If the forces of supply and demand are heating up the local real estate market, buyers can't expect sellers to offer much in the way of incentives. But if the market has been cooling off, or homes are not selling quickly, sellers and builders alike will offer what are seemingly generous incentives.
With lack-luster real estate markets in many parts of the country, home builders, as well as real estate agents, are resorting to new extremes when it comes to offering home buyers both deep price cuts, and an abundant array of incentives.
In this article, we're going to explain how market forces determine the lengths builders will go to offer these inducements. We're also going to cover some of the more common and extreme offerings that might be seen when a real estate market slows down.
Most real estate markets are fairly efficient. That means they normally follow the economic forces of supply and demand. When there are more buyers than sellers of homes, the real estate market is said to be "hot" because homes will sell quickly. But when supply outstrips demand, then builders might find themselves with a large supply of unsold homes, which can create cash flow problems for these companies.
Builders and developers make money by selling homes, not just building them. If their inventory gets too large, it will tie up money they need to pay their bills. That means they have a lot of incentive to either lower the price of the homes they're selling, or throw in special features to entice buyers to grab some of their inventory.
We're going to talk about some of the incentives that could be found back in 2007, when the housing market was struggling, and builders started to find themselves with many unsold homes. While actual experience will vary, these examples provide buyers with a good feel for what a builder can offer if they really want to sell a home. The following examples were found in Pennsylvania, Virginia, Texas, California, Nevada and Florida.
Keep in mind that what seems like an incentive on the surface might actually be a shuffling of price by the builder. For example, a builder might "overstate" the value of an upgrade or simply increase the home's price before offering a "free" upgrade. Whenever evaluating an offer, be sure to find out what other deals home buyers in a particular development were offered when they purchased their homes.
In a slow real estate market, an agent or builder might want to, or need to, increase their cash flow in the short term. This means they are looking for buyers that meet certain conditions or qualifications. Anyone looking to take advantage of an incentive needs to be prepared to be decisive and move quickly. To qualify for an incentive, a buyer typically is able to:
Individuals looking for a great deal on a home will be in a much better position to negotiate with a builder if they're ready to make a move.
About the Author - Home Builder Incentives (Last Reviewed on September 14, 2016)