Buyer-Brokers and Upgrades

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Here is another question sent to me via e-mail from a reader who has previously written.

Q: I e-mailed you several months ago with a question and want to thank you again for your feedback. It helped a lot. Now I'm back with question No. 2.

I'm trying to get an idea of how much bargaining a buyer can do when dealing with home builders. My wife and I are planning to buy a new Ryland or Ryan home (there are model homes by each that appeal to us) this year. We weren't surprised that the cost of the upgrades we select can account for up to 20 percent of the cost of the house, but we aren't sure how or where we should bargain.

I've heard that most builders will not lower the base price of their homes, but will "throw in" upgrades and/or reduce the price of the upgrades. Do you have any idea how much upgrades tend to be marked up? How should I approach this type of negotiation? Do you recommend a buyer-broker for new-home negotiations?

A: I think you are letting the tail wag the dog, and focusing on the wrong aspects. Yes, everybody wants the best deal but that is a relative term.

Here is the reality of home building or any other business: If there is steady demand for the product, there is no need to discount; if there is little or no demand for the product, the price will be discounted to move the merchandise.

This begs the question, what is the real value of the product?

Home builders are manufacturers, manufacturers of homes. Just like any manufacturer, they will market their product for whatever the market price acceptance of their product is.

There is one national builder that advertises homes for $180,000, but the moment you visit its subdivision the sales agent will say that if you buy today they will mark the house down $10,000 to $20,000. Do you really feel that you are making a good investment with your housing dollar? What is the real value of the house?

Contrast this to local builder Miller and Smith's $170,000 Vintage town houses in Reston. It does not discount, not a penny. It outsold every similar subdivision, even the ones that deeply discounted. Did Miller and Smith lose some sales? It doesn't look like it. The chief operating officer of Miller and Smith, Spence Stouffer, said the company positioned its product for buyers who could recognize quality and value.

By this method, Mr. Stouffer said buyers received quality workmanship, innovative architectural designs and a superb Reston location. The "value integrity" of the neighborhood also was enhanced because the sales process did not become a rug bazaar.

Have you ever thought about the mixed message sent out by the rug or gold sales that say "50 percent off" on a good investment? If it is such a good investment, why does it have to be discounted?

Ryan, Ryland and any multiple-site production builder will have different base prices for the same model at different locations. The difference usually is in the cost of the land and land development. Some jurisdictions are more costly than others in which to build, and the cost is always passed on to the consumer.

Whenever you hear those bleeding hearts say "raise taxes on business," realize that business must get the revenue from somewhere and it will be the consumer of the goods and services who ultimately pays the bill.

If you work in Gaithersburg and the best price for the model you want is in Stafford County, is this a good deal? …