Understanding Builder Incentives

Looking to purchase a new home? We have good news for you… builder incentives are starting to return. What are builder incentives? Discounts, free upgrades, rate buy downs and seller paid closing costs – are some of the incentives offered to buyers by new home builders. These incentives can certainly save you money and are one of the main reasons that buyers often choose to buy a new construction home over an existing home. However, some incentives may seem like a great deal at first glance, but you will later find out that they come with a catch. Buying a new construction home is a very important financial decision, therefore it’s vital that you properly assess the true value of any incentives being offered to you as part of a sale. Read on to learn more about the types of incentives new home builders commonly offer and how to assess their true value in your new construction home purchase.

Types of New Home Builder Incentives

Some of the incentives new home builders offer to sweeten the deal for home buyers include:

  • Free upgrades and options
  • Concessions for using the builders’ lender
  • Prepaid costs

These Sound Great, What’s the Catch?

These incentives certainly are enticing, and some may actually save you money, but others may not. Let’s take a closer look at the different incentives that new home builders offer and how they may or may not be beneficial to you.

Free Upgrades and Options

One of the main perks of buying a new construction home over a resale is that you’re able to customize your new home by selecting upgrades and options. On average, new home buyers spend 10 percent of their purchase price on these types of upgrades and options. Getting them for free can therefore save homebuyers a significant amount of money, but they often come with terms and conditions. To be eligible for these free upgrades and options, a new home builder may require that you:

  • Make a full price offer, do so immediately or before a defined date, and/or close by a certain deadline
  • Make a non-refundable deposit
  • Use only the builder’s lender or agent

It’s important not to feel pressured into making a quick decision just to take advantage of the free upgrades and options on offer. Unless you’re looking at the last home available in the community or plan, chances are good that the deal will still be available at a later date. So take your time to decide if this is truly the right home for you and your family, regardless of the freebies being offered.

Concessions for Using the Builders’ Lender

Many builders require that you get preapproved through their lender if you wish to buy a home from them. While there’s no harm in doing so, don’t be fooled into believing prequalification with the builder’s lender (or any lender) means you are locked into working with that lender. The builder may claim that their lender will offer you lower interest rates, better terms, and faster closing periods than others; however, you do not know if this is true until you do your own research (and in most instances a top Real Estate Agent will have lenders that offer better terms and can save you even more than the builder’s lender). Just a one percent difference in interest rates has the same impact as a ten percent increase in the price of the home and thus can cost you thousands of dollars over the life of your loan. Be sure to shop around and compare the rates and terms of several lenders before choosing one.

Seller Paid Costs

A builder may offer to pay a portion of your closing costs, property taxes, or homeowner association fees to sweeten the deal on your new home purchase. While this may sound like free money, it’s not actually that simple. Remember, a new home builder is in business to make a profit, and giving things away for free is not likely to help them make money. In many cases, when a builder offers incentives such as seller paid costs, they have actually inflated the sales price of the home, or the cost of financing to cover the cost of these so-called “freebies” (which is why builders typically only offer assistance with closing costs if you agree to use their lender). Instead of saving you money, these actually cost you more in the long run, since you end up financing them through your home mortgage as part of the final sales price, and therefore you end up paying interest on them.

So How Do I Ensure I’m Getting a Great Deal on My New Home Purchase?

New home builders are competing with other builders, as well as sellers in the resale market. While some incentives do come with terms and conditions, many of them can actually save you money. Becoming an informed homebuyer who is able to make confident and educated decisions is key to your success. Here are some tips that will help you get a truly great deal on the home you love.

1. Read the Fine Print

Now that you’re aware that these so-called freebies may actually come with a catch, it goes without saying that you should always read the fine print before making any decisions. Make sure you understand all the terms and conditions associated with an incentive being offered to you, and don’t be afraid to ask questions if you don’t understand all the details. It is recommended that you work with a Realtor as there is no charge for the service they provide and they are there to work on your behalf and to protect you and your interest. The builder representatives work for the builder and represent the builder interest, it’s important that you have someone in your corner to protect you!

2. Don’t Make Hasty Decisions

Take time to carefully consider your options and before making any decision regarding your new home purchase. Don’t feel pressured to sign a contract or buy immediately just to take advantage of a discount or incentive. After seeing a home you like, it’s always a good idea to take at least a few days to think about whether the home is right for you and your family before making a final decision, regardless of any incentives being offered.

3. Assess the True Value of All Incentives

Once you understand the terms and conditions associated with an incentive, you need to perform your proper due diligence to assess their true value. This may involve shopping around to compare mortgage rates, determining the dollar value of any prepaid costs being offered to you, and researching other builders and new construction homes and communities to compare your options.

4. Use Your Own Agent

The salesperson you meet when you visit a new construction home or community is likely to be highly knowledgeable about the homes and the neighborhood they are selling in. While they can provide you with a lot of useful information, it’s vital to keep in mind that they represent the builder, and the builder’s interest, not you or your interest. They are typically not allowed to cross-sell and rather can only sell homes within that community and those owned by the builder, and therefore they are not necessarily interested in finding the best home and community for you.

When you’re making a decision as important as the purchase of a new home, you need a qualified professional to represent you and your interests. As Realtors, we are here to represent you, and your interests. We have in-depth knowledge of the local areas, good relationships with the local builders, and expertise in new and existing homes. We will not only help you find a home you will love, but will also assist with selecting those upgrades and options which make sense and will enhance your future resale value while ensuring you don’t overdo it and price yourself out of the community, reading the fine print of your contracts, understanding terms and conditions, assessing the true value of all incentives you are offered and refer you to lenders who will bet the builder’s financing terms and save you thousands. With us on your side, you can be sure that you’ll have the advice and guidance you need to find the right home for you and your family, while getting the best terms and options available on your purchase.  

If you’re in the market for a home, you need to consider all of your options. This includes determining whether or not you should choose an existing home or new construction. Many choose a newly built home because they’re more energy efficient, have low insurance premiums, don’t require repairs and fit into the buyer’s budget. By keeping this all in mind, you can make the right decision when it comes to which type of home will meet your family’s needs.

If you, or someone you know is considering Buying or Selling a Home in Columbus, Ohio please contact The Opland Group. We offer professional real estate advice and look forward to helping you achieve your real estate goals! Call or text us at 614.332.6984.

AND before you talk to any Builder, Call or text me FIRST at 614.332.6984. The builder pays our fee and thus the service we provide is absolutely free to you! The builder has representation, you should too!