New Home Prices And A Tip To Save Thousands Of Dollars

New Home Prices And A Tip To Save Thousands Of Dollars

Author: Danny Ferguson

Many new homes are built in the United States each year. A lot of these homes are known in the construction industry as spec homes. What this means is that the home builder picks out some land that he or she likes, a house plan that he or she likes, and builds the home on the property 'spec'ulating that someone will buy the home when it is completed. Most often the building professional contracts with a real estate agent to market the home to potential buyers. This whole process finally ends when the seller's real estate agent finds a buyer and closes the sale of the home.

This process has been standardized and is used all over the United States as well as many other parts of the world. Unfortunately, this process effectively drives the price of the new home up by 10-20% or more! There are two major reasons why this happens.

The first and most obvious reason is that the usual process includes one or more realtors. Anytime an extra component is added to a machine, the cost of the machine increases and risks of failure increase as well. The realtors usually add at least 6% to the price of the new home. This amount is equal to the commissions that they charge to market and sell the home. The builder must include this cost in their base price in order to receive the profit that they want. Also, the realtors limit the communication between buyers and sellers which often results in lost sales. This is especially problematic when the buyer and seller are represented by different realtors. Any messages that a seller wishes to communicate to the buyer or vice versa have to be transmitted through the two realtors. By the time the message reaches the intended recipient it has been reinterpreted by at least two people and the original intent may be completely forgotten.

A second major price driver stems from the uncertainty of selling a spec home. A competent builder should know approximately how long a home will take to construct, but if they are building a spec home the can only guess about the time it will take to sell the home. The builder's problem is that once the home is complete it can be very costly to maintain. Some of these expenses may include utilities, insurance, and interest on a construction loan which can easily add up to several thousand dollars a month. Also, as long as the home is unsold the builder may be unable to start another project if all his or her investment capital is tied up. These factors mean a builder has to increase the price of the home even further to make sure the project is profitable even if it takes a long time to sell.

Fortunately, there is an easy solution to these problems. Simply find a builder and contract with them to build you a custom home. A custom home can easily be tens of thousands of dollars cheaper than a comparable spec home. This approach eliminates the cost and hassle of dealing with a realtor, except maybe for purchasing the land. Also, the builder's uncertainty of selling the home disappears and they do not have to include any premium in the total price to compensate for this risk. These two factors alone can easily save a home buyer many thousands of dollars. Beside the monetary benefits, I have not even mentioned the benefits of choosing a home plan and designing a home to perfectly suit your tastes.

The fantastic results of choosing to have a custom home built are tremendous versus the alternative of buying a spec home. Everyone involved should be much happier with this process, except possibly the realtors...

About the Author
Danny Ferguson owns Homestead Community Development LLC an Oklahoma custom home builder and real estate developer