Searching for new construction

From the Real Estate Journal.  Quite literally, some have told me that they have been getting “absurd” offers considered and even accepted.

Do consider this, when seeking out new construction – those on site typically represent the Seller/Builder – not the Buyer.

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5 Comments

  1. Matt February 5, 2007 at 20:44

    Jim,

    What about those of us who are still looking to build? Without the forces of inventory on our side, can we hope to score an “absurd” deal as well?

    Matt

  2. Jim Duncan February 5, 2007 at 20:56

    Very interesting question. The honest answer is – I don’t know (yet). There is certainly more leverage for a buyer to make an offer on an existing property.

    What effect will the market shift have on building new? Labor costs haven’t dropped, nor have material costs … more thought is required.

  3. Jim Duncan February 6, 2007 at 11:00

    Further thought – the builder’s flexibility/negotiation room will depend in large part on how much inventory that particular builder currently has on the market. From a buyer’s point of view, perhaps making a larger deposit would allow the builder to be more negotiable in their pricing.

    The larger deposit would allow said builder to use that money immediately, which may be a greater incentive than a higher final cost four or six months down the line.

    Still thinking …

  4. Jim Duncan February 8, 2007 at 18:56

    And more thoughts … building from scratch, in short, provides far less opportunity for low-ball offers than existing new construction that is finished and sitting on the market.

    Builders’ costs, for the most part, are relatively fixed.

    Consider:

    Lot cost from the developer. Builder eats that cost and there is little to no negotiation. So if the builder has to pay ~$100k for the lot, the builder pays $100k for the lot.

    Labor and materials – mostly fixed.

    Profit – believe it or not, builders don’t make 50% profit on every property. It is more in the neighborhood of 10-20%, so any negotiation is coming directly from their profit.

    So, looking for completed new construction that is sitting on the market provides the best opportunity (from the buyer’s point of view).

  5. TrvlnMn February 9, 2007 at 11:13

    Lot cost from the developer. Builder eats that cost and there is little to no negotiation. So if the builder has to pay ~$100k for the lot, the builder pays $100k for the lot.

    I remember the “good old days,” when a person could buy the lot without having to purchase it from the developer. Ah what a grand old time that was. 🙂