Are you being lured by the Builder Incentives?
Most buyers are being lured by builder incentives. The Orlando new home market is highly competitive and incentives are just part of the game. New construction building is occurring all over Central Florida. With stiff competition for buyers, builders try to “out do” one another for your business by offering builder incentives.
New home incentives can seem attractive to lure you into a purchase, but do not fool yourself. There is no free lunch and the builders have made up for these incentives in other areas. Builders have everything budgeted into the price of the home. Buyer incentives, real estate commissions, impact fees, and construction costs have all been accounted for and added in. That is why builders steer you to use their mortgage company and title company as they are additional profit centers.
These builder incentives change as the market changes and based on how well a particular community is performing. Incentives could be better at a slower community, than at one with rapid sales activity. This year builder incentives are less than last year and the year before. A sign of a healthy new home market. The more business they have, the less they offer the home buyer.
Some buyers are having a difficult time finding Orlando resales homes, so they are turning to new construction. As demand for “new” increases, the builder incentives decrease.
What type of Incentives are Offered?
Builder incentives can include fancy upgrades, paying all your closing costs, gift cards, vacations or maybe even a free pool. How extravagant is that?
It is common for Orlando builders incentives to pay $5,000 to $10,000 toward your closing costs. You may even be able to get a Design studio credit from $2,000 to $20,000. There could be even better incentives on inventory homes. These homes are completed or near completion ready for sale, and builders want to get them off the books…especially if it is year end.
These builder incentives can change at any time, it depends on the demand for the community and builders finances.
Builders spare nothing to lure buyers in order to sign on the dotted line. They are in the business of making money and their entire operation is geared to entice you to buy. It starts with the friendly salesperson and beautifully decorated models that no one can afford to replicate.
Are builder incentives a good deal?
On the surface incentives always seem like a good deal, but once you dig deeper, things may not be how they seem.
Let’s take the closing costs for example. I know what you are thinking, the builder will pay almost all my costs! Yippie, I am saving a ton of money. Not so fast. In order to get the builder to a pay this you have to use the builder’s lenders. What buyers do not know is their lender have higher interest rates and higher lender fees.
What they fail to tell you, is that all or a portion of it will come from your own pocket. Stop and think about it. Sure, the builders offer this via a “lender credit”. A lender credit comes from your mortgage lender in exchange for you paying a higher interest rate. So essentially, you are paying for the closing costs money yourself over the life of the loan by being charged a higher interest rate. Buyers can opt for a lower interest without the lender credit.
Is the Lender Credit a bad thing?
Not necessarily. It can help buyers reserve their cash when the extra help is needed.
Not Disclosing it to the buyers is a bad thing.
All the builders structure their closing costs this way and they DO NOT DISCLOSE it to the buyers. It is absolutely wrong! They do not say, we will pay money toward your closings costs only if you pay a higher interest rate. The secrecy and practice is deceptive…and widespread.
Not only will they not tell you verbally, the builders will also not disclose in writing. Here is a real case example: Out of my recent seven new builder contracts, there is only one builder that bothered to disclose it in their contract. The other contracts make it seem that the money comes from the builders pocket, again not so.
Buyers would be shocked to know they are paying for their own closing costs
over the course of a 15 or 30 year loan.
As an experienced Broker, I ask every sales person “who pays the closing costs?” The response is either a combination of builder pocket & lender credit, or just by the lender. One builder told me that they pay a portion of the closing costs and other portion comes from the lender credit. After the buyers closes, they go back to the lender to get reimbursed the portion the builder paid out of their pocket. So in the end, the lender really paid 100% of the closing costs, and the buyer paid for it again. None of this is disclosed to the buyer.
Are you being lured by hefty design credits?
A top builder in the area was offering a $35,000 design credit, but first, you had to spend $70,000 on upgrades. Now that seems like you can really build a house with alot of “bling”. Yes, on the surface it appeared that way, but once the buyer was under contract and attended their Design appointment, they quickly learned everything was an upgrade. They realized those upgrades were grossly overpriced and these “free” incentives did not stretch very far.
How to get the most out of the builder incentives…
Here are some options:
- Compare lenders. Get a quote from another (outside) lender and see if the builders lender can match, or do better on interest rate and lender fees.
- Negotiate closing costs using an outside lender.
- Use an outside lender and give up closing costs. Some closing costs are offered at few thousand dollars. It is so low that you really should shop around.
- Buy an inventory home. The builder may be more flexible on incentives, and some offer discounted interest rates on those homes.
- Be ready to seize the opportunity. Buyers who get the best deal or get the best lot, do their home work before they walk into a builder. They also bring me along to keep them on track. That means that you are walking in Pre-Approved in what you can afford, you know the type of loan you are doing, already know how are going to relocate, know whether you need to sell your home or not, have your cash deposits ready, and utlimately know what you want.
- Studying Design options from builder to builder. This is actually harder to nail down as design options offered are different from builder to builder, pricing can change, and price list can be confusing to sort out.
- Buyers can save money by avoiding these costly mistakes.
As a top Buyers Broker, I will help you avoid the builder incentive traps. Call me to explore some good new construction options. Erika Phelan 407-539-1053.