Incentives Proffered by Builders: A Buyer’s Guide to Smart Decisions

Incentives Proffered by Builders: A Buyer’s Guide to Smart Decisions

Incentives proffered by builders to entice buyers to purchase their houses are a nice bonus if you’ve found your dream home. But if you are thinking about buying the place just because of the free add-ons, think again.

The Home Should Come First

Yes, financial assistance, upgraded kitchen cabinets, or a finished basement are wonderful extras, especially if you won’t be able to afford them once you move in. And the idea of getting “something for nothing” is, indeed, tempting, which is why builders offer them in the first place. But you are best served by taking a long, hard look at what’s being offered—especially if you are settling on a second, third, or even fourth choice just to score some unexpected, non-essential giveaways.

Buying a house is a long-term investment and an emotional experience like no other. So take as much of the excitement out of the equation as you can to make sound decisions. “So many builders are offering discounts and incentives that buyers have not only come to expect them, but they’ve elevated them to a position of utmost importance,” warns a Florida-based new home sales consultant. “Instead of focusing on what they want and the overall value in a home, they walk into the sales office fishing for the best discount they can find.”

How to Evaluate Incentives

Check for Price Inflation

A much better strategy is to first try to ascertain if the builder has jacked up house prices to cover the cost of incentives. If so, you might want to move on to another builder who isn’t hiding behind supposed magnanimity.

Beware of Inflated “Freebie” Values

The value the builder places on “freebies” is often highly inflated. For example, a $25,000 kitchen upgrade likely costs the builder half that amount. What you’re really getting is a $12,000–$13,000 kitchen—not a $25,000 one.

Lender Requirements

Many incentives require using the builder’s in-house mortgage unit or a chosen outside lender. For instance, Pre-ConstructionHomes.com recently advertised up to $70,000 in incentives—if buyers used their lender. While there’s nothing wrong with this, shopping elsewhere could yield better terms (e.g., lower rates or no prepayment penalties), saving you more over time.

Common Incentives to Consider

According to a 2014 National Association of Home Builders survey, these incentives have declined in popularity:

• Free vacations, cars, or boats: Only 1% of builders offer these, as they add no value to the home.
• Mortgage payment delays: Rarely offered today.
• Price-match guarantees: Few builders promise to match future price reductions.

Mortgage Rate Buy-Downs

With rising interest rates, some builders pay lenders to temporarily reduce your rate. For example:

• Year 1: 1.5% reduction
• Year 2: 1% reduction
• Year 3: 0.5% reduction

While helpful, compare rates elsewhere—you might save more long-term.

Home Trade-In Programs

Similar to car dealerships, builders may take your current home as trade-in. However, ensure they don’t undervalue your property. While 14% of builders offered this in 2014, newer companies like Offerpad and Opendoor are streamlining the process—but often at a discount.

Closing Cost Assistance

A popular perk where builders cover closing costs or loan points. However, this often ties you to their preferred lender.

Final Tips

• Don’t rush: Ignore pressure tactics like “limited-time offers.” Incentives are always available, even in strong markets.
• Negotiate: If upgrades aren’t appealing, ask for alternatives like rate buy-downs.
• Appraisal impact: Incentives may lower your home’s appraised value, affecting long-term equity.

“Incentives don’t disappear, even in the best of times. Even in good times, builders will throw things in.”