By Fred Minnick
Bankrate.com
In this tough economy, builders would rather give stuff away than sit on unsold homes and condos. And that's great news for new-construction homebuyers.
Rhonda Duffy, owner of Duffy Realty in Atlanta, says a builder's whole career could rest on whether he or she sells one house.
"Builders used up all their construction loan money, and they're sitting on properties. So they can't build any more houses because they've got to sell these first," says Duffy.
These desperate times translate into 5-percent to 20-percent discounts immediately off the asking price, says Jason Pohlonski, owner of Pohlonski Real Estate Investments in Chicago. Later in the year, prices could drop to 40 percent below the original price, Pohlonski says.
The seller's concessions don't stop at the asking price. Brian Lewis, executive vice president of Halstead Property in New York City, says it's been more than a decade since buyers have felt this kind of power, and they're using it to score great deals. "They are not necessarily falling in love with homes. They are falling in love with deals," Lewis says.
Some experts say the freebies are built into the price. Nonetheless, Lewis says, "Ask for everything you want."
Here's a look at what builders might be willing to pay for or add.
Appliances and upgrades: Upgrades on appliances are probably the best way to add value to new construction, and some builders are footing the bill, Pohlonski says. "They will upgrade to nicer marble, better appliances, hardwood floors and better cabinets," he says. Developers will add built-in microwaves, freestanding ranges, cooktops, dishwashers, refrigerators, and washers and dryers, says Cindy Stuart, a Realtor with Semonin Realty in Louisville, KY.
But sellers might not always be willing to pay for them, Stuart says. Rather, they will offer the appliances at cost and do free installation. "Builders get appliances a little bit cheaper, so you get a good price," she says.
Vacations: Some developers are offering a free vacation to entice buyers. "Vacations are great incentives, especially in the Midwest, where it's cold and dreary all the time," Pohlonski says, noting that builders buy the all-inclusive vacations or cruises in bulk to popular destinations such as the Caribbean islands, Cayman Islands and Mexico. "A five-night stay in Cancun would cost an individual a lot more money than developers can get in a wholesale deal, so there is actually some value there for the buyer," Pohlonski says.
Cars: Many developers are enticing buyers with cars. "I saw a newly built condo building owner give a buyer an E-Class Mercedes on a two-year lease," Pohlonski says. Laurie Donofrio, a Coldwell Banker Realtor in Raleigh, N.C., has encountered developers giving away new Jeep Wranglers. But these were promotional offers used to lure buyers, not the result of a customer request, she says. "A free car can drive a lot of traffic for a seller," Pohlonski says. "Developers just use the car as an incentive, but I haven't seen anybody ask for that."
Closing costs: Depending on how desperate they are, builders could pay all closing costs, transfer taxes and attorney fees, Lewis says. In fact, they are more likely to pay closing costs than to add new products to the home. "Developers want to hold as much power as possible because in this information age of blogs and text Furthermore, Stuart says, it makes better sense to ask the builder to pick up closing costs rather than upgrading the items, such as countertops, for an already built home. "If there are already countertops in there, they're losing money to take those countertops out and buy more countertops to put in," she says. In addition, some mortgage companies will also pay for closing costs, Stuart says. But she recommends requesting to see what's actually being picked up before you hit the table because you may be surprised that the title insurance or attorney fees are left off.
"What happens is, depending on the price of the house, you end up paying $700 or more in closing costs that were not quoted to you upfront because the builder or mortgage company is not paying for title insurance," Stuart says. "At the spur of the moment, when it's time for closing and you find that out, the free closing costs is not as good of a deal. But you can't stop and start over."
Fencing and landscaping: For new homes that have been sitting awhile, fences are easy add-ons, Stuart says. "You want to extend the deck, add extra landscaping, have fences put in. It's just about how much negotiating room you have in the price," she says. "When you get up into some of the nicer houses, the price of the house includes what needs to be with that house as far as the deck and basic landscaping." She says builders have contract landscapers who do cookie-cutter jobs for them, but if a buyer wants to upgrade landscape quality, he or she can negotiate terms to have the landscaper improve the yard. "You usually can negotiate with the builder to do landscaping through his landscaper, and you'll get a much better price," Stuart says. "And you can get it done on your timetable and put it into your mortgage or pay it on the side." For custom-built homes, the buyer picks yards from a catalog and everything is done from square one. Stuart says some plans might throw in koi ponds or extravagant patios, but for the most part, there are basic landscaping packages to choose from.
Home inspection: When asking a seller pay for the home inspection, which typically costs around $300, it's important to make sure you can pick the inspector. That way, there is no conflict of interest for the inspector, whose check is signed by the builder, says Stuart.
Reggie Marston, president of Residential Equity Management Home Inspections, says it is imperative that buyers insist on a home inspection. "If the builders were doing that poor of a job during the good times, imagine what's happening now that they are cutting costs and trying to build quicker with less people," Marston says. "Obviously, to give such stupendous discounts, something has to give."
A home inspection that shows substantial issues can get the buyer out of the contract. Marston says he's seeing less expensive fixtures, low-quality stone veneers, low-cost vinyl, single-hung windows, vinyl siding instead of brick, and lower-end HVAC equipment instead of top of the line. "I've seen builders go from one supervisor per project to one supervisor for five projects over 30 miles between projects," Marston says. "In Florida, the builders went with drywall manufactured outside the United States, which is now reportedly giving off toxic fumes."
Memberships, parking and association fees: If a new home is in a golf community, a free membership is worth writing into the offer. If it's a condo or in a home association, request the fees be paid by the builder.
Max Dobens, a broker at Prudential Douglas Elliman in New York, says his company has given away free memberships to health clubs and paid condo maintenance charges for a year. In one case, the monthly costs were $3,000 a month. "In New York, we can't offer free lawn care for a year, so ... fees and free parking are big incentives here," Dobens says.
In downtown condo areas like Chicago, parking can cost as much as $60,000 a year. Pohlonski says he's helped clients secure $90,000 worth of parking on the builder's dime. "Getting free parking is probably the easiest and best way to get some money off (the price of) a downtown condo," Pohlonski says.
Warranties: Some states have guaranteed top-to-bottom warranties on new construction, and most product manufacturers give warranties for appliances, windows, flooring, ceiling fans and more. Some builders are offering hazard and flood insurance and extended warranties, Duffy says. Stuart adds that a new-construction buyer definitely wants at least a 10-year structural warranty on it. "You can ask the builder to add or do anything," Stuart says. "It's just all a matter of how much money he has into it for what they'll do."
Editor's Note: Fred Minnick is a freelance writer in Kentucky, and a contributor to Bankrate.com.
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