Monday, December 17, 2007

New Construction - Where's the Money Go?

blueprint1.jpgAccording to the National Association of Home Builders, when you buy a new home here's the breakdown of where your money goes:

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26% of purchase price - Finished Lot
51.7% - Construction
1.8% - Financing
5.8% - Overhead and General Expenses
1.9% - Marketing
3% - Sales Commissions
9.8% - Profit

This is interesting for a couple of reasons. First, it was published in early 2007 when the builders hadn't woken up about the market changing 180 degrees from the boom days.  Back then, builders were militant - they wouldn't pay a buyer's agent a commission unless the agent accompanied the buyer on the first visit and offered a pint of blood to boot.

Nowadays, builders are offering silly-crazy incentives to lure buyers and the agents who represent them. Free pools, tens of thousands of bucks for spending in the builder's design center, 4%, 6% or even 10% commission to the buyer's agent. I'll be watching for the 2007 numbers. Betcha builders commission expenses have gone waaay up now that it's really stinking hard to sell a home.

Second, I'm surprised the builder's profit margins are so narrow. I'd love to hear from any readers who have inside knowledge of the home building market. I'm just having trouble believing that builders are making so little.