New construction buyers may be overpaying
Right now, many homebuilders are offering big incentives to attract buyers: things like mortgage rate buydowns, closing cost credits, or even money toward upgrades.
On the surface, these deals sound great. After all, who wouldn’t want help covering closing costs or a lower interest rate?
But here’s the problem. Some of those “incentives” come with a catch: you’re paying a higher price for the home just to get the deal. And that could leave you upside down on your mortgage.
Check your home buying options. Start hereWhat “upside down” really means
Being upside down means you owe more on your mortgage than your home is worth.
It can happen if home values drop, but it can also happen if you overpay from the start, something that’s starting to pop up in new construction communities where buyers are trading higher base prices for shiny incentives.
Rob McGibney, the Chief Operating Officer of KB Home, recently called this out in a company earnings call. He said some buyers are choosing other builders that advertise great incentives, but the buyers are actually overpaying just to get them.
And if they need to sell in a few years? They may not be able to sell for what they paid.
“They may potentially be upside down when they try to sell that home,” McGibney said. “Versus a clean, simple, transparent way of selling—the value of what we offer.”
What Home Builders Can Do Differently
While many big-name builders are offering bigger incentives instead of lowering prices, KB Home is taking the opposite approach: they’re actually cutting base prices directly in some communities.
They believe it’s a more honest and sustainable way to help buyers without putting them in a risky position later.
According to their latest update, KB Home lowered base prices in about half of their communities last quarter. That means they’re responding to the market rather than inflating prices just to advertise a “discount.”
Why builders are offering incentives in the first place
The housing market has cooled off from the wild days of 2021 and early 2022. Back then, demand was off the charts. Builders couldn’t keep up.
But now? Demand has slowed, especially in certain cities, and builders are looking for ways to keep sales moving without tanking the value of the homes already under contract.
So, instead of cutting prices outright (which can hurt existing buyers and community comparable sales), many builders are using incentives to sweeten the deal. But again, it only helps if the price is right.
| Category | Builder Incentives | Price Cuts |
| What It Is | Builder offers perks like rate buydowns, closing cost credits, or upgrade packages | Builder lowers the actual base price of the home |
| Appeal to Buyers | Looks like a “deal” upfront—lower rate or cash back at closing | Lower starting price feels more transparent and straightforward |
| Impact on Loan Amount | Full price is financed (higher loan balance) | Smaller loan needed since price is reduced |
| Appraisal Risk | Higher price may not match true market value | More likely to align with current comps |
| Equity at Closing | Lower or even negative if home is overvalued | Higher chance of starting with some built-in equity |
| Resale Value Risk | Greater risk of being upside down if market shifts | Lower risk if market softens or resale inventory increases |
| Transparency | Can be confusing—fine print on rates and costs | Easier to understand and compare |
| Long-Term Value | May look better today, but cost more over time | More sustainable financial decision over the long run |
| Who Benefits Most | Short-term buyers who need help covering closing costs | Long-term buyers focused on equity and future resale |
Markets are all over the place right now
Market conditions vary wildly from one city to the next, even from one neighborhood to another.
For example, cities like Las Vegas, Houston, and Tampa are still seeing decent demand. But places like Sacramento, Seattle, Austin, and parts of Florida are feeling more pressure from rising resale inventory.
Resale inventory matters. When there are more existing homes for sale, buyers have more options, and builders have to compete more directly, sometimes with lower prices.
When resale supply is high, builders have to adjust
In markets where resale inventory is back to normal levels (around six months of supply), KB Home admitted they had to make more aggressive price cuts. That’s a big shift from the pandemic years when inventory was measured in weeks, not months.
Basically, when existing homes hit the market at lower prices, buyers start to question the value of a new build, especially if it’s priced higher just to offer a discount.
Time to make a move? Let us find the right mortgage for youMargins are shrinking
Many builders made record profits during the housing boom. But now that things have cooled, those margins are shrinking.
KB Home, for example, saw their profit margin drop from 26.7% at its peak in 2022 to just under 20% in mid-2025. That’s back to pre-pandemic levels.
Even with shrinking profits, they say they’re focused on long-term value, pricing homes right for today’s market rather than holding the line and hoping incentives will do the trick.
Why this matters to buyers
If you’re in the market for a new home, especially from a builder, look beyond the flashy incentives.
A lower rate might sound like a win, but if the base price is inflated to make that offer happen, you’re not really saving. You’re just shifting when you pay: upfront or over time.
And if you plan to move in a few years, a higher price now could leave you stuck later, either losing money or not being able to sell at all.
Final thoughts: Smart homebuying is about more than the sticker price
Builders are businesses. They’re trying to sell homes, protect profits, and keep communities looking strong. That’s not a bad thing, but it does mean you need to ask the right questions before you sign.
- Is the incentive worth the higher base price?
- What would the home appraise for today?
- If you had to sell in 3–5 years, what would it realistically be worth?
Buying smart isn’t just about snagging the best deal today. It’s also about protecting your future equity.
The clean, simple approach might not be as flashy, but it could be the one that sets you up for long-term success.
