Builder Deals 2022
Believe it or not, it’s still possible to get an incredible deal on a new home right now. Despite crushing interest rates and a slowdown in the market , there is one area of the market that presents a unique opportunity for would be buyers: new construction.
For the last decade, builders couldn’t build fast enough. Walking into a builder sales office and expecting a discount was unimaginable. Builders have had little, if any, incentive to bring buyers in with incentives because most builders were selling homes so fast that they could barely keep up with demand.
But these days, things have changed. Interest rates have pushed many buyers to the sidelines, and the Fed has made clear that it will gladly drive the housing market into the ground if doing so helps them fulfill their mandate of taming inflation. This reality, combined with a looming recession, is starting to make many builders nervous. Today, faced with a level of existing inventory unseen since the housing crash in 2006, many builders are singing a vastly different tune than they were just a few months ago and the deals are getting pretty enticing as we approach the end of the year.
HOW IS THIS POSSIBLE?
Builders, unlike home sellers trying to unload their existing construction home, differ in two important ways that make all this possible:
Builders can leverage the economies of scale to their advantage. Unlike the typical home seller, builders buy and sell in bulk, know their profit margins down to the dollar, and can absorb cost reductions that the average seller cannot or will not.
Unlike typical sellers, complete homes offer no tangible value until builders can sell them. If a seller cannot sell their home for the price they desire, at least they have a place to live in the meantime. For builders, finished homes are little more than nonperforming assets. These assets not only provide no tangible benefit to the builder, they actually cost the builder to hold because vacant homes still need to be looked after. The lawns need to be mowed, and the utility bills need to be paid. Sales associates, who are ready to move to the next development, are stuck sitting in model homes in communities with 1 or 2 homes left and little buyer traffic, rather than in model homes for new developments with seemingly limitless new homes for sale and lots of buyer traffic.
For builders, selling homes is a numbers game and as the clock ticks down toward the end of the year, their willingness to take a hit to get the last few units sold means savvy buyers can negotiate very favorable deals this time of year. But with the current market conditions causing anxiety for many builders, the deals this year can be even better.
BUT HOW GOOD ARE THE DEALS, REALLY?
Here’s just a few examples of a few of the deals available right now in Northern Colorado:
5 Bd / 4 Ba / 3700 SF / 2-Story / 12,000 SF Corner Lot / $653,000 List Price
$24,000 in bonus options including whole-house wood blinds, Samsung French door stainless steel refrigerator, and up to $18k waived in lot premiums
4% of Purchase Price lender incentive to use towards a rate buy down or towards closing costs
Must Close by 12/31/2022
If you were to hire a competent agent who could negotiate a $645,000 purchase price with the builder and then use the 4% concession towards a 3-2-1 rate buy down, that would make your monthly payment on this brand new home $2924/mo in year one, $3234/mo. in year two, $3560/mo. in year three and $3901/mo in years 4 through 30. Now, there is a strong possibility that rates will drop enough in the first three years of ownership that refinancing will make sense, so the likelihood that you will end up paying 7.16% starting in year four is slim.
Without incentives, the purchase price on this home becomes $677,000 (list price + upgrades) and at current rates, your monthly payment would be $4075/mo. That’s over $1100/mo more in your payment and over $400,000 more over the life of the loan!
4 Bd / 3 Ba / 2100 SF / 6600 SF Lot / $477,375 Price
2-1 Buydown incentive
Assuming a $465,000 purchase price, the 2-1 rate buy down would make your monthly payment $2446/mo in year one, $2682/mo in year two and $2928/mo in years 3 through 30. Again, there is a strong possibility that rates will drop enough in the first two years of ownership that refinancing will make sense, so the likelihood that you will end up paying 7.16% starting in year three is slim.
4 Bd / 4 Ba / 5538 SF / 9700 SF Lot / $1,039,000 List Price
$50,000 Seller concession towards closing costs
Luxury has been getting hit harder than homes priced closer to the median. This home is also complete, and has been for a while now. So, let’s assume your competent agent negotiates a purchase price of $975,000 and you use the $50,000 to buy points to buy down your rate from 7.16% to 5.5%. This would be for the life of the loan, not just a temporary buy down. At the current rate, your monthly payment would be $5686/mo, but with a points purchase down to a 5.5% rate, your monthly payment would be $4842mo. What’s more, the total cost of your loan would drop from $1,898,440 to $1,594,352 – a savings over almost $305,000
[All figures in the examples above assume a 20% down payment with a 30-yr Conventional Loan at current market rates.]
All of this is just a small sampling of the available deals at the moment. Agents worth their fee spend hours making sure they know what builders are offering incentives and what those incentives are.
What Buyers Need to Know
The number one rule right now is EVERYTHING IS NEGOTIABLE. Even though you may be surprised to learn that a builder will throw in $20,000 in upgrades and offer a 4% concession, a good buyer agent is still going to ask them to throw in the landscaping, and the best buyer agent is going to ask for all that and then insist you be allowed to use whatever lender you want.
On that last note, no matter what the builder is offering, ALWAYS TALK TO A TRUSTED LOCAL LENDER. One of the reasons builders so readily offer incentives at times like these is because they have an in-house lender that is absorbing part of the cost. But since there’s no such thing as a free lunch, you’re going to pay for it one way or another. In this instance, it’s through a higher interest rate or some other lending fee. Your incentive effectively becomes a wash as you pay back your “discount” over the next 30 years. But, there are many fantastic local lenders that can offer rates and other discounts that often beat out what a builder’s in-house lender can offer, even with their preferred lender incentive.
Remember that many builders do not heavily advertise their incentives and unless you ask, they may not even tell you about them. Even if a builder does not have any incentives being publicly offered, it’s worth asking what they are willing to do for you, especially right now.
While buying a new home is great, there are many things that you need to be aware of. That’s why it’s crucially important that you are working with a competent agent that has experience with new construction.
Most builder incentives will come will certain stipulations, such as timeframe in which you must close, or the use of the builder’s preferred lender, but again, a good agent will be able to negotiate on these items for you.
The best deals on new construction can be found on complete homes. Even now, builders will be reluctant – if willing at all – to cut deals on homes not yet built. This means you’ll be foregoing some of the typical new home build experiences, like getting to choose specific finishes and upgrades.
If you have a home to sell before you buy your next, it’s important that you are ready to make this happen ASAP. Builder, just like typical sellers, will not let you put a home under contract that you cannot buy without selling your current home. If this is the case for you, hiring a competent listing agent will be crucial to making sure you can close on your new home in time to receive the incentives being offered by the builder.