Welcome to the latest episode of Inside Real Estate. Today, our topic is competing with the builder. Okay, so that’s one of the toughest situations for a seller to navigate is competing with a new home builder. Here’s the situation. You go see model homes. You fall in love with them. You’re thrilled to death. You buy the model home. You put all kinds of money into upgrades and landscaping to make it the way you want. Then 3, 6 months, 12 months, 18 months later, you need to sell your home.
That’s a tough one. If the builder is still selling homes, it’s going to be a challenge. So the fact is the builder will do whatever they have to do to sell homes. They’ll throw in upgrades and options and closing costs. And while they generally don’t like to reduce the contract price, they will do whatever they have to, to get it sold. The other fact is that buyers will always opt for a new home, or almost always opt for a brand new home over a resale. And if you don’t believe me, then what did you do? You bought a brand new home. Buyers generally love buying a home that’s never been occupied, and they will naturally be attracted to the brand new homes. So the general rule of thumb that I’ve observed over the years is if you’re resale listing and you’re competing with a new home builder, you need to be priced anywhere from 5% to maybe 10% below what the builder is offering that model for, to be successful.
And I’ve seen this play out many times. Why? Because again, buyers like the brand new home, it’s the same reason people buy brand new cars. They just love them. It would be smarter to buy a three year old car usually. They don’t care. They want what they want and that’s what they do. But what about upgrades, Doug? I mean, we put in landscaping, we put in the window coverings, we upgrade carpet, et cetera. Great point. But there’s still something about buying that brand new home that buyers like. They like to pick out their own things and that thrills the buyer to do that, even if it’s not quite as good a financial deal for them.
So at the end of the day, there has to be an incentive for the buyer to buy your resale home. If they have the option of buying a brand new one, the incentive translates into a lower price. So there has to be some financial incentive for them to buy yours. Or on some occasions, maybe you have a better lot, or a better location, or a better view than what you can buy in the model homes. In that case, you have a much better chance of attracting a buyer.
