I recently represented a couple in buying a new construction home south of the city 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:
“There is no negotiation on price, earnest money or deposit of 4% of the purchase price (Wow), there are no contingencies, there are no “outs” in the contract for the buyer, and there is a $25,000 to $100,000 lot premium. There is only have one lot left in this first phase and once you sign the contract, there is no backing out and getting your earnest money back.”
Again, a big WOW. How things have changed in four years. Remember when builders would bend over backwards to get buyers to buy a new construction home instead of the thousands of re-sales, foreclosures, and short sales? What changed? Inventory! There are no re-sale homes on the market of any kind and those builders that have lots and land are in the driver’s seat. Because of very little new construction in the last year, those builders who have 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 because they can’t keep up with construction. There are not enough trade workers to build homes and this makes the building process longer. 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’s 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 over 200 people for just 100 lots. He’s handling it on a first come first serve basis. The moment he is ready to release the 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. A word for buyers: 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. In the meantime, 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 8 to 12 inherent problems with a 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. If you want to speak with me or our team about new constructions, please contact me at firstname.lastname@example.org
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