We’re still in a housing market slump—here’s how to negotiate a better deal with homebuilders

Previous years increase by 3 percentage points on mortgage interest rates, along with home prices that have increased by more than 40% throughout Pandemic Housing Explosionbid millions of home buyers.

The strong buyer retreat comes at a less than ideal time for US home builders. See, the combination of pandemic-related supply chain constraints and the glut of eager buyers during boom times, has seen total units under construction reach historic levels last year. And that backlog of history, along with the cancellation rate spikedwhich means the final buyer also has some bargaining power over the builder.

To find out how buyers can get a better deal with builders, Luck contacted John Downs, a certified mortgage advisor and senior vice president of Vellum Mortgage.

The first trick is to simply use rudimentary negotiating tactics, such as offering low rates or using outside lenders “to keep the construction lenders honest,” Downs says. . The second trick is to see what incentive builders can offer.

Unlike home owners – who are less likely to give up the equity they have – builders are just reducing profits. So when the market changes, builders can lower prices and/or eliminate incentives like closing costs (which can be 2% to 5% of your mortgage loan), provide buy back mortgage interest (builders pay lenders a lump sum to lower mortgage rates for potential buyers), pay homeowners association fees, or perform upgrades during construction.

“For builders, it’s a business,” Downs said. “This is very different from regular homeowners in that it is their net savings. So for a builder, it’s just a preliminary business decision—am I still making money? And if I’m losing, what do I get when I lose?”

However, asking builders to provide those offers can vary depending on the market, season, individual builder, and whether or not buyers want to purchase inventory instead of asking to build a home. .

And for individual builders, they may have different thoughts about inventory. For example, during the first few months of the year, people may want to hold onto their home until the desired price is received because there is plenty of time. Meanwhile, another builder might fear the future and offer strong incentives.

There is also a clear difference between small builders and larger builders with greater financial backing and that can translate into the incentives they can provide. As a buyer, therefore, it’s important to understand the market, inventory, and home builder you’re working with—at least to begin with.

For home renovations or upgrades, builders sometimes use the fact that “they can build things cheaper and have perceived value for money.” [buyer] bigger,” said Downs Luck. He gives an example: if a buyer is quoted $50,000 to build a patio but the builder can do it for $15,000 – as a consumer, they check and essentially, builders use “inflated value to provide the perception of greater savings”.

Thus, such improvements, tied to the physical home, are not seen by the lender as a concession to the seller. Instead, lenders consider anything that can change cash, such as covering closing costs or offering interest rate buybacks, as a concession from the seller. But that doesn’t mean that builders still can’t use those strategies to entice buyers—instead, buyers simply need to qualify for those offers, and that may depend on loan type.

However, incentives aren’t forever—it’s often market-dependent, cyclical. Sometimes builders don’t need to offer incentives (usually in a competitive market when some offer is higher than the asking price).

But Downs said Luck that he thinks we are at a “good vantage point to make a trade,” at least for a few more months until the market rebalances and becomes more in line with pre-pandemic standards. Even so, affordability is still an issueDowns said — meaning that attraction could last a little longer.

Downs said: “When I quote the payments, people still choke when they hear them.

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