The Negotiations Process: What’s Different, What’s the Same?

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Found the dream home but not the dream price? Here are some things to consider with new home negotiations.

When you buy a resale home, you and your Realtor sit down to figure out the best bid, depending on a variety of factors including the home’s condition, how long it’s been on the market, other offers and so on. You often may have several rounds of negotiations before settling on a final price. 

But if you are building a production or semi-custom home, how much leeway do you have to negotiate the price or can you negotiate at all? Well, it all depends.

“The specific circumstances of whether a builder may negotiate has a lot to do with how a given community is selling,” says Brian Hoffman, vice chair and CFO of Red Seal Homes in Northbrook, Ill. “The economics of it are highly variable.”

If a community is new to market and is selling fast, you may not have as much room to negotiate as you might in a slower market. You also have to consider the size of the builder.

“A larger developer has its base prices and you can add extras on top of it,” says Carole Schoo, a broker-associate with Weesner Properties in Lexington, Ky. “A smaller builder may be more willing or able to negotiate.”

Because a builder has certain costs built into the base price of its various models, including construction costs, overhead and a profit margin, you may not get much traction trying to negotiate in that direction. However, builders may be willing to work with you on the customization of your home, particularly if you’ve chosen a semi-custom builder who already offers greater flexibility of options.

“It’s critical for buyers to think about what they want in a house, especially non-standard features. A buyer should articulate to the builder that this is the house, lot, floor plan I want but I have a few others things in mind that I’d like to look at,” Hoffman explained. This should happen early in the process so the builder has a chance to present what they can and can’t do and the costs involved. “Most builders have a mechanism in place, whether through their sales staff or design team, to begin building a list of what the buyer wants. If a builder doesn’t have that, you may want to reconsider them.”

Lots and Spec Homes

Other areas for possible negotiation include lot premiums and spec homes. Lot premiums in a given community typically are priced to provide opportunity for a range of clientele within the builder’s entire line of homes, according to Hoffman, and could be a place for negotiation because of that variability.

Spec homes — homes built on speculation of eventual purchase — are a great option for those who want new construction but don’t want to go through the multi-month process that comes with building from scratch, says Hoffman. “But you still get all of the benefits of new construction.”

But if a spec home has been sitting in the builder’s inventory for several months, “that’s when you can negotiate some,” Schoo says.

“I think the important message is that buyers should never be afraid to ask,” Hoffman says. “The answer may not always be yes, but there’s no shame in asking.”

A Word About Custom Homes

If you want a home that is completely unique and has your stamp on it 100 percent, then you may decide to build a custom home. But that will also require much more legwork for you — and opportunities to negotiate costs. 
First, you need to be clear about what you want in a home as well as your financial goal for your home. “A custom home has thousands of choices,” says Dennis Celsor of Texas-based Built Green Custom Homes. 

You will want to sit down with a builder to go over what you want. You should have specs drawn up, either by a designer or architect, that are clear but not excessive for the builder to go by.

“Take your time to decide what you want the contractor to bid out,” Celsor says, adding that the time frame to get bids back is typically a minimum of three weeks. Once bids are back, prepare to sit down with your builder to evaluate the costs and areas you can negotiate or change to get the home you want within the budget you want.

“The reality is that a client starts out thinking that he wants A, B and C, and then the ideas change as you go. So, some flexibility will be needed,” Celsor says.

Judy L. Marchman is a freelance writer and editor, with 20 years of magazine and book publishing experience. She covers a variety of subjects, including home-related topics. Her work has appeared in Kentucky Monthly, Keeneland Magazine and the Official Kentucky Derby Souvenir Magazine, among other publications.

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