When Builders and Developers determine the price for new construction homes, it usually starts with the land.
Have you ever wondered why the exact same home in one community costs more in another community? Broker/Owner Kathy Sperl-Bell explains the factors that affect home prices and the reasons they can vary between communities.
Why does the same home cost more in that community?
Hi, this is Kathy Sperl-Bell at Active Adults Realty in Delaware. And you may have noticed that in southern Delaware, in particular, the same builder is building in many communities simultaneously. So we do get this question often. And it helps to understand that all real estate begins with the land. So who owns the land and when did they acquire it? Sometimes the landowner is the builder, but not as often as you might think. So let’s go back and look at how it all starts.
Most likely it was the farmer who sold the land to a developer. At Heritage Shores, for example, that used to be Passwater’s Farm. So when you go into the clubhouse at Heritage Shores, you’ll notice the restaurant was named for the farmer. It’s called Passwater’s Restaurant.
Sometimes the builder is also the developer. But not as often as you might think. And why does this matter? It matters because it helps us understand the pricing and how each of them actually make a profit. When the land is sold to the developer, the developer has a lot to do before you buy your house. They need to put in all the infrastructure. The roads, the water, the sewer. They need to decide on who is to build the amenities. They need to decide whether they’re going to bring in one builder or multiple builders to sell those lot home packages to you.
The developer is going to make their money from the sale of the lots. And that explains why you have those lot premiums on some of those very desirable lots backing to ponds or backing to trees because the developer is not making any profit on the sale of those first few phases. Their profit comes later.
The same thing with the builder. You have different kinds of builders. The builders that are building quick delivery or spec homes. When you see those homes advertised, their profit is actually built into that advertised price. But builders that are advertising homes priced at the base model price, while there may be some profit in there, they really are making their profit when you choose those options and upgrades and spend an additional 30 to 50% added to the price.
But still, why does the same home cost more in this community than that community? Well, there can be other factors affecting the price. Community standards. It could be that in this community, all the homes are required to have HardiePlank siding which is much more costly than vinyl siding. It could be in this community the builder has elected to put hardwood floors throughout or granite counters in the kitchen. It could be due to incentives. And incentives certainly vary from community to community and month to month.
So the basic formula is the cost of the lot plus the cost of the home plus the cost of options and upgrades minus any incentives. That’s the cost of the home to you. And could it be that the builders deliberately make it difficult to compare apples to apples? All the more reason you need a realtor from Active Adults Realty because we dig deep to make sure that we have all the answers as you’re making a good purchase decision.
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