In Real-Estate Deals,
Everything Is Negotiable

Question: I'm thinking about buying my first home from a builder. Is the sale price typically negotiable? I've noticed that the upgrades are much more expensive than they would be if I were to have them installed myself. Is there a way to negotiate in this area? I also have some questions about mortgages: What are points, and who pays the closing costs?

-- Linda, West Windsor, N.J.

Linda: Welcome to the wonderful world of buying a new home. The answer to all of your questions is that in real estate, everything is negotiable. Does that mean that you'll always get what you want? Not necessarily. But it does mean that you can always try. It all comes down to how desperate the other party -- in this case, the builder -- is to sell.

I like to compare this aspect of buying a home to buying a car. If you walk into a dealership, you'll find prices clearly marked on every automobile. However, if you sound interested, but refuse to pay full price, the dealer often will negotiate downward. Similarly, if you include all the options in your negotiations, you often can get them at a reduced price. But if you wait until after you settle on a price, you'll end up paying top dollar for each upgrade.

With a new home, the builder sets a price that will cover its costs and yield a profit. In a tight market with more buyers than sellers, the builder is unlikely to budge. That's also the case with upgrades. But if the builder has a dozen unsold homes, it's a different story, and you may be able to negotiate a lower price on both the home and the upgrades. If you don't want to try to negotiate with the builder yourself, ask a real-estate agent to negotiate for you. Tell the agent you'll pay a commission based on how much he or she can get the price knocked down. Many agents will be willing to spend an hour or so with a builder, hoping to earn at least a partial commission.

As to your questions about mortgages, points typically are tacked on to a mortgage to increase the yield to the lender. One point is equal to 1% of the loan. (On a $100,000 mortgage, one point is $1,000.) These are negotiable in the sense that you can pay fewer points, if you're willing to settle for a higher interest rate. Or you can lower the interest rate by paying more points. You negotiate points with the lender, not the builder.

Finally, with a new home, closing costs usually are split between the buyer and the builder. As an inducement to purchase, some builders will pick up your costs, sometimes even including loan points. Other times builders will try to burden you with nearly all the closing costs. As I said, everything is negotiable and market conditions -- and negotiating skill -- determine who'll get the better deal.

Mr. Irwin has more than 25 years' experience as a Los Angeles-area real-estate broker. He is the author of more than two dozen books about real estate and is recognized as one of the most knowledgeable writers in the real-estate field. Mr. Irwin's most recent book is "Irwin's Power Tips for Buying a Home for Less," (McGraw-Hill, 2000).

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