The Builder Is Offering $100K+ in Incentives. What Should You Actually Do With It?

A builder offers you $100,000, $150,000 or more in buyer incentives.

Sounds pretty straightforward, right?

Not exactly.

One of the biggest misconceptions I see with new construction is that a large builder incentive is basically the same thing as taking that amount off the price of the home. It isn’t.

Depending on the builder, your financing and your individual situation, that incentive may be used in several different ways. And how you use it can sometimes matter just as much as how much you’re getting.

That’s why, when I see a big builder incentive, my first question isn’t simply, “How much are they offering?”

It’s: “What are we trying to accomplish for this buyer?”

What Can a Builder Incentive Be Used For?

Every builder and transaction is different, but incentives may potentially be used toward things like:

• A permanent mortgage rate buydown
• A temporary rate buydown
• Closing costs and prepaid expenses
• Upgrades or personalization
• A reduction in the purchase price
• A combination of several of these

There can also be limits on how much of a builder or seller credit your particular loan allows you to use, which is why it’s important to involve your lender in the conversation.

The key is that there isn’t one “best” way to use a builder incentive.

Start With What Matters Most to You

This is where I think buyers can get overwhelmed.

You don’t necessarily need to become an expert in discount points, temporary buydowns or seller contribution limits before buying a house.

Instead, start with a much simpler question:

What would make this home work better for you?

If the monthly payment is the biggest concern, we may want the lender to explore what a permanent rate buydown could accomplish.

If preserving cash is more important, using the incentive toward eligible closing costs may make more sense.

If you’re buying early enough in the construction process, perhaps there are upgrades or personalization options that would otherwise come out of your pocket.

And if purchase price is your biggest concern, we can explore whether there’s an opportunity to negotiate there instead.

Sometimes, the answer is a combination.

Why Builders Don’t Always Just Lower the Price

This is one of the things that makes negotiating new construction different from negotiating with a typical homeowner.

A builder may have several homes to sell in the same neighborhood. Today’s sale can become tomorrow’s comparable sale, so reducing the recorded sale price isn’t always their preferred option.

That can make builders more willing to negotiate through incentives instead.

It doesn’t mean price is never negotiable. It simply means price is only one piece of the negotiation.

And sometimes an incentive can create more meaningful value for a buyer than a comparable reduction in purchase price, particularly if it significantly changes the monthly payment or cash needed at closing.

A $100,000 Incentive Doesn’t Necessarily Mean You Can Use $100,000

This is an important one.

Just because a builder advertises a certain incentive doesn’t necessarily mean every buyer can use every dollar in every way.

Loan programs have different rules regarding seller and builder contributions. Your lender needs to determine what applies to your specific financing.

That’s why I like to get the lender involved early and ask them to run actual scenarios.

Instead of wondering whether a $100,000 incentive “sounds good,” we can look at what it could actually do for you.

Don’t Just Negotiate the Price. Negotiate the Deal.

After working on hundreds of new construction transactions, one of the biggest things I’ve learned is that builder negotiations aren’t one-size-fits-all.

I’m looking at the list price, but I’m also looking at the builder’s other inventory, how long the home has been available, whether it’s completed, what incentives are already being offered, comparable sales and what matters most to my buyer.

Then I can work with the buyer’s lender to look at different scenarios.

Maybe we use more of the incentive to reduce the monthly payment.

Maybe preserving cash is more valuable.

Maybe we negotiate price.

Maybe there’s a combination that makes considerably more sense than any one option by itself.

The goal isn’t to get the biggest incentive. The goal is to structure the best overall deal for you.

Considering New Construction in Seattle or the Eastside?

If you’re looking at a new construction home with a large builder incentive and aren’t sure what to make of it, you don’t have to figure out all of these options yourself.

That’s part of what I do.

I specialize in new construction and have worked on hundreds of new home transactions. I can help you understand what the builder is offering, where there may be additional room to negotiate and, alongside your lender, walk through different scenarios to see what makes the most sense for your goals.

Have a new construction home on your radar? Reach out before you get too far into the process. Send me the property you’re considering, and we can talk through the incentive, the numbers and the different ways you may be able to structure the deal.

Builder incentives, mortgage programs and lending guidelines vary and can change. This article is for educational purposes and is not a loan quote or financial advice. Consult your lender regarding your specific financing.