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The Home Site Premium – Justified?

You finally decided to move forward with contracting to build your dream home in an ideal location in a community that is convenient to your work, shopping, schools and Church. The price is realistic or at least in the price range that you had set for yourself and now it is just a matter of picking out the perfect home site which was included in the base price of the home. A turn-key package per the community salesperson. Off you go to select your homesite and quickly discovered that all the homesites were not actually included in the price since each are subject to a premium based on the location or size. The salesperson forgot to inform you that the actual homesite included in your price was your choice of any 75’ by 125’ lot in a particular phase or even one located on a particular street. The homesite that you picked out was considerably larger and backed up to a conservation area. The builder wanted an additional $25,000 for that site.

Is paying a lot premium real and justified or is this considered bait and switch? The answer is…it depends! I have been in the Real Estate & Construction industrial for over 40 years, and I can tell you that back in the day, lot premiums did not really exist with the exception of water lots. The nicer homesites were the incentive to buy first which helped to kick off sales in the community. As time went on, home builders discovered that they could charge a little additional for premium locations. As the market changed to a sellers’ market, a lot of home builders became very greedy and began to charge excessively for oversized, conservation and water lots. These homesites normally did cost the builder more because they are averaged. In reality, there are additional costs to the builder. To set a home further back on a lot requires more plumbing, more drainpipe, more concrete or pavers for the driveway, more electrical runs, etc. If the builder sods the entire lot, then it does not cost any more, however if the standard for the community is sodding only the front yard and seeding the rear, the additional cost of sod in the front and sides can be significant. So again, it depends.

In a typical community of 100 homesites, the cost of the land purchase, land employees, Land Realtor, overhead cost, surveys, infrastructure, streetlights, entry ways, walls, fences or guard gates and all county or city approvals are normally included in the total land cost which is then divided by the 100 homesites. This determines the average cost per lot that is added to the base price of the house.

Larger and more desirable homesites are worth the dollar in resale value to a certain extent but not always the same amount that you paid. It all depends on the market and in the eyes of the beholder.

Some communities have moved to having two prices. One for the homesite and one for house construction. More expensive Custom homes are generally sold separately. Land + House which are combined for one loan. In some cases, the land portion must be fully paid for prior to construction.

So back to the original question, are homesite premiums justified. The answer is still, it depends, and in most cases the answer is YES! Be prepared to pay an additional amount for the homesite of your choice. This same philosophy is normally applied to standard features that are incorporated into the price. Plan to pay more for these items as well.

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