Dealer Markup On Modular Homes

Share

When purchasing a modular home, you won’t have to worry about the dealer’s markup because this practice doesn’t apply to modular houses. Dealer markups are common when purchasing personal property such as a manufactured or a mobile home. They rarely apply to real estate property and modular homes are always purchased as real estate. 

The confusion between modular and manufactured construction is very common because modular homes are built by joining three-dimensional units in a way that resembles the construction process of a manufactured home. Still, modular and manufactured homes are completely different types of constructions that follow two separate buying procedures.

Different prefab home buying processes:

  • Manufactured homes are bought from a dealer who often applies a markup
  • Modular homes are usually built with a contractor with no dealer markup.

When purchasing a manufactured home, it is common to negotiate the price and ask for discounts on the dealer markup. However, this practice doesn’t apply when buying a modular home since there is no dealer markup on the final price. 

The difference between personal property and real estate property

A house classified as personal property is a house that isn’t permanently affixed to a plot of land and whose ownership refers to the house construction alone. A house classified as real estate property, on the other hand, is a house that is permanently placed on one specific plot and its ownership can’t be separated from the land.

Modular homes are always purchased as real estate property. The overall volume of a modular home is built per parts known as modules in a factory-like environment. Each one of the prefabricated three-dimensional modules is then shipped to the building site where it is assembled. This building process tends to arise confusion since the house seems to be separated from the land. However, the construction of the modular home isn’t completed until every module is permanently placed on-site and attached to high-quality foundations.

Per contra, manufactured homes are considered personal property [1]. As the updated version of mobile homes, manufactured homes are always built on a frame to be easily transportable. Certainly, many manufactured homeowners choose to purchase these constructions as a permanent house substitute and keep them permanently on a plot of land. However, this is a personal choice and at the moment of the purchase, a manufactured home is treated as personal property.

Buying a modular home vs buying a manufactured home

Given that modular homes are treated as real estate property and manufactured homes as personal property, the procedure required to purchase each one of these constructions isn’t the same. 

Manufactured homes are bought from a dealer who often applies a markup

Manufactured homes are always purchased as personal property and as a result, the process of buying a manufactured home is closer to purchasing a vehicle than a conventional house. These types of houses are acquired from a dealer rather than a builder and similar to car dealers, manufactured home dealers tend to add a markup to their products. 

The markup value isn’t standardized and usually varies based on local demand [2]. Adding a markup to the price is a common practice among manufactured home dealers. Generally, dealers add a markup of 18% to 25% on each house they sell [3], though these extras aren’t regulated and it is up to the dealer to decide how much to add.

Modular homes are usually built with a contractor with no dealer markup.

Modular homes are always purchased as real estate property. Therefore, a new modular home isn’t purchased directly from a dealer but instead designed and built with a modular home manufacturer and a contractor. Buying a modular home resembles the process of building a new traditional house. 

The process of buying a modular home is quite similar to the process of buying a traditional house. Every modular home, even if predesigned, is built knowing exactly where it will be affixed because modular homes have to be constructed according to the local building codes. It is then rare to buy a modular home from a dealer, instead, they are acquired from the manufacturer or contractor who is building the house. Therefore, there is no dealer markup on the modular home price. 

How to reduce the price of a modular home?

To reduce the price of a modular home, negotiating is not a common practice. However, it is still possible to reduce unnecessary costs by paying attention to the following:

  • Lot cost: To reduce the land costs look for an affordable property but also verify it has access to all the basic utilities such as water, electricity and sewage systems.
  • Access to the lot:  Keep in mind that the modules conforming to the modular home are built off-site. Therefore, when choosing a lot, verify that the roads leading towards it are easily accessible by a truck of big dimensions. 
  • The size of the house: Cut down on any unnecessary space since the bigger the house, the more it will cost.
  • Customization: When purchasing a modular home you can often choose between a predesigned model or a fully customized house. Any customization automatically raises the price, to cut down on costs; reduce the number of customized choices. 
  • Add-ons: Some modular home manufacturers might get an additional profit from selling add-ons. Elements such as appliances or furniture could be more expensive when bought directly from the manufacturer. 
  • Choosing the right manufacturer: Since modular homes are built off-site, choosing a modular home manufacturer with a factory nearby is key to avoid paying extra costs on transportation. 

References:

  1. Manufactured, Mobile Home Personal Property Taxes indy.gov https://www.indy.gov/activity/manufactured-mobile-home-personal-property-taxes
  2. Henry, S. (2005, January 27) Study finds significant fluctuations in costs of identical mobile homes CR Consumer Reports https://advocacy.consumerreports.org/press_release/study-finds-significant-fluctuations-in-costs-of-identical-mobile-homes/
  3. (2021, December 3) 5 Things to Know Before Visiting a Manufactured Home Dealer Jaco Sales, LLC. https://www.jacomobilehomes.com/5-things-know-visiting-dealer