In fact, I think that's probably one of the worst ways to approach a new-construction transaction. The sales representative isn't your enemy, and you're not doing your buyer any favors by turning the whole thing into a contest about who can be more difficult.

I want to know what the builder needs.

They want to know what my buyer needs.

Somewhere in there is the transaction.

That's actually where I think good agents can be really valuable.

Not because we're going to magically talk a builder into giving away $50,000. That's not how this works.

It's because we know enough to recognize when something is worth asking about.

And maybe that's the thing that bothers me about the phrase "new construction isn't negotiable."

It sounds like expertise.  Sometimes it's just a shortcut.  It lets everybody stop asking questions.  And I don't think we can afford to do that anymore.

The builders aren't standing still. The market isn't standing still. The incentives aren't standing still. Buyers certainly aren't standing still.

So why would our approach to new construction stay the same?

That's really what prompted the Vicinity article I wrote, and I'm still thinking about it.

Maybe I'm wrong.

Maybe I'm seeing something that isn't happening everywhere.

That's entirely possible. New construction is incredibly market-specific, and what a builder is doing in one community may have absolutely nothing to do with what they're doing thirty miles away.

But I'm curious what other agents are seeing.

Because if you're working with new-construction buyers right now, I want to know whether you're having these conversations too.

• Are you finding that builders are becoming more flexible?
• Are you finding that the flexibility is showing up everywhere except the base price?
• Are you actually looking at the economics of the incentives, or are we still getting caught up in the big number on the flyer?

And maybe the bigger question is this:

When you walk into a new-construction sales office today, what are you actually negotiating?

That's the part I'd really like to hear about.

And if you want to read the original piece that started this whole train of thought, it's on the Vicinity blog: Are We Entering the Era of the Negotiable New Home?