What's the best way to negotiate price with a new home developer?
Thanks,
Mrs. Franklin
Okay, first of all, house plans don't do **** in way of truly helping you discern the cost of the home. If a builder gives you a price based on plans, alone, then they are merely giving you a line item set of allowances for the finishes/selections (flooring allowances, cabinets, doors, plumbing fixtures, etc). So 'bidding' against other builders when you only have plans without selections is dumb (even though EVERYONE does it this way). The builders simply give you smaller allowances to 'win' the bid and you are simply stuck with no money to treat yourself to anything at all. You find something you like for more than your budget? Great. The builder 'allows' you to go over budget and issues a change order.. which they charge you for, typically.
Here's what I recommend;
1) Interview 3 builders (or however many) and select one more for their personality and overall likability, as you will be working closely with them for several months on something that is very important to you. Ask them for references. NOT JUST ANY references, but references of the last 3 C.O.'s they've done. That way they are not cherry picking.
2) Ask them what the top 10 selections you can make in the home provides the greatest variable in the end price. (things such as cabinets, appliances, doors, flooring, etc) Then ask them to assist you with setting up appointments to look at, and make, those selections. With those selections and floor plans in place, get bids from your 3 builders.
3) Let the builders know you want a "cost plus" contract. Ask them, specifically, what their mgmt fee will be (will likely fall between 8 - 12%). Specifically ask each builder if they sub-contract any job to themselves. Meaning, are they making any money from this job other than the mgmt fee as outlined above?
4) Once you have selected the builder you like, ask them to prepare the construction agreement and email it to me (if you like). You are specifically wanting to understand the draw schedule and lien release protocol (I assume you will be utilizing a bank for construction loan and, if so, the bank will assure this is in place. ALSO, at the last minute, prior to signing the agreement, keep it a cost plus contract, but require the builder to add a "Cost not to Exceed" provision. Don't tell them early on that you will do this or they will inflate their numbers up front (a la letting a dealer know you have a trade in too early). The cost not to exceed protects you from cost overruns or unscrupulous builders that lie about what they think the house will cost, just to get your business, and then hike the price as the bills come in.
5) lastly, just say no to change orders.. it's merely a way for a builder to charge more than they quote. Just say no.
That's the framework. Let me know if you want more help.
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