New Homes May Be a Good Deal

With home prices sagging and builders often eager to reduce inventory, a newly built home might offer more for the buck than an existing home.

Some builders are offering buyers free finished basements -- a $30,000 to $35,000 value -- on some upper-end homes. Builders are also offering to pay closing costs and giving financing incentives, such as interest rate buy-downs, which can equal 4% to 6% of a home's purchase price. And those purchase prices are discounted up to 7% to 8%, say some builders.

"Builders are offering incentives to buyers that existing homes can't," says Stephen Holben of Holben Building in Denver. "If [buyers] deal directly with the builder, they can get the built-in broker sales commission deducted, or have it used to buy down their mortgage rate, or both."

Also, builders are often more willing to negotiate their prices than homeowners, because a vacant house is only costing the builder money, whereas home sellers can be sentimentally attached to their homes.

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Dealing directly with the builder without a broker or realtor in the middle can save money, too. Virtually every builder has a commission built into the price of a new or remodeled home to pay a broker. Usually, that is about 2.5% to 3% of the price of the home. But if you're not working with a real estate agent or broker, that fee can be deducted from the sale price.

"All buyers have to do is ask that that cost be deducted from the price, as it is a cost the builder will not incur," says Holben. "Most [builders] certainly are happy to do it."

In addition to the value at the time of the sale, "we find that subdivisions with new homes go up in value [at a faster rate] than existing ones," says Mike Evans, a real estate appraiser who operates Evans Appraisal Service in Chico, Calif.

"From a value standpoint, new homes are in newer neighborhoods and are more modern [than existing homes] and they have the amenities most people want," says Evans, who is certified through the American Society of Appraisers. Brand-new homes tend to be more energy-efficient than their counterparts. They also have modernized equipment installed and often come with at least a one-year warranty.

But, amid the housing-market slowdown, even those benefits haven't been able to prop up sales. The national median new-home price is projected to drop 3.0% to $239,100 for 2007, and then decline another 0.2% to $236,600 in 2008, according to the National Association of Realtors, and many people consider even those projections optimistic. New home prices overall are expected to be down 9.9% this quarter from the same period last year.

"At this point, many builders are bracing themselves for the winter months when home buying traditionally slows," says NAHB Chief Economist David Seiders. Builders are scaling down their inventories and repositioning themselves for the time when market conditions can support an upswing in building activity. "Most likely by the second half of 2008," he says.