Hi,
I am moving to Western New York shortly and am planning to build a house. I have found a new development just beginning with beautiful lots. There are currently 2 homes completed, the builders own and another that closed last week. The house I want to build is a 3500 sq ft colonial. The initial quote I received from the builder based on his standard specifications was $150 per square foot on his least desireable lot. There is an additional $20k charge to configure the house with a walk out basement and other lot premiums ranging from another $20k to $100k. We are working through a real estate agent representing the builder. Quite by accident, I found out the one finished house was based on roughly $130 per square foot for the same standards that I was quoted $150. I questioned the builders agent about this and he became very uncomfortable and gave me several vague, non-sensical answers. He suggested the builder may have lowered his standards for this particular house but these standards are basically code. He became more uncomfortable when I asked how the standard could be lowered below code. He knows we are selling a very expensive house and are planning to pay cash for the new one. I really started to get the feeling we were being charged an “out of towners” premium. My question is: Would it be reasonable to offer the $130 per sq ft subsequent to being quoted $150? This is an area where houses tend to depreciate as they age. I know we can offer anything we want, but I like the development and I do not want to begin my relationship with this builder by insulting him or wasting his time. Thank you in advance. The professionals on this forum have been extremely helpful with my prior projects (finished basement, small barn).
Replies
Hi,
Normally, I recommend no to estimating, selling or buying based on square foot pricing, but since he is, you can. And since he is represented by an RE agent, you can be too. Having a local agent may help you to secure the best deal. You have been speaking to a BS artist and it sounds like you already know it.
As far as the price changing from house to house, that is normal for two good reasons that I can think of.
First, this industry has seen some major increases recently in materials prices and insurance costs. The price of housing is going up as we speak, count on it. There is a possibility that the builder barely broke even on the first one and has adjusted his price to reflect his job costing records.
Secondly, in a new developement, it is common to sell the first two or three homes at cost or a barely minimal profit to get the ball rolling. After people see a viable location with real people living in it, they feel more comfortable making a purchase.
You certainly can negotiate, but the negotiations on a yeeeet unbuilt house may prove unfruitfull. He is more likely to respond, " If you need to keep costs down, we can substitute this hardware that only lasts three yuears, put fifteen year shingles on the roof instead of the 25yr ones, and use the basic grade of carpet throughout instead of puting the hardwood in the living room and the tiles in the kitcehn, etc...."
Once a house is already built on spec, negotiations can be more likely to gain you something. The longer he sits on an unsold house, the more intrest he is paying out on it to be deducted from his profits.
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Most developers do enough volume that they know what their square foot pricing is for a typical home. Code does not specify trim levels or flooring quality, it is about safe and responsible habitation. Somewhat doubtful that a half mil home is not up to code. May have been talking about upgrading from the standard package or the other home was below the standard package. My biggest impression is the real estate guy. He didn't seem to have his facts if there was a reasonable explanation for the increase. How absolutely certain are you that the $130sq.ft. price was true. If that house was sold without the agent, you can add 7%, more or less, for the agent fee. Certainly would be easy to account for the other 7% just in less expensive windows, flooring,cabinets, etc. I would check out the builder more carefully and have a plan "B". Next time don't show everybody your money.
"Next time don't show everybody your money."
SamT
Don't worry about insulting the builder or wasting his time. You are a fish on the line and he will do what he can within reason to land the job. Don't worry about the reasons for the price increase for your house. It could be for any number of good reasons and you will never know the real reasons. I am sure that one of them is that the builder wants to make more money. Who wouldn't? Simply negotiate in good faith and understand that you will almost always give up something for a lower price. If you are a good negotiator, you will give up a little, get a lower price, and make the builder feel good about working with you. If not, there are many unpleasant outcomes, the least painful being a higher price.
I could care less what the RE is telling you.
for all you know he's stuffing "his" pocket beyond his commission....seeing what he can get above and beyond.
you should never have let him know what you sold your house for but thats neither here nor there.
the bottom line is what youre willing to pay.
One good thing you have going for you is that youre willing to pay all cash....not many people can do that in a lot of cases....you have no house to sell, you have the cash....the seller doesnt have to be concerned about you securing a mortgage....that should work for you, not against you from the sellers point of view.
You should make your best offer and stick to it.
Be well
andy
The secret of Zen in two words is, "Not always so"!
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Put your best offer on the table and make it clear you are willing to walk away if you don't get what you want. Then be ready to walk.
He may counter offer with $140 sqft
This is an area where houses tend to depreciate as they age. Did you really mean de-preciate? Why would you buy a house that you know will go down in value?
To answer your question ... everything is negotiable. Offer what you think is fair. If thre builder can make a profit and build a good house, he will accept. Otherwise he won't, but there's nothing forcing him to do the deal.
What about negotiating directly with the builder? Tell him you are not comfortable with the agent, but that you will agree to pay the comission anyway since he is alrready involved, but you want to get the facts straight from the source.
Whenever you are asked if you can do a job, tell'em "Certainly, I can!" Then get busy and find out how to do it. T. Roosevelt
Bad market, huh? Newly-built housing starts going down in value as soon as it's built. Right?
Let's calculate here. Your desired 3500 sf will cost you $150 sf times the 3500, or $525,000 for the house alone, and to that you add the lot cost. Since some of these lots, as you say, can cost between $20K and $100K more that the "least desirable lot," I'll presume that lot costs are in the neighborhood of $175,000.
So, who is telling you your $700,000 investment in new housing will start to go downhill as soon as you take possession? The agent? The builder? If it is truly so, why are his prices going up?
Why do you want to move there?
I have a friend who contracted for a finished home at a given appraisal value, when finished, he got extras, but with escalating values it's not adviseable to think you'd get extras , ONLY AND AT LEAST WHAT YOU BARGAIN FOR...(and call the mealy mouthed salesman a liar, and get your own representative...)
Guys,
First I want to thank you all for your time. This forum is an amazing resource for me.
Piffin - those both sound like logical reasons for a price increase (I was aware of the raw materials increases). If the listing agent had answered that way we probably wouldn't be having this conversation.
Hammer - the listing agent admitted the price and provided details of the contract of the only sold house.
SamT - you're absolutely right but I didn't tell him about my finances. I do have a local RE agent and she did. She is an elderly woman that I have done a few other transactions with so I feel loyal to her. She doesn't do much, but I would like her to get a commission.
Maverick - we are willing to walk (even though we would have to settle - this development is perfect for us) and when I let him know that he became very open to discussion. Without even saying anything he offered $140 without reduction to standards.
Ed Hilton - In this county there appears to be a mild appreciation over the last several years for all homes, however, 1-3 year old homes are without exception reselling for less than the original price. This info comes from the property transfer logs. I believe this is because new build are priced at the builders cost + profit whereas resale prices are determined by fair market value. Unfortunately I have to move soon and there are no acceptable resales at this time.
Bob Dylan - I have to move because I have accepted a job there. I have 2 young boys (1.5 & 4.5) and once they enter school I will be reluctant to move again. The reason I am willing to build a house that I know will initially take a hit is because my plan is to live in it for 10-15 years. Anything can happen to prices over that length of time and we want to build a house we will be satisfied with. At $140 the base is $490k, the lot premium (5 acres +walk out) is about $40k, +$70k of other stuff (4 car garage, nice kitchen, extra hardwood floors, etc...).
Thanks again for the advise.