Editor’s note: This is part one of a two-part story on builder incentives. Part two will focus on what agents and brokers think about incentives, and how they guide buyers.
These may be uncomfortable days for many buyers, with mortgage rates in the mid-7s and threatening to go higher if the Fed raises interest rates. But there are a few bronze, if not silver linings, the first being more inventory and seller concessions. Another one for those who prefer to buy a new house is builder incentives.
Incentives are widespread, but one, a reduced opening mortgage payment, may tell buyers little about what the home will cost them later. Often, a new home will come with an appealing offer: the builder will help lower the mortgage payment. The number on the first-year estimate may fit the buyer’s budget, but then they notice a second number, several hundred dollars higher, scheduled for later.
That gap deserves attention as builders compete for buyers. In September, 66% of builders reported using sales incentives, up from 63% in August, according to the National Association of Home Builders.
Agents working with buyers should understand the nuance and specifics of incentives as new homes become more appealing, with higher rates expected to persist into 2027, and be prepared to offer expert guidance.
There are several kinds of builder incentives offered to get homes sold. Here, Steve Schlageter, CEO of Thomas James Homes (TJH), in Arizona, California and the Pacific Northwest examines various incentives and how he handles them.
What’s your overall view of incentives regardless of real estate market fluctuations?
Steve Schlageter: Buyers should look at the total economics of a home rather than getting too focused on the size of an incentive. A bigger discount doesn’t automatically mean a better deal, but a well-structured incentive can still be a significant part of the overall value equation.
I’d also encourage those in the home-buying process and their agents to explore new construction earlier than they might think. Buyers who purchase earlier benefit from greater savings and more opportunities to personalize, while those who purchase later still benefit from savings compared to a completed home, along with a faster path to move-in. The point is that buyers have options depending on what matters most to them.
How often do you offer incentives, and under what circumstances?
SS: It really depends on the market. Homebuyers are seeking incentives in many of our markets right now, but not all. Northern California, for example, is particularly strong, and for the right home, we often see sales above asking price. In markets where buyers have more options, or even certain pockets within otherwise competitive markets, incentives tend to be more common.
Our approach is to price our homes appropriately rather than compete solely on the size of an incentive. There is a time and a place for incentives, particularly now, when interest rates are top of mind and the right incentive can provide meaningful value to buyers. For us, value comes from the full package: a desirable location, thoughtful design, quality construction, opportunities to personalize and a more streamlined path to a new home. We’ve already done the work of identifying homesites, developing floor plans and managing construction, so buyers get the benefits of a new home without having to manage the complexities of building one themselves. When we do offer incentives, we try to be flexible based on what matters most to that particular buyer.
What are the most popular incentives?
SS: We generally keep incentives flexible rather than prescribe how someone should use them. Depending on the homebuyer, that could mean help with closing costs, credits toward upgrades or options they want to add, or a discount on the purchase price.
A significant portion of our homeowners are cash buyers, which is one reason we believe flexibility matters. For buyers who are financing, incentives that help offset borrowing costs can be especially meaningful, while cash buyers may place greater value on closing costs, upgrades or personalization.
What do buyers usually ask for as an incentive?
SS: The most common requests tend to be around purchase price, closing costs or credits toward upgrades and personalization, but it varies by buyer and market. What’s interesting is that homebuyers can sometimes get very focused on the size of the incentive when that doesn’t necessarily tell you whether you’re getting a good deal. That said, the right incentive can still be worthwhile, particularly when it helps empower buyers to move forward with confidence in their purchase decision.
Do incentives often make or break a sale?
SS: They can, particularly in markets where buyers have come to expect them. Today, with interest rates top of mind, the right incentive can help move a buyer from consideration to commitment. But I don’t think an incentive should ultimately determine a purchase as significant as a home.
It’s easy to quantify a discount. It’s harder to put a number on having the right location, floor plan or design for the way you want to live. Those are the things you’re going to live with every day. We would rather price a home appropriately from the outset than rely on a large concession to make the transaction compelling.
How are buyer agents in the process? Do they tell clients to ask for incentives when they may not have?
SS: Agents play an important role in helping their clients understand what’s available in a particular market, and today, asking about incentives has become a fairly standard part of that conversation in many markets. There’s nothing wrong with asking.
Where a great agent adds value is helping a client understand the bigger picture. That’s particularly important with new construction because what someone purchases can meaningfully shape their experience. With our BUY & BUILD offering, buyers who purchase earlier in the construction process benefit from greater savings and more opportunities to personalize their home. As construction progresses, those savings and personalization opportunities decrease, but buyers benefit from a faster path to move-in. It’s a different way of thinking about value because the benefit is built into when someone purchases rather than offered as a traditional incentive.
