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Home builders not negotiating

Highlights:

  • It’s my way or the highway with builders.
  • Demand for new homes far outstrips supply.
  • Labor shortage slowing new home construction.
Dan Polimino

Dan Polimino

By Dan Polimino

Special to InsideRealEstateNews.com

I recently represented a couple buying a new home south of Denver.

When we went in to negotiate the price, terms, lot, and model of the home, here is what we heard from the on-site sales manager representing the builder:

 

“There is no negotiation on price, earnest money or deposit of 4 percent of the purchase price. There are no contingencies. There are no “outs” in the contract for the buyer. Once you sign the contracts, there is no backing out and getting your earnest money back.”

That is not all.

He said lot premiums range from $25,000 to $100,000.

And if we don’t like those terms?

Well, there is only one lot in the first phase and if we don’t accept the terms, there are plenty of other consumers who will.

Wow!

How things have changed in four years.

Remember when builders would bend over backwards to get buyers to buy a new home instead of choosing one of the thousands of resales, foreclosures and short sales clogging the market?

What changed? Inventory. Or the lack of it, to be more precise.

There are no resale homes on the market and builders that have lots and land are in the driver’s seat.

With very little new construction in the last year, builders with new developments can dictate the terms to the buyers and get what they want.

It’s the simple law of supply and demand.

Builders would like to open up more lots for sale, but they can’t.

There are not enough trade workers to build homes and this slows the building process. If it takes longer to build, you can’t apply for new permits on new housing starts until the homes you are currently working on finish up.

It is a bit of a Catch 22.

Builders have lots to sell in developments, but they can’t release those lots for sale until the contractors have caught up.

That puts even more of a premium on the lots, because now the builders have a waiting list of buyers who are ready to snatch up lots the minute they are for sale.

I spoke with one builder who has a waiting list of more than 200 people for just 100 lots. He’s handling it on a first-come, first-serve basis.

The moment he is ready to release lots for sale, he sends a mass email to the 200 on the waiting list. The first people in the door get to pick their lots, but they better be ready to write a non-refundable check on the spot.

This kind of buying demand is what enables the builders to name their terms and not have to negotiate on a price.

This trend is not going to change for the next two to four years. It will take that long for builders to purchase and develop more land, which means that demand will continue to far exceed supply.

Meanwhile, expect to compete and pay full price to purchase your lot.

Finally, if you have ever read a builder’s contract, it’s not in favor of the buyer.

There are at least eight to 12 problems with a typical builder’s contract that are not good for the buyer.

Make sure that you have a real estate agent who knows what these are, and can explain them to you and can help you.

Interested in buying a new home? Please visit COhomefinder.com

Dan Polimino is a broker/owner with the Colorado Dream House Team, Keller Williams Realty DTC. Contact Dan at 303-522-1161, dan@coloradodreamhouse.com or coloradodreamhouse.com

Have a story idea or real estate tip? Contact John Rebchook at  JRCHOOK@gmail.com. InsideRealEstateNews.com is sponsored by Universal Lending, Land Title Guarantee and 8z Real Estate. To read more articles by John Rebchook, subscribe to the Colorado Real Estate Journal.