When Do Home Builders Offer the Best Incentives?

Home builders offer the best incentives when new build sales start to plateau or drop. When fewer people purchase new construction homes, builders will begin to increase their incentive offerings to promote sales.

In recent months, sales of new build homes have started to fall – particularly due to rising interest rates and cost of living. As more of consumer income goes towards paying off debt, there is less income available for luxuries and vacations.

With this decrease in the number of sales for new construction homes – some builders have already started offering new incentives to boost sales.

Prior to 2020, home builders were frequently offering incentives to buyers to bring in new business. However, the two years that followed 2020 saw a boost in demand for new builds, amidst a shortage in labor and construction materials. In 2022 and 2023, we are now seeing diminishing sales figures – indicating that builder incentives are going to return.

For example, we’re already seeing builder incentives and credits coming back in places such as Cypress, California, and Sumter, South Carolina. Some of the nation’s biggest home builders have already agreed that tough times are coming in the next few quarters.

With some of the most rigorous builder incentives and offerings set to make way soon, let’s walk through the different types of builder incentives.

Types of New Home Builder Incentives

Free Upgrades or Upgrade Credits

This has been a very common incentive offered by home builders, even pre-2020. Most builders offered their buyers free upgrades or a monetary credit for upgrades. An example of a free upgrade might be one to a second-level paint tier or flooring specification.

Homebuyers also received upgrade credits in amounts ranging from as low as $10,000 up to $50,000 during the peak of builder incentive offerings. With the average home upgrade costing in the range of $70,000 to $100,000 – these upgrade incentives were very favorably viewed by buyers.

With rising interest rates and lower demand for new build homes, some builders have started offering upgrade credits for home buyers. If you are considering a new construction home, I recommend speaking to the builder about any incentives for the upgrades.

Recommended Read: New Construction Home Upgrades to Avoid

Upgraded Specs

This is a type of incentive offered by home builders who include specific features in the base price of the home. For example, the inclusion of higher ceilings or smooth ceilings in the base price would be considered an upgraded spec. In an effort to bring buyers to the table, builders will offer these upgraded features for no additional cost.

Builders offer elevations on the house plans they are selling, which means each type of home will have a different exterior style and look. As an incentive, the builder may offer a higher value elevation at the base price – which would also be considered an upgraded spec incentive.

Every builder is different in how they operate and the incentives they offer, so it is always best to speak to the local sales representatives.

Quick Closing Incentive

When builders find home buyers who are able to close on a new build quickly, they may offer a quick close incentive. These incentives may be a monetary reward paid directly to the buyer through the closing process. In other cases, the builder may decide to cover the closing costs in return for a quick close. These closing costs include the notary fees, taxes, and associated charges.

A quick close incentive can have a great deal of value for a home buyer who is short on funds after the purchase of the home. It will leave additional money in the hands of the buyer, which can be used for moving expenses, furnishing the home, or minor renovations.

If a buyer has financing ready, and is set to move forward with the new build purchase within two weeks, it is generally considered a quick close. It is recommended to ask the builder if they offer such an incentive, because many do not publicly advertise this offering.

Waived Condo Maintenance Fees

With condo sales, builders will offer to cover certain fees and expenses for the buyer. One of these is the ongoing condo maintenance fee. We have seen condo promotions that offer to pay a buyer’s condo fees for the first six to twelve months. In some extreme cases, some condo developers have offered purchases with a two-year condo maintenance fee waiver.

With cost of living rising, condo fees can add up to quite a bit of money by the end of the first year of ownership. It’s one of the reasons many buyers look for developers who can save them money during a purchase.

The monthly condo fee can vary from one developer to another, but the standard is between $0.25 and $0.50 per square foot. For a 1000-square-foot condo, a buyer could be looking at monthly condo fees of $250 to $500.

Military and Veteran Incentives

There are a few builders who understand how much our veterans and military workers have done for the country – and they offer special incentives for them. These military and veteran incentives/discount programs offer a few types of benefits:

  • A reduction on the base price of the new construction home
  • A reduction on the cost of upgrades
  • A fixed credit that can be used at the design center

Every builder is different, and not every builder offers veteran discounts and incentives. You should speak to the builder to ask about any special discounts and incentives they offer to military workers.

When paired with the VA home loan benefit, these incentives can add up to offer some significant value to the home buyer. With a typical VA home loan, buyers can have more money in their pockets due to the low down payment required.

Preferred Lender Incentives

When lenders partner with a builder to become their preferred lender, there will likely be a preferred lender incentive. With this incentive, a home buyer who uses the preferred lender will receive a discount or monetary reward at the outset of the transaction.

A preferred lender will understand the project, subdivision and appraisals in the area. It can be a benefit to the home buyer, as the lender is already familiar with the builder, their home plans, and the area.

It is important to know that a builder will not require you to use a preferred lender, but they may suggest it. If you feel there is no additional value in working with the preferred lender, you can use another institution.

As you may know, builders may receive a referral fee for each customer they refer to the lender. This is based primarily on volume, and how many referrals are provided to the lender. Either way, home buyers are rewarded through the preferred lender incentive.

There are several financial institutions and mortgage lenders who also provide cash-back and valuable discounts for financing through them for the first time. These lenders have been known to offer a significantly better incentive in comparison to the preferred lender incentive. We recommend shopping around for your mortgage because there are so many options on the market today.

Lot Premium Incentives

A builder will normally charge a premium on a desirable lot, such as a corner lot or one that overlooks a body of water. The premium charged for each type and size of lot can vary, adding up to several thousand dollars.

When sales are low, and builders are struggling to keep sales on target – they may offer lot premium incentives. You may not receive a premium lot for free, but you may receive a discount or credit on the cost.

Lot premium incentives are a highly sought-after incentive, and as a result – they are hard to come by. However, certain builders have offered these incentives in the past. With sales starting to dip into 2023, we are beginning to see a rise in builder incentives. In 2017, a few prominent builders gave their buyers a lot premium discount as sales were low.

If you are looking to purchase a new build home in 2023 and 2024, we recommend doing your research on builders and their builder incentives. These next two years will be highly recognized for it’s increase in builder incentives.