What a builder incentive is actually worth

The four kinds, ranked by what they are worth

Why builders prefer credits to price cuts

Because the recorded sale price sets the comparables for the rest of the community.

A $20,000 price reduction lowers the closed comparable that the next twelve buyers — and their appraisers — will see. A $20,000 closing credit does not. That is why the office will offer you almost anything before it moves the base price, and it is why “what can you do that is not the price” is a productive question.

It also has a consequence for you: a credit keeps the recorded price, and therefore your assessed value, higher. Over a decade in a Florida county at 18 to 20 mills, that is a real, recurring cost — see the arithmetic in the builder rate buy-down.

The condition attached to almost all of it

Use the builder’s lender, and often the builder’s title company.

Using the affiliated lender to earn an incentive is permitted and normal. Being required to use affiliated title or settlement services generally is not. Either way, the test is arithmetic: compare the builder’s package — rate, fees, incentive — against an outside lender’s deal minus the incentive you would lose. Sometimes the builder wins outright. Sometimes the incentive is funded by a higher note rate and thicker fees.

When incentives are largest

At the end of a phase, on completed inventory, and at quarter end.

A finished house sitting unsold costs the builder money every month. A lot that has not been started does not. The negotiating position on standing inventory is entirely different from the one on a build-to-order, and it is worth asking which you are looking at.