New construction incentives in San Marcos too good to be true?

Austin, Texas
Buying & Selling Real Estate
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New construction incentives in San Marcos too good to be true?

Omer Hassan
Member since 2020 · 7 posts · 1 vote

Hi BP family,


I'm looking at a new construction home, single family, in San Marcos that is being offered as a "home of the week" deal by the builder. They're offering about 75k worth of incentives, and I'm allowed to use that in a variety of ways.

I'm lowering the price by 65k, and using the rest towards closing costs so I can have cash on hand for the next property. 

I'm wondering if this is typical? 75k seems overkill for an incentive and I'm wondering if something is wrong here? I was able to get the seller agent to give a 30 day grace period where I can get my 1k deposit back for any reason. What can I do during that 30 days to make sure I'm getting the best deal possible? 

Original price is 375k and I'm getting it for around 310k.

Would appreciate any help here as I am investing out of state, though will be house hacking and living in the home for a bit. Also a bit worried about finding renters since its a bit far from the University, but still within a 10 min driving distance.

Thank you!

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Jay HurstBusiness Member
Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
2y
Quote from @Omer Hassan:

Thank you both for the info. This particular builder's deal is:

- offering 7k in closing costs

- adding appliances for ~4k (too much I know).

- And the rest of the 61k they're using to bring the price down from 370k to that ~310k 

So all in all 75k in incentives. But I'm not sure how that relates to the true value of the home, is it really 370k or did they just list it at that price and now the market has been corrected. Imo the house could really be worth 340k or something in this current market, so their incentives could be misleading. 


 what do the sold comps say?  Anyone can market a house for 375k, but then knock off 75k for a  "just for you" price, but is it worth the 300k?  I have no idea but you should before you buy it. The 375k number is irrelevant. 

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  • Jeremy EllisPro Member
    Real Estate Agent · Belton Texas · Member since 2020 · 18 posts · 15 votes
    2y

    I'm located just north of Austin, and our mega builders are offering some incredible incentives right now to move inventory. They're offering 3.99% interest rates (covering 6% of the home cost to buy down the rate), $10k in bonus money, plus a fridge, washer, and dryer.

    Because they can't stop building, they have to offer extremely good incentives to keep the product moving in this buyer's market. During the housing boom, it was the complete opposite—they even dropped realtor commissions to 2% and made buyers pay most of their closing costs.

    It sounds like a great time to buy. I wish i could purchase the SFR at these rates.

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  • Corby GoadeBusiness Member
    Investor · Boise, ID · Member since 2014 · 3k+ posts · 3k+ votes
    2y

    I can't speak to this exact builder or market, but I can say that many production builders offer huge closing costs, but it's often a marketing ploy and they know that you can't use at least a big chunk of that. 

    For one, they typically will not lower the contract price, they need to protect their comps, so the credit has to be used for closing costs, rate buy downs and "upgrades."

    The amount you can use for closing costs and rate buy downs is limited, so that leaves you with the majority of the credit for "upgrades," like finishing the landscaping, building a fence, installing sod, a sprinkler system, planting trees, buying appliances and installing blinds, etc. 

    I'm putting upgrades in quotes, because these are mostly things that people expect to be in place when they buy a new home anyhow. Builders typically charge 2-3X the market rate for those items, which becomes a new profit center for them, since you'd be throwing that credit away if you didn't use them. 

    In my experience, only about 75% of these huge closing credits can actually be utilized and the majority of that goes to egregious "upgrade" fees to the builder anyhow. 

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  • Omer Hassan
    OP
    Member since 2020 · 7 posts · 1 vote
    2y

    Thank you both for the info. This particular builder's deal is:

    - offering 7k in closing costs

    - adding appliances for ~4k (too much I know).

    - And the rest of the 61k they're using to bring the price down from 370k to that ~310k 

    So all in all 75k in incentives. But I'm not sure how that relates to the true value of the home, is it really 370k or did they just list it at that price and now the market has been corrected. Imo the house could really be worth 340k or something in this current market, so their incentives could be misleading. 

