How to approach Builders’ Incentives

New-home builders frequently offer additional terms to help close sales quickly; these are usually called “incentives.” Incentives are frequently used at critical times, like the end of a financial period, or for particular models or lots.  Here are some of the most common:

  • Cost-reduction incentives reduct short-term or up-front costs. For example, a builder might use a cash contribution to closing, or waiver of premiums on the lot, as cost-reduction incentives.
  • Value-add incentives provide upgrades to the home being purchased.  A decorating allowance to upgrade appliances, floors or fixtures is a common value-add.
  • Value-to-buyer incentives are not necessarily connected to the house, but they are of value to the buyer.  A trip to Hawaii, a car lease, or a big-screen television are all examples of this.
  • Time-to-close incentives speed up the process.  For example, if the builder has arrangements with a lender, with details of their project and models already in place, the buying process could be accelerated.

While incentives can be emotionally tempting, try to evaluate them neutrally.  Would you BUY the item or addition?  What will it actually cost over time as part of the mortgage?  Is the price fair or inflated?  With lender arrangements, ensure that the terms are still fair compared to market terms.

As a final check, get advice from your real estate agent or certified new-home cobroker.

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