Reasonable negotiations for new construction (contingent, plumber, cheapest, mortgage)

[Avesmor]

Hi there. I have read several threads here on negotiations, and new home purchasing, but have not found too much about negotiating new construction (as in -- one built for us, not purchase of a new pre-existing home).

We are to the point of submitting an offer to the builder. The floorplan we have selected lists at $325,000. The upgraded models of the same floorplan sold for $314,000 - $318,000 on more expensive lots (I read the thread on lot premiums, but thought I would mention this). I understand it's a different scenario to contract for a "custom" build vs. purchase a spec. The builders have a reasonably full plate (I believe 6 current jobs, room for 2 more for a mid-year close).

My spouse wants to offer $335,000 and ask for:
1) suspended (3 car, 24') garage (builder quoted $15,000)
2) suspended porch (builder quoted $2500)
3) 8k in upgrades which will go to options not so easily done (relatively) post-construction, e.g. balustrades, gas line for cooktop, etc.

We have no idea if that's reasonable, crazy aggressive... since we have no idea what materials + labor for just these things cost, we have no comparison. I've tried to get some prices, but I've been told it depends on too many specifics I don't have readily available. Our realtor suggested to submit the offer above and let the builders decide what's crazy, but we are trying to get a feel -- understanding its subjective and variable-contingent -- for what realistic negotiating room might look like in this situation so that we can come up with plan B, C, D, E offers...

A realtor friend, not the realtor we are using, suggested offering list price and asking for 1), 2) and 3). She thinks it's silly to automatically offer more than asking. A friend who has been through 5 new constructions has suggested offering $310K and asking for the same upgrades. We are wary of offending our builders.

We are financing 80%, paying 20% down, 10% due on signing contract which we hope to do by the first week in January. We also have a decent cash buffer available to pay for "superficial" upgrades that I don't really fancy paying mortgage interest on. We are financing less than 1.5X annual income, so we have a good bit of wiggle room if we need to up our offer.

Thoughts? Initial reactions? General gestures?

[Marty Van Diest]

Things are done differently everywhere but in our area we would normally do a sit down meeting with the builder and our realtor. We would discuss these items and ask if the builder can give us a price on them. Sometimes the builder can give this price on the spot and other times he will need to get back to you after talking to subs and doing some research.

Depending on how busy the builder is and how badly he wants your business he may give a a real good price on these upgrades.

If this is possible in your area I would do this first before making an offer.

[stevep]

I'm not sure what you mean by the word "suspended" 3 car garage and "suspended" porch..... but does the floorplan already include a 2 car garage and your adding an additional 1 car garage? Also, is there already a porch and are you just adding onto it? Also, not sure if you're building on the builder's lot or your own lot and if it's a builders lot, is it a premium lot?

[evilnewbie]

Wow... 6 current projects and you want to hire them? Ehhh... maybe its just me but I rather have a builder who will actually have time to build my home instead of rushing through and doing a crappy job with the "leftover" crew of lowest skills hired by Home Depot because their main crew is working on the other 6 projects already... but that's just me...

[chet everett]

First, let me start by saying that I know about half a dozen custom builders in my neck of the woods (suburban Chicago) and without exception the past year has been an utter train wreck for them -- they have not been able to get enough work to keep their crews busy and have had some tough decisions. If the builder you are contemplating using has six jobs under way that is exceptional. I mention this as I think it will have a BIG impact on what sort of concessions they will be willing to make.

Basically anything that involves EXPENSIVE materials is VERY HARD for any builder to swallow -- they can generally shave a bit off of labor, but getting deals on materials is MUCH trickier. If the "suspended garage" you are talking about is the type that allows for living space underneath by relying on precast structal panels for the floor of the garage that is very hard thing for the builder to get a deal on -- those type panels are made for a specific rating and you cannot "cut corners" on them. Similarly if the "suspended porch" means more materials for a finished basement underneath all the extra building material is not cheap.

The other upgrades are trickier -- gas line is kinda standard at a certain price point by me, and the wee bit of black pipe is cheap, labor is easy too -- plumbers actually like that sort of new build project as there is no mess. Balustrades have some similar characteristics -- good finish carpenters actually ENJOY working with nicer materials and if you ask them they sometimes will say any extra labor is minor, if they can shop for the materials (or turn them themselves) that can be a very low cost upgrade and very custom looking result.

