It pays to bargain with builder over price of new home

SMART MOVES

January 03, 1993|By ELLEN JAMES MARTIN

After spending 25 years in a two-story white frame house in the Ashburton area of Baltimore City, the social worker is eager to buy a brand-new home in Howard County. Could he negotiate with a builder for a better price? he wonders.

The answer is a most definite "yes," real estate specialists emphasize. Although a majority of home buyers believe that haggling over the list price of a new property is out-of-bounds, housing experts say it's not only appropriate but often very effective to bargain.

"When I bought my last new car -- a Buick LaSabre -- I told the salesman my bottom line and that if I didn't get it, I'd walk," the Ashburton man reasons. "I should be able to do the same thing when I buy a house."

Only a minority of buyers use this kind of reasoning when they buy a new home.

"People virtually never negotiate," said Michael Sumichrast, a builder and housing-trend forecaster based in Rockville. "They usually just accept the price of a new house -- the way they accept prices on items sold in stores. But why shouldn't you negotiate?"

Bargaining is considered routine in the housing resale market. Yet fewer than 10 percent of new-home buyers attempt to negotiate with homebuilders, Mr. Sumichrast estimates.

To be sure, your success in negotiating will depend heavily on the temperature of your local market. A cool market -- where there are more homes than buyers -- presents better opportunities to bargain than a warm market, real estate specialists say.

"The first rule of the game is that if it's a buyer's market, you certainly can negotiate," said Peter G. Miller of Silver Spring, the author of several real estate books. "In that case, builders would rather you bargain than walk away."

In the pit of the recent recession, opportunities to bargain may have been more numerous than they are now. But there are still many communities where incentives for builders to deal are strong. The trick is to assess not only the temperature of the market but also your builder's current position.

"Part of the negotiating process is knowing when to negotiate," Mr. Miller said. "Are people snapping up the builder's homes? Or is he desperate to sell what he has?" Mr. Miller suggests you determine.

*

Realty specialists offer these pointers:

* Conduct a little research on your builder's present situation.

Information is power. And a buyer who knows that a builder is having a tough time coping with creditors or moving his properties gains valuable information to use in bargaining.

"Talk to people who work at the development," Mr. Sumichrast advises. The builder's subcontractors can be surprisingly well-informed about his financial situation -- whether he takes 30, 60, 90 or more days to pay his bills. Obviously, a cash-short builder will be more anxious to talk terms than one with a flush bank account.

The builder's eagerness to deal will no doubt also be related to the number of unsold homes in his inventory. (Due to financing constraints, fewer builders construct homes on a speculative basis. But some still do.) The best way to count unsold units is to check the subdivision map that typically hangs on the wall of the builder's model or office. The map should have "sold" units marked as such.

A less reliable way to count unsold units is to drive through a development. An occasional builder will put a "sold" sign in the window of a property while it's still available -- hoping his sales efforts will seem more successful than they truly are, Mr. Sumichrast cautions.

L * Consider buying into a new community at the initial stage.

"Early buyers often have a lot of leverage -- because the builder wants to show momentum," says Mr. Miller, author of "Buy Your First Home Now," a HarperCollins book.

Granted, as a Phase I buyer you take extra risk when you commit to an unproven community. Yet in exchange for that risk, you could well get a lower price -- or extra options -- thrown in. The builder may sacrifice in the early transactions -- figuring he can make it up later with price increases once his development is established.

Tracking new communities coming up for sale can be as easy as tracking the ads in your local newspaper's real estate section. To get even more of a head start, contact your local homebuilders' association or local government planning office.

* Don't be afraid to make a builder a low-ball offer.

Bottom fishing expeditions into the housing resale market are rarely effective. That's because a homeowner who receives a very low offer for his property often takes it as a personal affront and severs negotiations.

But bargaining with a new homebuilder, or building company, is far less personal. Your opening bid -- no matter how low -- may simply be seen as the first volley in a continuing negotiation process, rather than the end of the process, Mr. Miller says.

* Think of the home deal as a package rather than just one price.

Like a new car, a new home may come with many options. Whether or not you get a two-car garage, finished family room, fireplace, deck or upgraded appliances thrown in at the standard base price may well depend on your negotiating skill.

Builders are often more willing to negotiate over options than the base price itself. That's because a builder may be reluctant to set a price precedent for later buyers -- especially in an era when home transactions are routinely published in local newspapers.

Gaining extra options for the base price is equivalent to getting a cheaper base price in the first place. And chances are that -- given his business connections -- your builder will be able to provide you that fireplace at a cost less than you'd pay on your own, says Mr. Miller, the Silver Spring author.

"Think of the house deal as like a Christmas tree and the options that the builder gives you as goodies under the tree," he says.

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