There’s no such thing as a free upgrade. What your builder isn’t telling you about their promotion
Promotions in of themselves are not evil. They’re a way of the builder getting your attention in a sea of ‘front door and floorplan’ marketing campaigns, and an incentive for you to build with them over the guy next door.
When we go shopping for a new iPhone or laptop, we suspect that there’s likely a cost imbedded in the price for that 10% off we just got at JB HiFi. Housing is no different – many builders will set aside a little pool of money for marketing. How the builder leverages and executes these marketing funds can be the difference between a great buy and a lot of smoke and mirrors.
There are only two real types of promotions in new housing: Value-Add, where you get something additional to your new home, or Price Cut, where you’re getting a discount in the form of cash off or a price reduction.
Here are some common promotions and how they work:
The free giveaway
“Get a brand new car/jetski/holiday with your new home!”
We all know there is no such thing as a free lunch. For this offer the builder has taken your promotional allowance and worked out how they can spend it for you on a non-housing related item. They may have even done a bulk deal with a local car dealership. Be mindful of the sales manager’s new wheels.
Score 0/10 for lazy marketers.
The $40K/$60K/$80K value offer
“$80K of included value in your new XYZ home”
For the astute new home buyer this one is pretty transparent. The Builder is trying to get your attention with a massive dollar saving amount. If believed, this could be up to 30% of your new home contract – which logically makes no sense. In most cases, the builder has multiplied this value proposition by combining a promotional offer PLUS the standard specification already included in your new home – which is covered by the retail price you are paying for that home. It’s a clever use of wording, but you’ve already paid for it.
Score 1/10 plus the 2/10 you paid for earlier.
The cheap house
“Our 25sq limited edition XYZ house only $150,000”
In some case, when done correctly, this is a great offer. A smart builder will round up their supplier network and look for cost savings on one or two limited homes. Meaning that there is a genuine saving to the buyer and, thanks to the ACCC, when they say ‘limited numbers’ – they (mostly) mean it.
In slightly less inspirational form, the builder may have done this the quick and dirty way and discounted the promotional amount from the retail price of the home. It’s good value, just not great.
Score 8/10.. for a limited time only.
The upgrade catalogues
“$15,000 of Bonus upgrades at no extra cost!”
This one is particularly complicated even for the people putting it together. There is the potential for customers to come out in front as the math behind this offer is confusing – to say the least. Like stacking the decks of cards at the casino, in one real life example, a missed GST calculation error wasn’t uncovered for years, meaning the clients were winning every time. In most instances though, it’s a net result. The builder loses some margin on upgrade items and it’s offset by the marketing funds.
Score 7/10 spins at the roulette table.
Upgrade Packs
“Get a Kitchen Upgrade pack for just $4,500!”
This is one of the most common offers in the new housing market and quite frankly one of the best. In most cases suppliers have contributed with special or reduced- price items, or the builder has reduced their margin to make these packs more appealing. Of course, they are off-set by the promotional funds, but most packs are for things you’d generally want to upgrade yourself anyway – such as kitchens, floor coverings, driveways and any developer requirements needed for your estate.
Score 8/10 for one, 9/10 for two or more packs.
The best recommendation I can give when sorting through the array of offers in the market is to follow the age-old advice: “If it’s too good to be true, it probably is”. Here are some tips when purchasing your new home…
Tips:
Look for the best total package price.
Builder’s all structure their pricing differently. You may find one builder offering better site cost fees but a higher base home price or perhaps less value in their inclusions. Compare ‘apple-for-apples’ in the total package cost to get an accurate idea of the best home for you.
Sometimes you pay a little extra to get what you want.. and that’s ok.
Have a floorplan you’re in love with? Or a list of inclusions you need to have? Like anything in life, you get what you pay for. Sometimes the price of happiness costs a few extra dollars – and over the life of your loan it can really make a negligible difference.
There are genuine offers! Not all builders are out to get you.
Genuine, reasonable offers are put out by builders to get your attention in a really crowded marketplace and offer a little something extra to win your business. You can pick these fairly easily. There won’t be any to-good-to-be-true statements and discounts won’t be significant percentages of your building contract.
Bonus: Time is money!
Speed is important. This is a factor overlooked by many home buyers. A builder that can get you to site quicker can be a cost saving! Think about all of the extra months paying your current rent or current mortgage while having to shell out money on a titled block with builder progress payments. Look for a builder that can commit to timeframes, so you have more clarity as to what your holding costs look like while you’re waiting to move in. That has a real cost impact which can be greater than any cash discount you’re holding out for!
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