Construction Loan

Negotiating With A Builder

Negotiating with a builder or builder’s representative can get as frustrating as negotiating with a car salesperson, but unlike a car salesperson you will likely be working with these people for the next many months. Many first-time new homebuyers make small mistakes during the negotiating process that can cost them much more during construction. Many times buyers get so excited about the decision of a particular design being made that they don’t take the time they should before beginning negotiating with the builder. First and foremost take things slowly. If you're only going to be in town for a few days then get information while you are in town, take it home and make the final decision from home. Contracts can be mailed back and forth and colors can be picked later (no matter what they tell you.)

Do Your Homework First

Find out as much information as you can about your builder. Theses are some questions you need to find out before you start negotiating:

§ How many homes did he build last year in the county you're building in? (Don’t trust the numbers the builder provide, verify it with the county development office yourself.) NOTE: A builder may build 50 homes a year but only 3 to 5 of those home are in your county which means he may want to build more homes in that area or is not as interested in building many homes in that area.

§ How familiar is your builder with the development or area you are having your home built in? (How many homes have they built in that development or area?) NOTE: Builders should be familiar with construction in the particular community you are going to living in. Deed restrictions, utility issues, as well as Value Engineering can all be affected by a builder’s knowledge of a community.

§ How long has the builder been in business in the county?

§ How many models of the particular home you desire has he built. NOTE: This can be one of the most important questions you ask your builder. Builders who are unfamiliar with a design and its cost are less likely to negotiate and may even charge you more for your home design.

Get Price In Advance

This seems like an obvious thing to do but buyers don’t. Find out all the list prices for items you desire. Even find out the price of things you want but don’t fit into your budget now. Many times buyers find out later during construction that they can afford an upgrade but the price seems to have “changed”. Find out how much any upgrades you think you might want cost. Try at this phase to avoiding letting the builder or the rep know what items you most desire.

Have Builder’s Construction Superintendent Visit the Property

If at all possible get a firm price on any additional site development cost over and above what is “standard” in the builder’s offering. As an example, the builder may provide four loads of fill and one load of debris removal. This would be fine for a 1/4^th acre street level lot with only a couple of trees but the price may be significantly higher for a ½ acre sloped lot with more trees. Some builders may be fair about what they charge for the additional work and materials but that figure can run into the thousands. It is important to have the builder inspect the lot and firmly agree to the total site development price.

Before your "Big Meeting" with the Builder or Representative

Add up the standard base price and all the options you desire. List everything on a sheet of paper with the prices and your detailed descriptions next to the items. It is possible for many builders to give a total discounted price of between 3% to 5% on the contract. Keep in mind that builders generally will make a gross profit of between 20% to 30% on a home. Then the builder must pay for expenses on top of that. Builders generally add 30% to 40% on upgraded or additional items.

Have an Additional Meeting with the Builder and/or Superintendent

Once all of the negotiating is over and you have paid your deposit it is a good idea to have an additional meeting with the Builder and/or his Superintendent about a day after your have signed your agreement. Do not make this a long meeting but have specific points to discuss. Use this meeting to verbalize your expectations of what you expect to see during construction. If you are not going to be local while your home is being construction this is the best time to discuss any concerns you might have about that and what the builder can do to help alleviate your concerns. Discuss the type of contact you expect to have with the builder during the construction period and how you will receive updates. Some customer orientated builders will schedule this meeting with you but if you're build doesn't, ask to schedule one.

Last Updated: March 01, 2005 10:42 PM