    1Reply
  • Jason Sousa
    Real Estate Agent · Austin, TX · Member since 2022 · 95 posts · 39 votes
    2y

    I agree, Lennar and David Weekly are giving away homes. 

    0Reply
  • Jackie Nyambura Everett
    Real Estate Consultant · Austin, TX · Member since 2023 · 30 posts · 8 votes
    2y

    The incentives sound amazing almost too good to be true. San Marcos is a great outdoors city with Texas State University right there so that's a plus. Look into home owners insurance and what types of warranties do your appliances have to keep them covered as they don't make stuff like they used to. Good luck!

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  • Jay HurstBusiness Member
    Lender · Dallas, TX · Member since 2017 · 1k+ posts · 1k+ votes
    2y
    Quote from @Omer Hassan:

    Thank you both for the info. This particular builder's deal is:

    - offering 7k in closing costs

    - adding appliances for ~4k (too much I know).

    - And the rest of the 61k they're using to bring the price down from 370k to that ~310k 

    So all in all 75k in incentives. But I'm not sure how that relates to the true value of the home, is it really 370k or did they just list it at that price and now the market has been corrected. Imo the house could really be worth 340k or something in this current market, so their incentives could be misleading. 


     what do the sold comps say?  Anyone can market a house for 375k, but then knock off 75k for a  "just for you" price, but is it worth the 300k?  I have no idea but you should before you buy it. The 375k number is irrelevant. 

    Hurst Real Estate, INC4.986 Reviews
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    1Reply
  • Omer Hassan
    OP
    Member since 2020 · 7 posts · 1 vote
    2y
    Quote from @Jay Hurst:
    Quote from @Omer Hassan:

    Thank you both for the info. This particular builder's deal is:

    - offering 7k in closing costs

    - adding appliances for ~4k (too much I know).

    - And the rest of the 61k they're using to bring the price down from 370k to that ~310k 

    So all in all 75k in incentives. But I'm not sure how that relates to the true value of the home, is it really 370k or did they just list it at that price and now the market has been corrected. Imo the house could really be worth 340k or something in this current market, so their incentives could be misleading. 


     what do the sold comps say?  Anyone can market a house for 375k, but then knock off 75k for a  "just for you" price, but is it worth the 300k?  I have no idea but you should before you buy it. The 375k number is irrelevant. 


    This sell is from DR Horton directly. The price drops are from using their incentives, this house has been listed for 330 days which worried me. When I spoke to the seller rep (from DR Horton) they mentioned it was because someone backed out last minute when they had closed on the deal. 

     Comps in the area are all sold for 350-370, but who knows they could have sold it as the listed price but didn't post the real sale value of the house after incentives were applied.

    0Reply
  • Rohit Narayan
    Ft worth · Member since 2015 · 9 posts · 0 votes
    2y

    Are they letting investor buy those?

    0Reply
  • Omer Hassan
    OP
    Member since 2020 · 7 posts · 1 vote
    2y

    I'm not sure

    0Reply
  • Russell BrazilBusiness Member
    Moderator
    Real Estate Agent · Washington, D.C. · Member since 2012 · 17k+ posts · 30k+ votes
    2y

    Hit the builder at the right time and you can get a deal. Builders are about deal flow. They need to move the houses of the books for various reasons. Many times it can be their construction lenders requirements to have a certain % of their inventory under contract. 

    I just got a new construction under contract at $100k off what they said was already their bottom price 2 weeks ago. In that case I suspect their crew just finished up another property and needed to be put to work on this house.

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  • Omer Hassan
    OP
    Member since 2020 · 7 posts · 1 vote
    2y

    How can I assess if this builders deal is a good one?

    0Reply
  • Blake Anthony CarterBusiness Member
    Real Estate Agent · Austin, TX · Member since 2020 · 102 posts · 51 votes
    2y

    New home builders are offering everything they can right now. It won't be a forever thing but it is a great opportunity right now.

    0Reply
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