Are Builder Incentives Changing the Equation?

If you’re shopping for a home in Johnstown or Northern Colorado, you’ve probably noticed something that is changing the way buyers compare homes:

Builders are getting creative with incentives.

Rate buydowns, closing-cost assistance, upgrades, price reductions and other offers can make a new home surprisingly and recently, more competitive with existing homes—even when the new home has a higher purchase price.

And that matters to both buyers and resale sellers.

Why New Construction Can Be So Attractive

Comparing a $600,000 resale home with a $625,000 new home.

At first glance, the resale appears to be $25,000 less.

But if the builder offers a significant financing incentive, closing-cost assistance or upgrades, the buyer may find that the new home’s monthly payment and overall value are surprisingly similar.

That’s a powerful advantage for builders.

And it’s one reason resale sellers need to understand exactly what buyers are seeing and what you are competing with when buyers shop your home with new construction.

But Is the Incentive Really an Incentive?

This is where buyers need to look beyond the headline.

A “$20,000 incentive” sounds great. But what is it actually worth?

Ask:

• Is it a price reduction, closing-cost credit or rate buydown?
• Does it require the builder’s lender? Typically yes and you must check and see how their costs compare.
• Is the rate temporary buy-down or permanent, a 30 year-fixed rate? The extremely low advertised interest rate is a headline to entice the buyer to walk through the door.
• What homes qualify? More often than not, these “incentives” only apply to a select few homes
• Does every buyer qualify? Often it is a small percentage of buyers who qualify for the advertised rate.
• What is included in the advertised price? The “price” is not always “the price.”
• Are there lot premiums or upgrades? See above.
• Was the incentive just added to the price of the home? Is it really an incentive…
• What is the actual monthly payment and total financing cost? Make sure you are comparing apples to apples.

And remember:

A builder isn’t the only seller who can offer a concession.

An individual homeowner can also offer closing-cost “incentives”, pay for a rate buydown, make repairs, etc.

The important question isn’t simply “How big is the incentive?”

It’s:

“What am I actually getting for my money?”

Why This Matters to Resale Sellers

Today’s resale seller may not just be competing against other resale homes.

They’re competing against the builder’s entire value proposition.

A new home may offer:

• Brand-new construction
• Modern finishes
• A builder warranty
• New appliances and systems
• Financing incentives
• Closing-cost assistance
• A professionally presented model home

Presented in a way that the individual buyer walking through the model home door can both understand and resonate with is an advantage that is often hard to beat for the resale seller. Advantage Builder.

That doesn’t mean a resale home can’t compete.

It means the resale needs to be positioned around its total value, not simply its list price.

Location, condition, upgrades, finished space, landscaping, monthly payment and concessions can all matter. Play the cards you are dealt: An established community, how neighbors care for their homes and yards, mature trees, landscaping complete and additions such as decks, planters, hot tubs and more already included; not to mention all appliances including washer and dryer, window treatments & finished basements where applicable. Advantage Resale.

And There’s a Builder Lesson Here, Too

I’ve spent more than 25 years around construction, new-home sales, being a stay-at-home dad and residential real estate. I’ve seen this equation from both the builder and resale sides. As the buyer, the seller, the seller’s agent, the buyer’s agent, as a 1st time buyer, investor, move-up buyer, investment home. This is an industry and I understand.

Incentives are a powerful tool—but the biggest incentive isn’t necessarily the best strategy.

The strongest builder strategy isn’t necessarily the biggest incentive. It’s the incentive that creates the greatest perceived value to the individual buyer without unnecessarily giving away margin.

That’s where understanding the buyer, the competition and the inventory really matters.

New Construction or Resale?

There isn’t one right answer.

For buyers, compare the entire deal, not just the price or the advertised incentive.

For resale sellers, understand that you’re competing against more than the other houses for sale—you may be competing against a builder who can change the buyer’s monthly payment and perception.

And for builders, the goal isn’t simply to offer an incentive. It’s to create the right value proposition for the home, the community and most importantly, for the buyer.

The question isn’t just, “What does this home cost?”

It’s, “What am I getting for the money—and how does it compare with my alternatives?”

Thinking About Buying or Selling in Johnstown?

If you’re considering new construction, an existing home, or trying to determine how your resale property competes with nearby new construction, I’d be happy to help you look at the numbers from both sides of the equation.

The goal isn’t simply to help you buy or sell you a house. It’s to help you understand the options you have and the decision you’re making.