Understanding Closing Costs on New Construction
When purchasing a newly built home, many buyers focus solely on the list price, overlooking the significant impact of closing costs. These additional expenses can add up to 2-6% of the home’s purchase price, potentially straining your budget. However, savvy buyers can often negotiate these costs, even in new construction scenarios.
Why Builders May Be Open to Negotiation
Builders are typically more flexible on “things” rather than reducing the purchase price outright. This is because they want to maintain high sale prices for future appraisals in the neighborhood. Closing costs present an opportunity for negotiation that doesn’t directly impact the recorded sale price.
Strategies for Negotiating Closing Costs
Leverage builder incentives: Many builders offer incentives to use their preferred lender. While you should always shop around, these incentives can include reduced closing costs.
Ask for upgrades instead of price reductions: Builders may be more willing to throw in premium finishes or appliances rather than lower the price.
Timing is key: Negotiate early in the process, ideally before construction begins, for the best chance of success.
Use market conditions: In a buyer’s market, builders may be more open to concessions to close the deal.
Specific Closing Costs to Target
• Loan origination fees
• Title insurance
• Appraisal fees
• Recording fees
These costs can often be reduced or even waived entirely through negotiation.
The Power of Professional Representation
Working with a real estate agent experienced in new construction can significantly improve your negotiating position. They understand builder tactics and can often secure better terms than buyers negotiating on their own.
Alternative Approaches to Reducing Costs
If direct negotiation proves challenging, consider these alternatives:
• Request a closing cost credit: The builder contributes a set amount towards your closing costs.
• Explore lender credits: Some lenders offer credits in exchange for a slightly higher interest rate.
• Negotiate on points: Paying points upfront can lower your interest rate over the life of the loan.
The Importance of Due Diligence
While negotiating closing costs can lead to significant savings, it’s crucial to:
• Get all agreements in writing
• Understand the long-term implications of any trade-offs
• Compare offers from multiple lenders and builders
By approaching the negotiation process strategically and being open to creative solutions, buyers can often secure more favorable terms on their new construction home purchase.