Lot premiums are an additional charge that home builders and developers tack on to the price of a new home depending on where in the community a lot is located.
Basically the way most new homes are sold these days is a builder will advertise their homes based on standard features and a “standard” lot, and anything they can use to justify an increase in price is a premium.
As you can imagine, the definition of “standard” varies widely, and I'll cover what makes a lot “not standard” in a minute.
Many builders in Florida had to reduce lot premiums during the 2007-2009 real estate downturn, but once home sales got back on track in Florida, lot premiums returned as well.
According to an article from 2013, in Florida all but the worst lots in new home communities have premiums associated with them, some as high as 10% of the base price of a home.
In 2020-2022 during the pandemic buying frenzy, lot premiums soared as some builders looked to squeeze out as much profit as humanly possible without making it look like they were jacking up home prices.
What Kinds of Lots Command a Premium?
– Oversized lots
– Lots that back up to a preserve
– Lots that back up to private land
– Golf front lots
– Golf view lots
– Cul de sac lots
– Corner lots
– Waterfront lots
– Lakefront lots
Another way to think about it is, look at what one might deem the worst lot in a community, and consider that a “standard” lot.
Anything better than that, will probably carry a premium.
What Can You Expect to Pay?
As you can imagine, the figures vary widely, and it's all based on the lot, the location, type of home and current demand.
I've seen lot premiums in Florida communities range from a few thousand dollars to hundreds of thousands of dollars.
Now that's a pretty broad range, right. Why?
Well when you consider that there are so many different types of communities in Florida, across a wide range of locations and price points, you can imagine prices start to vary pretty quickly.
Are Lot Premiums Worth It?
That all depends on how badly you want a particular lot and how much it is ultimately worth to YOU…not the builder or any potential future buyer.
With that said, can you recoup the cost you paid for a lot premium if you go to resell the home down the road?
This boils down to how much of a premium you pay and what a future buyer is willing to pay.
One agent I spoke with offered this advice:
“Rather than try to get back the premium the original owners paid, let's get top dollar for the home as a complete package. I have seen Realtors go crazy trying to figure out what developers charge for premiums…ultimately, it doesn't matter. A house is worth today what a house is worth today irrelevant of what was paid for it.”
That's good advice.
As for me, I paid lot premiums of $5,000 and $30,000 on my last two homes here in Florida, and I know for a fact the lots played a big part in the buyer's decisions when I sold both of those homes.
So, I feel good about the premiums I paid but again, in the end it really boils down to what its worth to you right now today, not somebody else who might own your home down the line.
Lot priemiums from builders are retail prices. You can expect to pay a good amount for water view, pie shape, over sized, corner, preserve view etc. but what you need to consider is the market now and later. Like a pool, lot premiums can be tricky because the retail cost does not always translate to actual market price. Down the road, appraisers will either compare your homes with homes of similar features or assign a value for features one has that the other does not. That value may not equal the price you paid for the premium up front. In fact, the increased value of your home may trick you into thinking it is. This is a very detailed question and the answer is very detailed and can be location specific. I suggest you find an appraiser in your area and talk to them as they often deal with this every day. I would ask you this, can a future buyer purchase a house similar to yours for less money with a lessor lot? If you are in a growing market where there are many buyers and this feature makes you more desirable, okay. But what if your market is a growing neighborhood with starter families and they would rather get the same house for less? You see this is all relative to market location. In the end, buy what you can afford within reason. Weigh the value of what you get against your happiness and future sale value. That is all you can really do.