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Steve McLinden, the Bankrate.com Real Estate AdviserHaggling over price of a new home

Dear Steve,
I'm a first-time home buyer and new at the real estate game. I understand about making offers to homeowners who are selling existing houses. But can you make the same offers to new-home builders as far as negotiating price? What else do I need to know about this process? -- Bailey Wick

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Dear Mark,
Sure you can negotiate. As with many new products where a sizable sum is involved (cars, trucks, RVs, boats, appliances, furniture, etc.), there's usually some wiggle room built into price points. But before you start haggling with a home builder, here are a few thoughts on how to get the best deal in this process without sacrificing quality.

There are four main choices when buying from a builder. You can buy a completed speculatively built house ("spec house"), you can choose a house from a builder's site plans, you can custom-design your own home with a builder or you can buy a house that is already under construction.

Your best bargaining position is probably going to be on a house that's already completed, particularly if it's been sitting around for awhile. Of these, model homes or new homes located in slow-to-fill subdivisions often present the best bargains. (If you can handle existing designs and appliances built into a model, you may save thousands in finishing costs.)

But if you're starting from scratch, shop around. Some builders will tell you that with the rising housing values, there's little room for negotiation. But unless the market is blazing hot, you'll probably be able to find a builder who is more than willing to negotiate with you -- especially if they know that you are shopping around amongst their competitors!

If you can't get your builder to budge much on price, but like his work and reputation, ask if he's willing to throw in a few extras in lieu of altering the sticker price. These can include anything from some or all closing costs to flooring upgrades or even a fireplace. Builders sometimes have more latitude to deal on physical items since they buy in bulk.

Another possible bargaining chip: If the builder offers you its own low-interest-rate financing option, ask if your home's sale price would be lower if you got your own mortgage.

Also insist upfront that the builder explain all contingencies that could increase the cost of the house to you at any stage of construction. Not all costs assert themselves in the base price.

Pay close attention to the builder's cost templates, which are called "allowances." These allowances apply to flooring, kitchens and options in other parts of the home. If the carpet you choose costs less than the allowance, the difference should be "reimbursed," or taken off the price of the home. If it is more than the allowance, the end price will rise.

During the negotiating stage, visit the showrooms of your builder's suppliers to see if you can work within his cost ranges. If these material prices seem high, ask the builder if you can use your own supplier, and then do a little legwork to find a less expensive or more desirable source.

Of course, always check the builder's reputation before you ink a deal. Contact the Better Business Bureau and follow up on customer references. Talk with prospective neighbors who live in homes constructed by the same builder.

To ask a question of the Real Estate Adviser, go to the "Ask the Experts" page, and select "Buying, selling a home" as the topic.

Bankrate.com's corrections policy -- Posted: Jan. 8, 2005
Read more Real Estate adviser columns Ask a question
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