How to Make Comparisons When Buying a New Construction Home

When shopping for a new construction home, few potential buyers get into the important details that would help them make appropriate comparisons. One item that most buyers consider but don’t evaluate deeply enough are the standard items included in the price. Some builders are notorious for what they do or do not include. National builders, such as Toll Brothers, will include top of the line kitchen packages, efficiency packages, and floor plans that incorporate a lot of flair and distinction. At the other end of the spectrum, in most markets, KB Home will offer you next to nothing beyond the basics. Many buyers will be put off by KB and fall in love with the builder who offers more, even though the pricing per square foot is higher. I would strongly recommend that buyers evaluate the entire value of the home/property as a whole. This is very important. You want to compare apples to apples, not apples to oranges.

Here is my recommendation for evaluating and comparing new construction home in an apples-to-apples way. First, I would get a list of ALL the builder’s options with pricing included. Now this may seem easy, but when you’re trying to compare two or three homes you may be considering, it can be a little daunting. As a buyer (or as a Realtor trying to make comparisons between builders for clients), you will need to take into consideration kitchen sizes and floor plan layouts, and then estimate the savings or the advantages that each builder offers. The following is a simple example. In real world situations, usually over 2000 choices need to be made when purchasing a new home.

KB Home offers a 2500 square foot home with laminate countertops, vinyl flooring in wet areas, and 8-foot ceilings. Offered at $234,990.

Pulte Homes offers a 2100 square foot home with laminate counters, tile floors (13×13) in wet areas, and 9-foot ceilings. Offered at $239,900.

Pepper Viner offers a 2200 square foot home with granite slab counters, tile floors (20×20), 10-foot ceilings complete with 42-inch upper cabs, etc. Offered at $255,900.

So which house is the best overall deal (assuming you like them all equally)?

Evaluating the KB: the 9-foot ceiling upgrade package that makes the doors 8-feet tall (instead of 7ft) and increases the size of the upper cabinets in the kitchen runs $5500. To upgrade to nice 18×18 inch tile will increase the price by $3200. Granite slab counters increase the price by $2500. Total increase in price to get the home acceptable to you is now $246,190. In dollars per square foot, it’s now $98.48/per square foot. (246,190/2500=$98.48/square foot)

Evaluating the Pulte: upgrading the counters to granite slab runs $2200. (Pulte will usually cost less on upgrades because they don’t offer as many options, lowering costs.) 18×18 tile will cost $2750. Unlike KB, they already giving you credit for the basic 13×13. This brings the total price of the Pulte Home to $244,850, which is $116.59 dollars per square foot.

Evaluating the Pepper Viner: Everything is how you want it. The final price is $255,900, or $116.32 per square foot.

In this very simple example, we have found out that the KB is much cheaper per square foot — almost 20% cheaper. The Pulte seems to be the worst deal of all. Is the Pepper Viner worth 20% more? Assuming you can afford it, here’s how I break it down for my clientele. The KB is far and away the cheapest home. However, what was not mentioned is that the 2500 square foot model is the largest home they offer in the neighborhood, meaning that your home would be surrounded by smaller homes. In a perfect world, you would want the exact opposite. The Pepper Viner is the smallest model they build. Their homes start at 2200 square feet and they go up to 4100 square feet, meaning that you would be surrounded by larger, more expensive homes. This is very important to consider. In addition, the Pepper Viners will usually have higher-end buyers who put a lot of options in their homes. If you choose to take it with no upgrades, this means that again you have a smaller, less expensive home, surrounded by bigger and more expensive ones. Now this difference is worth a lot! There are other factors to consider as well. Are the Pepper Viner lots much larger then the KB’s? Is the Pepper Viner’s home in a gated community? What incentives are the two builders giving? It’s hard to attach a dollar amount to some of these. In my opinion, it could be worth 5% to buy a smaller home surrounded by larger, more expensive homes. If the community is gated, some appraisers will add on 10% to a home. Gated communities are far more in demand than ones that aren’t. So, like I have stated previously, just looking at a price and a model home will do little for you as a buyer. One must dig much deeper to truly evaluate the entire builder/property being offered. In my professional opinion, you would be doing yourself a favor to hire a Realtor who has a lot of knowledge in new construction to help you go through all the details when making comparisons.

When negotiating with the new homebuilders, also keep in mind that you can use these comparisons to argue for more incentives and a better deal. I know I would be using them to argue on a client’s behalf. Builders know what everyone is doing down to the cent, and when buyers are smart enough to also acquire this knowledge, they command a lot of negotiating power. They know a builder’s weaknesses. Builders LOVE to use the fact that they operate in a very complex industry that few understand completely. They use this knowledge to beat back consumers who think they know how to negotiate but don’t have any idea how to put together comparisons or know how much upgrades and incentives truly cost that builder. It goes without saying that these comparisons and builder knowledge offer buyers immense power that will save them thousands if not tens of thousands off the price of their brand new home.

This entry was posted on Wednesday, August 6th, 2008 at 1:57 pm and is filed under New Construction. You can follow any responses to this entry through the RSS 2.0 feed. You can leave a response, or trackback from your own site.