The “Shiny Object” Trap: Are You Overpaying for That Texas New Construction Home?

Key Takeaways:

• The Trap: Many Texas new construction buyers pay 5–8% above market value for new builds to secure below-market interest rates.

• The Math: Buying a $350k new home just for the rate is often costlier than buying a $325k resale home with a higher rate.

• The Rule: You can always refinance a high interest rate later, but you can never “refinance” or re-negotiate the purchase price you overpaid if prices drop.

Here is a scenario playing out in communities across the Lone Star State every weekend. A hopeful homebuyer drives past a new development, sees the flags waving, and decides to just “wander in” to the model home in a Texas new construction community.

They are immediately seduced by the professional staging, the smell of fresh paint, and the builder’s most powerful closing tool: The Below-Market Interest Rate.

Captivated by the monthly payment figures, they sign on the dotted line—often without their own Realtor representation. They think they’ve won. But in reality, they may have just locked themselves into a negative equity position before the foundation is even poured.

I speak through personal experience, having purchased a new build in 2023 (although I negotiated the sales price and took the builder incentives to further reduce the sales price). Since then? My home value has fallen by about 4%. Had I taken the builder financing, I would have had to pay full price, and the value of the home would be about 93% of what I paid for it. Yikes!

The Car Dealership Analogy: Understanding the Math

Real estate financing can be complex, so let’s look at this through a simpler lens that most folks can understand: buying a car.

Imagine you are shopping for a brand new Toyota Camry.

• Sticker Price (MSRP): $30,700.

• Normal Market Negotiation: Usually, you would negotiate $2,500 to $3,000 off that price.

However, the dealer makes you an offer you feel you can’t refuse: 0% Financing.

There is just one catch. To get that 0% rate, you have to pay the full sticker price, plus a premium. Instead of getting a discount, you agree to pay $2,000 OVER the MSRP.

You drive off the lot thrilled that you aren’t paying interest. But financially, you made a mistake. You overpaid for the asset to save on the financing. The moment you drive away, you are underwater because the car was never worth what you paid for it.

New Build vs. Resale: The $25,000 Gap

This exact scenario is happening with Texas new construction homes right now. Builders are buying down rates to entice buyers, but they are baking that cost into the sales price.

Let’s look at the numbers on a typical Texas transaction:

Option A: The New Build (The “Shiny Object”)

You buy a fresh Texas new construction home for $350,000. The builder offers you a 4.99% interest rate. You eagerly take it, thinking you saved money. They don’t mention that they are calculating your payment based upon the unimproved land taxes. 

Option B: The Resale Home (The Smart Equity Play)

You look at a similar home down the street in an established neighborhood. It is perhaps one or two years old. Because it doesn’t have the Texas new construction builder’s marketing machine behind it, the true market value is clear: It sells for $325,000.

The Reality Check: By choosing Option A, you are effectively paying a $25,000 premium (about 7-8% more) for the “new” home. That $25,000 isn’t adding value to the house; it is the cost of the “low rate” hidden in the purchase price.

Why You Can’t Refinance a Purchase Price

The danger of the “Shiny Object” trap becomes clear when we look at the future of the market.

Real estate markets shift and mortgage rates fluctuate. Most experts agree that rates are cyclical.

• If rates drop next year: The buyer of the $325,000 resale home can simply refinance their mortgage. They keep their lower purchase price and get the lower rate.

• The New Build buyer: You can refinance your rate, too. But you cannot refinance the price you paid. You are stuck with a loan balance based on $350,000 for a home that might arguably be worth only $325,000.

How to Protect Yourself

If you are buying a Texas new construction home, do not let the “rate” blind you to the “price.”

1. Never go unrepresented: The sales agent in the model home works for the builder, not you. Bring your own agent who can run “comps” (comparables) on nearby resale homes to see the true market value. You are often better off negotiating the price down as low as you can, and forgoing the builder’s financing.

2. Date the Rate, Marry the Price: Prioritize getting the asset at the right price. Rates can be fixed later; overpaying is permanent.

3. Run the Total Cost Analysis: Have a mortgage professional compare the total cost of the new build (with the lower rate) versus a resale home (with a standard rate) over 5 years. The results often favor the resale home.

Are you looking to buy in Texas and want to ensure you aren’t overpaying for a builder’s incentive? Contact us today to run the numbers before you sign.