Do Model Homes Sell for Less? What Buyers Should Know

A model home serves as a showcase for a builder’s new construction community, exhibiting available floor plans, design choices, and upgraded features. These homes are professionally decorated and furnished to help potential buyers visualize living in the space. A common question among prospective homebuyers is whether these display units are priced differently than other new builds within the same development.

Factors Influencing Model Home Pricing

Model homes frequently incorporate numerous premium upgrades and finishes that enhance their appeal and typically increase their construction cost. These often include high-end flooring, custom cabinetry, sophisticated appliance packages, and advanced smart home technology, which would be optional add-ons for a standard new build. Buyers may find these upgrades included at a more favorable rate compared to selecting them individually.

As a demonstration unit, a model home experiences considerable foot traffic, public viewings, and sometimes operates as a sales office for an extended period. This continuous public exposure can lead to minor wear and tear, such as scuffs on walls or slight imperfections on surfaces, which might influence its market valuation compared to an untouched new construction. Builders often consider this “used” condition when determining the final selling price.

Builders are highly motivated to sell the final model home, particularly as a community approaches completion, to finalize the development and allocate resources to new projects. This urgency can lead to attractive financial incentives for buyers, including price reductions, contributions towards closing costs, or mortgage interest rate buydowns. These incentives aim to make the model home an appealing and potentially discounted option for a swift sale.

A unique financial arrangement sometimes offered is a sale-leaseback agreement, where the builder sells the home to a buyer but then leases it back for a specified duration, typically ranging from 6 to 24 months, to continue its function as a sales center. This arrangement provides immediate cash flow for the builder and often includes a reduced purchase price for the buyer, sometimes a discount of 5% to 10% below market value. During the lease term, the builder generally assumes responsibility for property taxes, insurance, utilities, and maintenance.

For the buyer, any rental income received under a sale-leaseback agreement is considered taxable income. However, the buyer can also deduct eligible expenses such as mortgage interest, property taxes, and operating expenses related to the rental activity, which can offset the rental income for tax purposes. Additionally, the buyer may claim depreciation deductions on the home’s structure, further reducing their taxable income over the property’s useful life.

Unique Aspects of Buying a Model Home

Model homes are meticulously designed to showcase the builder’s capabilities, featuring extensive high-end finishes, professional interior design, and often designer furniture and decor. While the upgraded finishes are typically part of the home’s purchase price, the inclusion of the designer furnishings may be negotiable or offered as a separate package. Buyers should clarify exactly what items are included in the final sale agreement.

These display homes typically boast professionally designed and maintained landscaping, including mature plantings, advanced irrigation systems, and sometimes elaborate outdoor living spaces. This enhanced curb appeal and comprehensive outdoor amenity package are usually included in the sale, saving the buyer the significant time and expense of establishing a new landscape.

Important Considerations for Buyers

Despite being a new construction, a model home warrants a comprehensive professional inspection to identify any signs of wear and tear from its use as a public display. The inspection should specifically look for cosmetic damage, functional issues with appliances or fixtures, or any other discrepancies that might have occurred during its operational period. Any identified issues should be formally documented and addressed by the builder prior to closing.

If a sale-leaseback agreement is proposed, buyers must meticulously review all terms and conditions of the lease document. Key elements to understand include the exact duration of the lease, the amount of monthly rent payments, and the allocation of responsibility for utilities, property taxes, insurance, and ongoing maintenance during the builder’s occupancy. A clear understanding of these financial obligations is paramount to avoid future disputes.

Buyers should independently evaluate the true value of the included upgrades and any furnishings that are part of the purchase. While these additions can be appealing, their worth is subjective and depends on individual preferences and needs. Consider whether these specific upgrades or furnishings align with your personal taste and if you would have chosen them if building a home from the ground up, factoring this into your overall assessment of the home’s price.

Unlike building a custom new home, purchasing a model home means accepting the property “as is,” with limited or no opportunity for customization. Buyers will not typically be able to select different finishes, modify floor plans, or make structural changes. It is important to be fully comfortable with the existing design and selections, as any desired alterations would require post-purchase renovations at the buyer’s expense.

Given the builder’s increased motivation to sell the final model home, buyers often have more flexibility for negotiation. This can include discussing the purchase price, requesting additional builder incentives such as a larger credit for closing costs, or negotiating specific terms within a sale-leaseback agreement. Entering negotiations with a pre-approved mortgage and a clear understanding of comparable home sales in the area can strengthen a buyer’s position.