Buying a custom build home with a ~112% over LTV - negotiation advice

**manatbay** · 04-01-2011, 01:47 PM

My family has been looking at moving out of our current neighborhood due to our family's growth for about 1 1/2 yrs and finally found a custom home builder willing to work a deal... My questions are related to this deal and whether it is a deal. Here are the numbers:
Price Item
$170,000 Amount owed on current house
$150,000 Sale of House (Builder offer price)
$20,000 Difference from Sale
$9,750 6 1/2% Closing costs
$29,750 Total Money needed to Sell house
$300,431 Cost of the new custom home (with no discounts)
9.90% Cost % ratio to Medium Option custom home build

The new home builder has offered to pay "Sale of House (Builder offer price)" above or $150k which is roughly the fair market value based on comparisons in the neighborhood. Doing this also saves us closing costs which my family would have to pay in addition to "Difference from Sale" if we sold the house ourselves (with an agreed agent cut commission - per the agent's suggestion). The "Cost % ratio to Medium Option custom home build" represents the % of the ratio of cost "Total Money needed to Sell house" divided by "Cost of the new custom home (with no discounts)."
The main question I have is that my expectation of the builder cutting the $300,431 price down 9.90% to cover the "Total Money needed to Sell house" unreasonable? In other words, is a ~10% price discount unrealistic to expect from a builder in this market? The real problem my family has is all the money we have to put down for the new house plus more (we don't have) would be consumed by the "Total Money needed to Sell house" otherwise.
My family and the builders are just starting negotiations and I'd like to have an idea of what a realistic and fair outcome is. To me, my family could sell on our own and buy used and get the same house in a comparable location for the cost of the new home less the total money to sell our original home which seems to me proof enough that the new build should ante up.

Any suggestions would be greatly appreciated, Thanks, Zach

**Greg** · 04-02-2011, 06:11 AM

Nobody knows what the builder will or can do. If you idea won't cover the builders cost then you don't want to go into this deal even if the builder agrees. The last thing you want is a builder trying to cut corners to make the deal work.

Before you sign anything you need to talk to some lenders and not just the builders lender to find out if your idea is even possible.

**manatbay** · 04-02-2011, 09:23 AM

Originally Posted by Greg

Nobody knows what the builder will or can do. If you idea won't cover the builders cost then you don't want to go into this deal even if the builder agrees. The last thing you want is a builder trying to cut corners to make the deal work.

Before you sign anything you need to talk to some lenders and not just the builders lender to find out if your idea is even possible.

Thanks Greg, those are some valid points; I don't know if the builder will tell me their true cost, but I would definitely not want to go within 5% of that (they need to get paid for any kind of incentive to build quality and guarantee it). The builder is Greenstone, who in my area is rated very high for quality and value preservation. What kind of questions would you ask the builder?

1. What's the true cost for this plan/options/lot?
...

As far as other lenders, I've talked with two other lenders which basically repeated what you stated "Nobody knows what the builder will or can do," but they stated it's possible and my pre-approval was not blocking any deals including my family renting and buying.

Thanks,