Realty Times - Included or Optional? That is the Question

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Included or Optional? That is the Question

by Dena Kouremetis

Production homebuilders throughout the land have been in two different camps for quite some time on the subject. Which is better? A house that has a high level of included features at a higher price, or a basic (perhaps larger) house at a lower price that gives the homebuyer the choice to add whatever extra features they want or can afford?

One of the nation's largest homebuilders, Lennar Corporation, has recently launched a new marketing campaign, called "Everything's Included" or EI, as they refer to it in their advertising. It operates under the theory that most new homebuyers want a lot of attractive amenities "spec'd" into the house, and that the basic luxuries in their production home should be included. Therefore, all new Lennar homes, whether entry-level or move-up, now include things like room-finished garages, category 5 phone lines, TV wiring in secondary bedrooms, vaulted ceiling heights, garage door openers, overhead lights in all rooms, and levels of appliances and fixtures that may be considered upgrades with other builders. Does the sales price reflect all of the extra expense built into the house? To a certain degree, it undoubtedly does, but with a giant homebuilder buying products in bulk and becoming well-versed at building a collection of basic floor plans and floor plan options, the homebuyer will probably not be paying full-boat for the individual cost of the items labeled extras. They may, however, be limited as to how many other options are available beyond these 'upgraded-standard' levels.

Kaufman & Broad, another giant homebuilder, specializes in the entry level and first-time move-up market by promoting the concept that buyers get more square footage for their money with their homes. Homebuyers can add amenities to the house to the levels they see as important and affordable. The basic house offered by them may be generous in size when compared to its competitors, with roomy closets and generous counter space in the kitchen. K & B's research purportedly tells them that most homebuyers would prefer to pay less for the basic house and add the personalized luxuries at the time of purchase or as they see possible in their future. It would be an architectural or decorating upgrade, for instance, to add high volume ceilings to the home. A family room fireplace, a side-access door to the garage, and a room-finished garage and door opener would not be standard features. And every cable TV or telephone outlet, aside from the two or three included in the base price, would be extra. However, thousands of extras, according to Kaufman and Broad literature, are offered to homebuyers through their sales offices and/or the company design center.

So which is the better concept? Marketing campaigns for selling homes, just as in any other industry, are geared to getting your attention first and foremost, and then daring you to compare the concept and product to its competitors. When deciding which scenario is best for you, you may want to consider doing some of your own homework.

If you are in a particular price range for a new home, say $150,000 to $180,000, try to perform a per-square-foot analysis, putting the same factors for two or three homebuilders on a level playing field. For instance, one builder's base price may be $152,000 for an 1800 square foot home. List all the basics the house comes with, and then add on a list of items you know you'll want. Include the builder's pricing for each extra (you may have to press hard for the builder to give you option pricing, but they'll usually give in once they know you're serious about considering their homes). Totaling your figures may reveal that, with extras, the house now would be priced at $168,000. Take that figure and divide it by the home's square footage, and you'll arrive at the price per square foot.

Try to find out from the builder at what level most homebuyers in their new home neighborhood are typically upgrading their homes. If they say that most stay around the $5,000 - $8,000 level of upgraded amenities, and your figures reveal that it would take $16,000 to get the house to the amenitized level that would suit you, chances are that you would be over-improving a new house for the neighborhood it is about to become a part of. This may affect your ability to recoup your improvements to the basic plan when the time comes to refinance, glean equity from, or eventually sell the home. If your figures are low, and most people upgrade to higher levels, it may be that you are fairly safe in what you plan to do. Just remember that, although you may have some fancier amenities in your home, many of your next door neighbors may have taken the basic, unadorned version. Those buyers who bought the stripped-down version may appreciate what you have done to your new house even more than you will in the long run, since the eventual appraised value of their homes may, to a degree, be complemented by it.

Don't forget the other important factors when selecting a new home, whether it is the fully decked out version, or the basic dwelling to be adorned later. The location of the community and of the house itself within the neighborhood, as well as size of the home site, the 'look' of the neighborhood and its future streetscape (neighborhood rules, like C.C.& R.s can govern this aspect) are all considerations in future value. Builder sales personnel are there to sell you what they believe is positive about their homes and communities, but will not play devil's advocate and help with your Ben Franklin-like considerations. Finding a fair way to balance all the factors for a prudent choice for you and your family is on your shoulders, no matter what well-meaning real estate agents and builder salespeople advise.

Published: July 26, 2000

Use of this article without permission is a violation of federal copyright laws.

A veteran of the real estate and homebuilding industries since 1986, Dena Kouremetis first joined Realty Times as a new homes writer in 1998. Since then, she has authored four books, written consumer columns on new homes issues for websites and newspapers all across the country, contributed to builder trade magazines, appeared as a guest expert on several radio shows and even created a ten-chapter podcast for LendingTree.com’s homebuilder website, iNest.com, now available on iTunes, entitled Uncharted Waters; Navigating the Purchase of a New Production Home.

Kouremetis recently joined her local Folsom, CA Coldwell Banker office as a broker associate while continuing to write for the real estate industry. For the past three years, she has been training real estate agents for both the resale and new homes industries, putting her experience, research expertise and gift of expression to work to help others entering the business.

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