Catching up on my WSJ reading I came across an article from September 26th on housing. The article states that Lennar's average home price was down 6%, to an average of $296,000, and the average discount/incentive was up to $46,000 (not exactly sure where they got these numbers).
Why is this important?
If you are looking at a new home, not a bad idea to do some homework to get these figures for your builder. If we decide to purchase with Lennar (they are a front runner right now if we buy new), we can use this information for negotiating purposes.
For instance, if the list price of a home is $459,000, then using the same percentage discount/incentive off their average home price (15.5% ) brings us down to$388,000 or so. Its their data, so it won't be as easy to refute. Of course they will still backpedal and make excuses as to why they can't do it...but its a very reasoned approach from which to start negotiating.
Truthfully, its probably a bit more realistic than the pick-your-year home price plus inflation, that us affordability nuts like to use.
Anyways..feel free to share negotiating tactics, as affordable housing is nearing the horizon.
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8 comments:
Incentives always vary depending on what they want to sell. You might find they vary by model and location within a subdivision - of course do you really want the crap location?
Likely a menu of what they're willing to pay for - try a permanent buy down of loan payments/interest rate. (thats different that a teaser loan), window coverings, rear yard, usable stuff. They would rather do that than a straight discount.
They have end of quarter and end of year goals and specials also, find out their important close dates (may not be calender year).
Or, you could wait 6 months and buy your choice of window coverings out of the tens of thousands you will have saved by waiting.
If we buy new, I plan on asking for price reductions. Don't want perks in exchange for a higher sales price cause you have to pay taxes on the sales price year after year....so those incentives and perks you thought were a deal will cost you more than you think in the long run. And they aren't usually a very good deal in the first place.
There's too much inventory to let a seller dictate the terms of any sale now. Make a reasonable (but presumably very low) offer and be prepared to walk away and come back later (probably when it will be cheaper) if the builder declines to accept it. A "deal" that a builder may not accept today, they are very likely to accept in a few weeks or months. The builders are more desperate for sales that actual close, than they will ever let on.
And I agree 100% that price reductions are better than incentives, for the very reason you state: You will pay property taxes on your purchase price for as long as you own the home. Why pay property taxes on incentives? If the builder thinks its important to keep up its "comps" by using incentives to conceal the true selling price, the builder can make the transaction through a third party straw agent. (Builder sells to third party straw agent at full price. Straw agent the sells to you at lower price. Same escrow transaction so no additional transaction costs. Builder then pays difference in escrow to straw agent as incentive. Your purchase price is the lower negotiated price without incentives. Builder's "comp" is full price. FMV "comp" is straw agent to you.)
If you come with your research in hand it is a lot easier to negotiate something than just lowballing.
That way the seller at least can see you did your homework and arent just lowballing to get a great deal, but are doing so because you think that is the fair price.
The only incentive I would really want would be a larger lot. Most anything else can be added later.
Wow Paul...sounds like you really know the financing ropes...that straw agents stuff sounds like a pretty grey area. Not sure I would be willing to buy in a development where the builder was doing that even if it was a good deal....
My thinking is.... if they aren't honest and forthright about the home price, then it brings into question their integrity for delivering a quality constructed home as well.
Paul, are straw agents common? Can't say I understand the ins and outs of this, but it seems to me that a comp for a lower price in a neighborhood where a builder has unsold inventory would require the builder to take a loss on the remaining properties they hold (at least if the builder is a public company). But I guess the builder can probably get the accountants to sign off on just about anything....
Wow Paul, don't forget to tell them you're conspiring a felony.
An yes, AB, the tax assessor does base your taxes on the sales price and anything else they pick up on inspection or the questionaire they send you to fill out.
If you guys think youre using the right CPA that "signs off" on this stuff, you'll soon be an IRS target.
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