As to pricing and negotiation the big question(s) do involve the SITUATION that the builder is in -- does the lot belong to them? Sounds like this is NOT a mass tract builder, but maybe a "semi-custom" kind of operation -- the selling price of other models should be a very good guide to keep you for either "over improving" or asking for a ridiculously large reduction...


My gut says you need to have them "break out" the minimum pricing they can accept on the garage and the porch. The other stuff MIGHT be acceptable IF the materials are minor part of cost. It seems this builder has kind of "car dealer" mindset on "base price" if set the model at $325K but UPGRADED versions of that plan have changed hands as much as $11K less than that... You need to narrow in on that fact and let the builder know that you are prepared to get everything in motion IF the price is right OR find another situation that will be a better overall deal. If you are already "in love" with this development then you've lost you best negotiating position...

[Avesmor]

Ack, typed up a long response trying to answer all questions & then wasn't logged in. Here goes my 2nd try.

I only know two terms for what I am trying to describe: "floating" and "suspended". It's much easier to explain in person that virtually. Basically, there is open floor space under the garage instead of ground. It is a 3 story house with the garage being on the 2nd (ground) level. So with a "suspended" garage we could stand on the third floor and the ceiling above us is also the garage floor. This gives us the entire area of the 3-car garage as add'l sq. footage on the third floor. If the garage is not "suspended", then there is a wall where the garage begins, and just ground on the other side. I hope that makes sense... So materials that would require... a lot more concrete, re-bar, and a lot more digging/hauling dirt away. AFAIK. But this is not my area of expertise by a long shot.

Our builders are custom builders, but they also have two spec homes in area neighborhoods, the price & amenities of which depend on the neighborhood (3 different price points, from upper-middle to "golf course custom"). We are (hopefully) building a modified version of one of the spec homes. It's nearly perfect for us, just needs some minor tweaks which we have already priced out and which are not significant - most of which come at no charge because it's not requiring additional materials - an extra foot here, the closet on left instead of right, etc. The "suspended" porch & garage really interest us, and $ for $ represent some of the cheapest sq. ft. we can get, but they are optional in the big scheme of things. Just... really nice to have.

Our builders are a local 3-man team (family), so it is not one person trying to manage many work locations. Two of the three would be involved in our job, and have a strong reputation in our area for their quality, as well as the time they spend on the site. The builders also do not own the lots. There is a real estate company acting as a holding company between buyers and the developers. And our lot is not a premium lot - not by far. We are actually about 8K under base lot price because ours is a bit smaller nd tapers (still plenty at 3/4 acre), but it is the last true walkout left in the neighborhood we want, so we're willing to give up a little yardage for it.

As for business & concessions, I'm not sure. Our builders' current jobs include at least two spec homes, so they aren't sure things. Overall, the real estate in our area has not slowed down that much. We put our house on the market the week before last and received three offers on Tue - 9 days as an active listing. The top offer was for $1k over asking, and we were asking a fair price. Longest time on the market in the last 12 months was 32 days. And we haven't seen construction around us slow that much -- neighborhoods are still filling up quickly. I know this isn't the reality everywhere. Maybe it's a midwest thing, where you get a ton of house for your money. The tax credit extension isn't hurting, and buyers are able to get a lot more out of sellers than ever before (one of the offers we chose not to entertain was 15K below asking and wanted all appliances inc. our chest freezer, our bedroom furniture including bed (eww), my husband's widescreen tv, closing costs paid, and a lamp I have in the family room) Anyway...

The spec homes of the floorplan we are wanting went for $314 - $318. They just finished construction on another customized of the same and it sold for $328, but had a much different customizations (materials, not structure) than we want. The $314 and $318 were on premium lots and had "superficial" upgrades (carpet, cabinetry, windows, etc.) The lot difference between those & ours is about $12K on average. Maybe we are doing the math incorrectly, or pointlessly, but we figure (all estimates): 8K "asking price" difference + $12K lot difference = $20K. We are completely comfortable paying the full $325K, and would rather negotiate for the suspended areas than a reduced selling price. In fact, we're thinking about forgetting the 8K in upgrades/$335K offer, and offering $325K and asking for the floating areas only. We are meeting with our realtor Monday and hope to have some offers to run by her. She has represented buyers with these builders before, so hopefully has an idea of what their negotiations look like. Hopefully I've answered everyone's questions and filled in the gaps.

Thanks so much for your input!