Home builders are in an ultra-competitive industry and are always looking for new ways to stand out amongst the rest. Because you as a home buyer have so many choices, most builders offer incentives to attract your business.
These builder promotions range from free upgrades, such as hardwood floors or outdoor patios, to financial incentives, like deep discounts or paying your closing costs. While these can mean getting a great deal on your home, it often makes it difficult to compare the offerings from one company to another. As you look into the different offers, make sure you understand what you’re really getting.
Rarely Apples to Apples
When it comes to upgrades, it’s important to do your homework. In some cases, the elements that one builder considers an “upgrade” might come standard in another builder’s home. This could mean that you get the lower price by choosing the builder that isn’t offering you all of these “freebies”.
To get around this, you have to first decide which things are non-negotiable when it comes your home. A great way to do this is to fill out a needs versus wants list. This could be anything from a customized ensuite bathroom to a large patio to radiant heating. Take this list to each builder to ask about an estimated final cost given these elements. It might take some time to do this, but it could save you a lot of money in the end.
The True Cost
Builders don’t always want you to know the cost of these upgrades are actually already accounted for in the price of your home. Knowing that you’ll feel better about getting some “discounts,” a company will set the starting price of the home several thousands of dollars higher than it needs to be.
They might also overvalue the cost of the upgrade – what might cost $5,000 if you hired an independent contractor is listed as $10,000 by the builder. Ultimately, you’re often paying for any upgrades a company offers – you just don’t think you are. This is just another reason why it’s smart to get full quotes from multiple builders before you get lured in by the promise of free upgrades.
Comparing Similar Promotions
Let's say you've found two builders who are offering a free basement development with the purchase of a certain home model. Research the floor plans and see if any slight changes can be made depending on what you're looking for. The same thing goes for any other incentive - you really need to do your homework because one incentive could give you better value or a higher quality over another. A free landscaping package from one builder could include more trees or better sod, or in the fine print you might find the rebate is substantially more with a certain builder.
It's also important to keep your emotions in check when comparing any builder promotion. You may absolutely love one model but there is a better promotion with another builder for a similar home that could save you thousands. If that happens, you really need to think about what is more important to you — a few features or saving on your mortgage payment? There is no right or wrong answer so it's up to you to decide what you're comfortable with.
Finding the Catch
You’ll also sometimes learn that there’s a catch to the incentive, and you want to be sure you find out what it is before you get too far into the sales process. For instance, the builder might require you to use one of their preferred lenders for your mortgage, or you may have less flexibility when it comes to rearranging the floor plan. Most promotions are usually time sensitive, too, in the hopes buyers will make an impulse decision. This could mean either running until X date, having only X available models at the promotional price, or only so many upgrade packages available.
Sometimes, the incentive is big enough to make the trade-off worth it, but it can also become a lot less enticing when you have to jump through a builder's hoops and carefully navigate the fine print.
One of the biggest reasons that builders offer incentives is to get people to make decisions quickly. They might be looking to quickly build up a new development or sell off the last few lots in a development that’s almost completed. They might just need a quick influx of cash. This means that only certain people can qualify for the incentives. In particular, the builder might expect you to close on the home within 30 days or not have the sale be contingent on selling your old home. If you don’t pass this test, you could end up paying more than you thought.
Builder incentives are a good way to get a great deal on your new home, but you need to be careful. Don’t get so blinded by an offer that you make a decision that’s not right for you. Look for a builder who is upfront about their promotions and can easily explain exactly what you can expect with them. It should be simple because they want an easy home buying experience for their customers.
Originally posted Sept 5, 2016, updated March 5, 2019.