What to know about new home pricing

Once you start shopping for a new home, many variables likely come into play as you narrow your search.  Location, amenities and style all factor in, but price typically tops the list.
 
Over the course of the last several years, home prices have trended generally upwards nationwide.  They rose from the lows of the 2008 housing crisis and maintained a steadily upward trend until early 2019 when they began to slow.  Fast forward to spring and summer of 2020 and prices began to skyrocket due to limited supply and homebuyers seeking to leave large cities.   In the metro Charleston market, prices have been increasing consistently since 2008 without any signs of a dip.  This is in part due to a limited number of homes on the market, as well as increases in labor and construction prices.
 
The Charleston Trident Association of Realtors announced that 2020 saw a 12.8%  increase since 2019 in average sales price, despite the instability of the pandemic and fluctuating financial markets.  The average sales price for the tri-county area for 2020 was $413,046.  Charleston reflected the national trend of shrinking home inventory with a drastic -55.8% decline in inventory of homes for sale since the year prior.  Inventory is still historically low while prices continue to rise in the Charleston area.
 
We have written about other aspects of new home prices including the best time to buy and negotiating prices on new homes. Read our article about negotiating prices on new homes. In this article we address some common questions that new home buyers are likely to have, and which impact your understanding of how a home is priced.

 

Let’s start with base pricing

You’ll often hear new home sales agents refer to the “base price” of the homes they are selling.  This is the normal price for a particular home plan on a lot and includes all the builder-chosen features and fixtures.
 
An easy way to describe base price is to think of it as a “starting price.” Your base price includes all the home’s standard features without any premiums for the lot or structural upgrades.”

You’ll find that every builder has standard features that they include in the new homes they build. They will have an info sheet available for homebuyers which discloses what those features are per home plan and the ones which are universal to the homes they build in the community where you are looking. In this regard, new home pricing is a lot like new automobile pricing — some things are standard, and some are add-ons or upgrades.
 
In addition to add-on’s in the home itself, lot premiums might increase the price of your new home.  Lot premiums are upcharges applied by the builder to select lots because of their location, size, views or what backs up to them. If you don’t want to choose a lot that comes with a premium, be sure to ask the builder’s representative to show you which lots don’t carry one.


 

How an “allowance” will impact your bottom line

Calculating a home’s sale price is very data driven and your builder knows fairly precisely what the cost of materials and installation will be.   Semi-custom or custom homes have allowances — essentially a budget line item — also thought of as a “not to exceed” number, built into the price of the new home. As the home buyer, you will be tasked with choosing your preferred finishes and fittings not to exceed the specified, allowed purchase price and materials type.

 

If you are purchasing a custom home then your builder will likely tell you what the allowance is and may send you to a local lighting center, for example, to select your light fixtures. If your home is a semi-custom build, your builder may have a selections center where you can choose your flooring, countertops, light fixtures, cabinets, and other items collectively called fixtures and fittings from a curated array.
 
The majority of new home communities are constructed by production builders. These builders have already determined which packages of lights, or cabinets, or floors are to be installed in their homes. You select from an established range of colors and finishes within a category (flooring, lighting, appliances, cabinets, plumbing fixtures, etc.). Some production builders offer you more latitude by allowing you to select (for an increase in price) higher priced fixtures and fittings which work with their home designs and floor plans. Do not worry, builders rely heavily on market research to know what hot items are popular amongst homebuyers so that they can ensure they are offering you appealing choices as part of their included offerings.


 

How incentives differ from allowances

It is easy for new home shoppers to confuse the terms “allowances” and “incentives.” Builders frequently offer incentives also called promotions to persuade you to choose them. For example, a builder may offer “50% off options up to $10,000.” Based on how it is structured by your builder, you are provided a discount or bonus to use in the selection of options on your new home build. This is different from an allowance per category of fixture of finishes, however it is easy to see that they may be thought of similarly. Note with such a tight supply of housing few builders are offering large promotions / incentives.


 

Options and upgrades can increase your home’s price

 
Similar to when you are shopping for a new car, homes can easily be optioned up. The list of potential options is usually lengthy and may include structural modifications per plan such as sunrooms, or bonus rooms above the garage, or upgraded flooring or premium quality appliances. Structural options will be noted on the floor plan provided by your builder. Upgrades to fixtures and finishes will be made available during your selections or design center visit. Be sure you ask your new home consultant how paying for these upgrades is to be managed. You may have to write a check for these at the time of selection, or they may be added to your home price allowing you to have them included in the mortgage. It may prove helpful to have your mortgage broker give you payment estimates at several different price points so you know how the increase in sales price will impact your monthly payment.
 
Builders sometimes allow buyers to receive credits for purchasing appliances or fixtures and supplying them during the home building process or installing them after closing. For example, if you purchase your refrigerator or washer and dryer to install after closing your builder will credit back to you (before closing) the price for the builder-grade appliance which was calculated into the home’s base price. Some builders might even allow you to purchase plumbing fixtures for them to install during construction. Because every builder has specific policies, you will want to be absolutely clear on your chosen builder’s policies on credits.
 
 

It can be easy to get a bit carried away when selecting a homesite, picking structural modifications and choosing design options, after all, this is supposed to be your dream home, right? But it is important during the purchasing process to be sure that you understand every aspect of the home’s final price.  Don’t be shy about asking for explanations in writing from your new home consultant or Realtor.
 
Select Realtors specialize in new construction and use their expertise and experience to provide additional support and insights to clarify your contract, construction and closing process, making them easier to comprehend and navigate.  Charleston New Homes Guide also provided resources for your education. And the bonus is that they are free!
 
It doesn’t pay to be shy about discussing price and all the aspects of how your new home’s price is determined. A reputable and trustworthy builder welcomes all questions and is there to support you every step of the way in building a home that fits you and your family.

 

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Thank you for reading and sharing our articles from The Greater Charleston New Homes Guide. Our business is to know Charleston, SC's new home construction, home builders, neighborhoods, and homes so we may assist you as you take your new construction home journey. Please take the time to explore our site. The Greater Charleston New Homes Guide is considered the best and most reliable ‘local’ resource to new home construction, builders, neighborhoods, and homes throughout the Lowcountry since 2004.

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