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Builders Offer Incentives to New Home Buyers
by DeadlineNews.Com

Even though new home sales have been strong this spring, builders are hoping to build on that momentum by offering an increasing number of incentives designed to get you through the door of a new home. Combine the incentives with mortgage interest rates as low as they've been in 40 years and it's a swell time to buy a new home. 

"It's on the same page as when builders are trying to get certain numbers at the end of a quarter. They need a certain number of closings or sales so they will dig into their profit margin and give you a cut," said Las Vegas, CA-based Susan Treganowan, co-author of The Ultimate New-Home Buying Guide (Maple Leaf Press).

"It's a pretty fast-changing market in terms of deals and changes and you have to figure out what's happening with all the different deals," said Boulder, CO-based Alan Fields, co-author of Your New House (Windsor Peak Press).

Fields says new home builders are hard pressed to lower prices because that could depress the values of homes already sold in a given community, but they are getting creative with promotional incentives.

"Builders can't slash prices in the same way that other businesses can because they are selling an investment. Builders get around this by offering incentive money toward the down payment, closing costs, upgrades and the like," Fields said.

The incentives include "early-bird" incentives for the first buyers to purchase homes in undeveloped subdivisions, "last-minute" incentives on the last homes to sell in a subdivision, giveaways on landscaping, appliances and interior features and other incentives.

Improving your position

Be flexible. In an uncertain job market, builders more and more often are faced with homes built for buyers who get laid off before the deal closes. While the home may not be finished to your tastes, bending could get you a good deal.

"There are bound to be builders out there with houses that are almost finished and buyers who suddenly can't buy," says Ann Arbor, MI-based Katherine Salant, author of The Brand New House Book (Crown Publishing).

"If you walk in and take it off his hands he will be relieved. If you are willing to take other buyers' tastes, most of the time it involves colors and things you can change," she added.

Have cash. Come to market with a preapproved mortgage. Because of low interest rates the market is flooded with loan applications, largely for refinanced mortgages from existing homeowners looking to cash in on low rates. That's created a financing gridlock.

A buyer with preapproved money has a stronger negotiating position because he or she is ready to buy and isn't shopping beyond his or her means.

"Some builder's specials are based on your being able to move in within 30-days. Even if you get approved in 15 days you still have only 15 days to move in and you are still cutting it pretty close" said Fields.

"Before you start looking for a home, be able to jump on a quick deal. Go see a couple of mortgage lenders," he added.

Get a good contract. If you are offered thousands of dollars towards upgrades or closing costs, seek a contract that says "and/or" to get the best of both worlds.

Promotional incentives for design center upgrades and options often have built-in profit margins for the builder. That means, while the builder may be offering $2,000 in upgrades, it only costs the builder, say 60 percent or $1,200, according to Treganowan.

That could make using the incentive on closing costs a better deal because it's a dollar-for-dollar proposition.

In any event, if you can't use all the cash incentive on upgrades or closing costs the "and/or" contractual clauses gives you the option to use the full amount by spreading it among both upgrades and closing costs.

"In reality, it depends on what the buyer really needs, as to what they should negotiate. A new home buyer may not have any appliances at all and using the incentive for appliances may be a good deal for them," said Treganowan.

"But any time you get anything that's a dollar figure you can negotiate it. In the world of real estate, everything is negotiable," she added.