Buyer Close – The “New Construction Cost” Close

Most buyer prospects are still hesitant to “pull the trigger” because of concerns over price.  Once you address this concern a buyer is much more likely to move forward.  The construction cost close is a great way to show a buyer that they are getting a great value even when they pay too much.  Here’s how this close works:

Step 1: Research new homes being built in the local market.

Step 2: Calculate the cost  per square foot by dividing the price by the total square footage.

Step 3: Multiply the average price in step 2 above, by the square footage of the existing home your buyer has selected.  This will give you an idea of what it would cost your buyer to replace the home in a similar neighborhood.

Step 4: Compare the purchase price of the existing home with the price it would cost of building the home new.  In most cases, the cost to build a house new is substantially higher than the cost to buy the existing home the buyer has selected.

Step 5: The difference in the price to build the home new and the price the buyer is willing to pay, could be additional equity your buyer will realize when the real estate market returns to normal. (Most buyers are willing to pay a little more for a new home as compared to an existing one.  This slight difference should be take into consideration.)

As an example, if a buyer can buy an existing home for $240,000, when a similar home just built is being offered at $320,000, the buyer will realize $320,000 – $240,000 = $80,000.  This maybe $10,000-$20,000 less because new construction is usually more desirable.  Of course this equity would not be realized until the real estate market is healthy.  Even if the buyer had to pay $260,000, or more than appraised value, they still are getting a great price because it is well below replacement cost.