It's a weekend of new home touring. You blithely hop from model complex to model complex, amassing a hoard of expensive builder brochures. It's difficult not to blur them all together in your mind when the weekend is over. There is something curious you noticed, however. You have seen the same floor plan three times at three different communities built by the same builder, and they each had completely different prices. These new home communities were each within a half-hour's drive from one another, so why the huge difference in price for the same house?

Builders create identities for themselves by differentiating between their different product lines making allowances for both location and amenities, even when it is the identical floor plan they offer. To you and I, an "Emerald" may look the same at the "Motherlode" community as it does at the "Comstock" community built by XYZ Homes. The differences to the builder, however, can be enormous. There are many factors that go into a builder's bottom line when pricing their communities' homes.

Start with land costs, for one. The cost of the parcels the builder purchased for the higher priced homes probably had a significant impact on pricing. Add developer fees, permit fees, parcel size (larger lots), contractor pricing, environmental reports, special grading, and retaining walls, to name a few expenses --- whatever was required to get this community out of the ground -- and the builder may have a much higher cost of doing business for some homes than he did for homes even a few blocks away in the same area.

Next, study the "features" list in the developer's brochures. This is the sheet which describes the "included" features for the homes. Differences that take time to notice include appliance and lighting packages, exterior and interior detail work that is more costly (such as stucco or exterior detail, hip roofs, fancier window sills and doors, bathroom fixtures, and included countertop surfaces). Add landscape and hardscape (concrete) work that may come with the home, the extent of which may be more detailed at one series' home than the other. Don't leave out consideration for location, either. Amenities in the vicinity, which may include parks, greenbelt areas, golf course views, or central access to schools, shopping, or freeways, are special considerations. Landholders who sell these amenities to builders consider them higher dollar selling points, so why wouldn't the builder who buys them pass this expense along?

You may wonder about how safe your investment may be in the higher priced home, when taking the common real estate advice of avoiding the "top" of the market for appreciation purposes. Of course, no one can give you total peace of mind there. In new home communities, as with re-sale, values are set by what a buyer is willing to pay. If a builder finds that it has overpriced its homes (this is usually discovered by slow sales) and mistakenly estimated what the public would be willing to pay, rest assured that changes would eventually be made to "move" that product. However, logically speaking, the reasons you were willing to pay more for the same house that can be purchased less expensively elsewhere will be the same thinking and criteria used by the buyers of your home someday when you wish to sell. A word to the wise, here: It always pays to save the original brochures your new home came with, so that when that time comes to sell, you can offer a complete and accurate list of what the home originally contained. Your real estate agent can add to it the improvements you have personally added, and you will have a great marketing piece of your own for the future.

I would be remiss in not saying that builders operate off a bottom line margin, just as other businesses do. They may be able to reap greater profits for the same house, even with the same amenities, in one area than they can in another just because of luck, fate, timing, and buyer popularity, which is all a part of our glorious free enterprise system. Simplistically speaking, builders may get higher prices in some areas just "because they can."

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Published: July 14, 1999

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