One of the first things home shoppers learn is that the price they see on real estate listings is nearly always negotiable. And that same flexibility exists when buying a newly built home, too, in the form of builder incentives. Builder incentives are promotions offered by developers that, much like a coupon, cut the cost of purchasing property in that community. Incentives are increasingly common today to entice cash-strapped buyers to make an offer, yet these discounts aren’t always as simple as a straight price cut.
Here’s a guide to help homebuyers understand the various types of incentives, when and why they’re offered, and how to make the most of these deals today.
What are builder incentives, and when are they offered?
Homebuilders may offer incentives at any stage of the project’s development. Many happen at the initial launch to help generate buzz for a new community and get the first few residents on board. Incentives are also commonly offered near the end of a project when there are only a few homes left to sell, since builders might be eager to close the books.
Overall economic conditions that might slow home sales (such as high interest rates or a recession) might also spur builders to work harder to get buyers through their door. The type of incentive will vary based on what builders think will strike a chord with the target homebuyer at that time.
While many incentives are widely advertised, others are not and are discretionary. The only way buyers will know if this incentive exists is if they or their real estate agent asks for it.
“Occasionally, builders may have some wiggle room to provide to a buyer something like a refrigerator—new construction doesn’t always include one—or blinds, or something along those lines, to incentivize a buyer further to make a move during a specific time frame, like by the end of the month or quarter,” says Mackey. “If the builder has it, the builder’s sales representatives will know how to handle the question and they are generally happy to help the buyer as much as possible.”
Why builder incentives are on the rise today
During the red-hot market that began during the COVID-19 pandemic, when record levels of Americans were moving, builders didn’t have to offer many (or any) incentives for the homes they were building. Now that things are leveling a bit, however, homebuyers are starting to see a few more perks being thrown their way.
“In general, builders face similar conditions to other home sellers when it comes to pricing, and although home shoppers are interested, current mortgage rates, which are more than double year-ago levels, have drastically reduced affordability,” says Danielle Hale, chief economist for Realtor.com.
“Higher costs and uncertainty about the economic outlook have made home shoppers who can navigate today’s housing market more selective, bringing demand much more in line with supply than we’ve seen in recent years,” she adds.
“In most cases, builders today are offering incentives at every phase of a project’s development or sales cycle,” says Kelly Zuccarelli, national builder and condominium program manager for Wells Fargo Home Mortgage.
How to take advantage of builder incentives today
With interest rates on a 30-year fixed-rate mortgage more than double what they were a year ago and currently in the 7% range, Zuccarelli says they’re currently seeing builder incentives focused almost exclusively on providing buyers with a more affordable monthly payment.
One possible incentive that may be offered is a permanent interest rate buy-down, funded by the builder, that creates a lower monthly payment for homebuyers and reduces financing costs over the life of the loan. Another incentive being offered is extended interest rate locks, paid for by builders, which allow homebuyers to lock in today’s interest rates and insulate themselves against any future rate increases.
One other really interesting financing incentive homebuyers should know about is that some builders actually purchased “rate locks” when rates were lower than they are today and can offer loans below current market rates to their buyers.
Zuccarelli suggests that buyers worried about current interest rates may wish to seek out builders who purchased rate locks before mortgage rates started heading up.
That said, Seeman points out that current incentives are likely to be short-lived.
“You’ll notice most of the incentive programs are time-boxed in order to give builders as much flexibility as possible to adapt and adjust incentives depending on market conditions,” says Seeman. “As a result, if a buyer is ready to move, we recommend grabbing a good incentive when they see it.”
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