3 Things to Negotiate in Your New Construction Purchase Contract

New home buyers discuss plans with the building contractor on the property.

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Having a new home built? Here are some key items to go after.

Key points

  • Some new construction homes let you customize your living space and have it built to your specifications.
  • If you're savvy in your negotiations, you could end up saving a lot of money on your build.

There are certain benefits you'll reap when you purchase a new construction home. For one thing, you'll get a property in spotless condition when you move in. You'll also, in many cases, get to customize your home to meet your needs. Want an upgraded kitchen with a double oven? Your builder can probably make that happen.

Plus, while you may have to take out a higher mortgage when you buy new construction, in exchange, you'll generally enjoy a number of years in your home without major repairs. Not only do new construction homes typically come with a builders warranty that protects you against workmanship defects, but most new appliances, like water heaters, have their own warranties.

But still, new construction can be a costly endeavor, especially if you're not careful with the purchase contract you sign. Here are three things you should aim to work into that contract to keep your costs to a minimum.

1. A lower escalation clause (or better yet, none at all)

It's common for newly built homes to include an escalation clause. That clause allows your builder to pass certain costs onto you if they come in higher than expected. And having one in your contract could make your home cost a lot.

Imagine you've entered into a contract to purchase a newly built home for $400,000 with a 10% escalation clause. That means your builder could end up charging you up to $440,000 if materials end up costing more than anticipated. Clearly, that's a huge difference. It's a good idea to negotiate any escalation clause you're presented with downward -- or, better yet, fight to have it eliminated.

2. More generous allowances

When you buy new construction, you're entitled to all of the basic features a home should have, like a kitchen sink, a stove, and lighting in your bathrooms. But often, those features will be what's known as builder-grade. That's a nice way of saying they'll be low-budget versions that aren't necessarily the highest in quality.

You may, as a buyer, opt to purchase some of those items yourself -- for example, upgrade to a stainless steel sink, a higher-end stove, and attractive lighting. If you do, you'll be entitled to an allowance from your builder for each item you provide yourself, the amount of which will generally be spelled out in your purchase contract.

But be careful. Your builder may try to lowball you on some or all of the items you might supply with low allowances. If you see that happening, fight for credits that are more generous.

For example, you may get an allowance of just $40 for a kitchen sink. Technically, it may be possible for your builder to procure one at that price point. But it may also be reasonable for you to argue that any decent sink will cost $100, not $40. If you decide to buy a $200 sink for your kitchen and fight for a $100 allowance, you'll spend less money all in.

3. More home upgrades

Your builder should spell out the exact features you'll be entitled to as part of your home's purchase price. But that doesn't mean you can't ask for nicer ones.

If your contact calls for laminate flooring, try getting your builder to include hardwood floors, which are more expensive, in your living room. Or, you can try negotiating for a nicer refrigerator or dishwasher than the models your builder is planning to provide. The more upgrades you secure in the course of your build, the less likely you'll be to have to renovate your home down the line.

New construction homes can be pricey. Don't hesitate to negotiate before you sign a contract to make your home as affordable as possible.

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