Twin Cities Real Estate & Market Report Updates

April 28, 2018

How much do builders make on a new home? Tips for not paying too much!

Throughout the Twin Cities, metropolitan area buyers are turning to new construction homes for convenience and for the fact that there is some inventory to look at. As of today, there are 541 new construction homes in the Twin Cities for sale under 500K and 477 properties for sale higher than 500K.  With a shortage of overall houses on the market, new construction has been a common turn for many buyers in recent months. 

Before building a home, builders have a baseline goal of somewhere around 11% for profit on any given build job. This is after all closing costs and fees to build are paid out.  On a typical 500K house, an average builder should be somewhere around $55K in profit.  There are many factors that can swing this profit one way or the other such as lot pricing, supplier pricing, municipal building permit costs & water/sewer access charges, state and local building codes and so forth. I have personally worked for builders who made far more of an effort to "put the screws" to buyers by profiting as much as 25% on new build jobs. 

By far, builders typically make the most amount of money on "pre-sold" homes. This is where you sit down with the builder and draft up your dream home. When doing so, the builder has very little carrying costs and a distinct timeline for when the project starts and ends. Buyers need to be very careful when pricing out their dream home. Builder's profit margins increase dramatically with the word "upgrade".  From knockdown ceilings to exotic hardwood floors, builders are profiting off of your extras and wants in a huge way. 

Here are absolute key items to know when going the new construction route: 

  1. Only reputable builders. Builders are trying to make as much money as they can, period. There is the old saying that you get what you pay for and this rings true with new homes. Some builders simply do a better job and have a proven track record. Moral of the story, do your homework. How long has the builder been in business? Has their name always been the same, or did they change it? (red flag) Check the BBB site and "google" for all information. Only go with reputable builders with a proven track record. 
  2. Look for quality finishes throughout. What type of finishes are in the houses? In recent years, builders have used woods such as poplar and alder to get prices down and increase profit. They sell this as the latest trend and make it look nice. They use dark stains or painted cabinets to cover imperfections. Wood floors are cheap and don't even have the ability to be refinished. Buyers should look for quality products that will last over cheaper flashy items that "look good". 
  3. Basements and decks. You typically do not find these items finished in new construction homes. Builders routinely do not put on decks or finish basements to "you guessed it", increase profit. But the fact remains, who doesn't want a deck on their home? Basements are sometimes partially finished by builders to add square footage or bedrooms to a home, often times leaving a bathroom unfinished. Basements are typically finished at a cost of $30 or less per square foot compared to $150 or more for the main and upper levels.
  4. Appraisal issues. Builders are always trying to push the top end price of homes, and this can sometimes lead to appraisal issues. Buyers need to know their areas pricing and try to stay within area guidelines. You do not want to be the most expensive home in the neighborhood! 

There is a multitude of additional tricks that builders use in new construction to maximize their profit. The bottom line for buyers is to be knowledgeable prior to walking into the model for the first time.  If you ask me whether you should be represented by a realtor (other than the builders) I would say an emphatic yes! Some buyers think that if they don't have representation they will get an automatic 3% in their pockets. This is true about 1% of the time. A good buyer's agent will know what to look out for, know the area, know the builders' reputation, and know the ins and outs of the process. Most builders gladly pay co-broke agents. 

Contact us for a free new construction consultation prior to heading to the models.  Be prepared! Don't go at it alone!

April 20, 2018

5 Tips To Get Your Offer Accepted

 

The real estate market continues to be white hot in the ultra-competitive first time home buyer market. This is where home prices have been steadily rising over the last few years at a clip that at some point will become unsustainable. 

This market is not that hard to figure out, it is simple supply and demand. For those with that liberal arts rounded education, you know what I am talking about with the terms "Guns and Butter".  In comparison to the real estate market, there would be very little supply of Guns and Butter out there. According to the Minneapolis Area Association of Realtors, the months' supply of inventory (the time that it would take for all homes to be sold) has dropped 22.7% in the past year through March 2018.  Simply put, the supply is just not there to account for all of the buyers. 

When discussing the market with other real estate professionals, the common thread is that the price range around 250K continues to be sizzling hot. Buyers are getting involved in many multiple offer situations and the competition is fierce. There are reports of 10, 20, 30 offers on properties that are priced to sell. The lower the price, the more offers the property should receive in this crazy market. 

%Here are 5 tips for getting your offer to stand out and get accepted

  1. You must take the pre-qualification step further. It is standard in the industry to get pre-qualified, but we recommend that buyers use a lender that gets them through underwriting and provides a solid approval. Your lender should also be active in the offer process and provide reassuring personal phone calls and messages to the listing agent explaining that their client is good to go.  
  2. Letter. It is highly recommended that buyers write a letter about why they want to live in the house that they are making an offer on. The key to this letter is to know who you are dealing with and to get a gauge on the personality of the seller. I have personally had clients get a home at a lower price than others because they wrote the perfect letter that tugged at the heartstrings of the seller. Make it personal. Some agents use a video message from the buyers to the sellers and that may work also, but the key is to know who you are dealing with on the seller side. Note: if you are making a lowball offer, forget the letter. 
  3. Experienced agents. Having an agent that is experienced is key, but just because they have been in the business for a long time does not mean that they are a good agent. I recently had an agent present an offer for a buyer that my seller considered a "low ball" offer. The agent is a fairly well-known agent in the area. This offer was shot over to me via e-mail with no phone call, no heads up, no follow through. Honestly, if that buyer knew how their offer was presented, they would fire that agent immediately, and they should! Buyers need to talk to their agent and ask them how they are going to present the offer. This is key. All forms of communication should be used, don't let your agent rely on technology. To find out more about how the Twin Cities Real Estate Team presents offers, schedule a call with us to see how we can help! 
  4. Communication & Strategy. Each offer presentation should be unique. Your agent should be formulating a plan with you and strategizing the best and worst case scenarios for your offer to get presented. Timing/earnest money/waiving inspections/offer price/lender/ etc. These items should not be a 2-minute conversation. Each home is unique and each buyer has different goals. You and your agent should be on the same page. 
  5. Reputable Company. Is your lender an unknown or online type mortgage company? If so, you've just dramatically dropped your chance of getting your offer accepted. This goes with your Realtor also. Are they working for a new or unheard of company? Is their office located out of their house? These are all factors that will be considered by an experienced listing agent and their seller. Make sure your agent is local/experienced/personable/knowledgeable/trustworthy/focused/full-time/dedicated/passionate/ and above is not desperate to make a sale. Remember this is, for some buyers, the biggest investment of their lifetime.  Would you trust your financial/retirement plan to someone who does this part-time or just is not experienced and educated? 

 

Written by: Travis Sabby