3 things to know about buying new construction

Hank Bailey
Hank Bailey
Published on April 15, 2019

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When homebuilders slow down their pace or stop building, inventories of homes for sale dwindle and we end up in a tight sellers’ market. This feels like where we have been in our market over the past 12-15 months. While there are many reasons for the recent slowdown in new home construction in parts of the country (high material costs, unavailability of labor, higher land cost, etc.), there is good news on the horizon: they are building again.

That makes this the perfect time to learn the ins and outs of buying a newly constructed home. Sure, a lot of the process is similar to buying an existing home for resale, but if you’re considering a new home, it’s critical that you understand some key differences – critical to both your sanity and your wallet.

The builder has an agent and a lender . . . do you?

When you visit a new home community, you’ll no doubt notice the fencing that corrals folks to ensure they visit the builder’s office (usually a Model Home) prior to viewing homes being built in the neighborhood. The greeter inside this office is typically a licensed real estate agent, employed by the builder or developer. His or her job is to not only let you know all the features the homes and the community offer, but to peel off those potential buyers who aren’t working with another agent.

While it’s legal and ethical for one agent to represent the seller (in this case, the builder or developer) and an unrepresented buyer, be wary. Builder’s agents are prohibited from representing two parties exclusively (which is called dual agency) so you’ll receive only limited representation or help.

Since the seller is paying, as advertised in the MLS, for buyers’ agent services, your best bet is to go into the situation with your own representative. So, when the builder’s agent asks you if you’re working with an agent, let him or her know that you are and you can move on to view those amazing new homes.

To be safe, I always recommend that you ask your agent to accompany you on the first visit. If that isn’t possible, let your agent know you’re going to tour a few new construction neighborhoods and ask them to contact the builder’s agents to register you as their clients. That will also “keep the wolves away” in terms of setting the stage where the builder’s agent knows you have representation and so they won’t put the “hard sell” on you when you walk in the door of the model home!

Whether or not you should work with the builder’s preferred lender may take some research. Often that lender will be able to off some incentives towards paying your closing costs, but the only way to know for certain if their fees and rates are competitive is to obtain quotes from other lenders and compare them all.

Research is a bit more challenging

The initial steps in the house hunt, after seeing a lender and getting your pre-approval lined up, include deciding where you want to live (which neighborhood) and what features and amenities you are looking for in that next home. When the neighborhood is brand new, you’ll be presented with several challenges not present when purchasing an existing home. Keep the following in mind when researching homes in new communities.

  • Even new homes can have issues. Visit the existing home areas of new communities and do stop and chat with any residents you see. This is especially helpful if those existing homes were also built by the same builder. Ask about their experience with their homes and with the neighborhood overall. Don’t forget to get a feel for the builder’s follow up and responsiveness to warranty work over that first year after they closed!
  • Remember to ask the builder’s agent about the Homeowners Association (HOA) and how much the monthly fee will be. See if your agent can provide you with the HOA documents, such as the CC&Rs – the covenants conditions and restrictions. Run them by your agent if there is anything you don’t understand.
  • Determine if high speed internet and TV service will be available in the community as of your expected move-in date. Seems silly maybe, but trust me, I’ve seen more rural neighborhoods that didn’t offer high speed internet service and for people working from home that’s a big issue to run smack into after you close!
  • The Better Business Bureau is a valuable resource. Use it to research the developer/builder. Beyond this though, as your buyer’s agent their opinion on the reputation of a builder you are considering. Chances are they’ve worked multiple transactions with them over the years and have lots of feedback they can give you!
  • If noise or smells bother you, check the neighborhood’s proximity to busy roads, airport flight pattern, trains, and farms.
  • Although it is great to be one of the first people to move into a new neighborhood, keep in mind that if you move in before the neighborhood is complete you’ll be forced to live with the dust and noise of construction work for a while.

Upgrades versus standards can be confusing

As you tour the model homes, unless you purchase identical upgrades, your home will not look anything like the model. The model after all is where they are doing some bragging! “This is what we can do!” In fact,  homes built at neighborhood standards will be a bare shell, with the least expensive flooring, appliances and fixtures. Find out exactly what comes with the basic home price. There should be a list of finishes and standards that go into the house. With that in mind, you can add upgrades and very possibly keep within your budget.

Typically upgrades performed by the builder during the construction process are more expensive than if you hire someone to do them later on. The advantage of having them done during construction, though, is that you can roll the costs into the loan.  They will usually however ask for another upgrade or construction deposit that will no doubt be non-refundable.

Three popular construction upgrades…

  • The lot — There are lot premiums for that perfect lot! A larger lot, or a better-located lot (if you can afford it), is worth the money it costs.
  • Structural upgrades — Doing things like creating a three-car instead of a two-car garage or adding an extra bathroom are popular upgrades. Also, a sunroom or screened covered porch may add some value.
  • Plumbing and electrical — Anything that will help save money while you live in the home is worth considering. For instance, a super-efficient HVAC system and tankless water heater are worth considering purchasing as an upgrade.

Think about your wants and needs and whether any would be costlier to add once the home is built.

If you’ve never built a home before and gone through that process, ask me for me help. I’ve not only sub-contracted out homes in the past, working directly with contractors, I’ve also sold many new construction homes over the years. Let my experience work for you, while the builder pays for my time to represent you!

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