3 things to know about buying new construction

Jeff Peterson
Jeff Peterson
Published on March 30, 2017

When new home builders stop building, inventories of homes for sale dwindle and we end up in a tight sellers’ market. While there are many reasons for the recent slowdown in new home construction (high material costs, unavailability of labor, etc.), there is good news on the horizon: they are building again.

In fact, new home sales increased more than 6 percent in February, which is “nearly 13 percent higher than February of last year,” according to AP economics writers Christopher S. Rugaber and Josh Boak.

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, but, if you’re considering a new home, it’s critical that you understand some of the differences – critical to both your sanity and your pocketbook.

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

If you’ve ever visited a new home community, you no doubt noticed the fencing that corrals folks to ensure they visit the builder’s office prior to viewing the model homes. 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 fabulous features the homes and the community offer, but to peel off those potential buyers who aren’t working with another agent.

While it’s often legal for one agent to represent both the seller (in this case, the builder or developer) and the buyer, and this “dual agency” situation seems like a handy solution for you, be wary. Dual agents are prohibited from representing one party exclusively so you’ll receive only limited representation.

Since the seller is paying for your agent’s 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 working with me, Jeff Peterson and you can move on to view those amazing new homes.  Make sure when you register with the builder that you put my name down as your agent.  Otherwise the builder will not allow me to help you throughout the process.

Whether or not you should work with the builder’s preferred lender may take some research. Often that lender will be able to save you money on your mortgage but the only way to know for certain is to obtain quotes from other lenders and compare them all.  I too can help with this process as I sold brand new homes for many years.  I know exactly what to ask and what to look for!

2. Research is a bit more challenging

The initial steps in the new home hunt include, getting preapproved from a lender, deciding where you want to live (at the neighborhood level) and in what type of a 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 and communities

  • Even new homes can have problems. Visit the existing home areas of new communities and stop and chat with any residents you see. Ask about their experience with their homes and with the neighborhood overall.  Don’t forget to ask about how the builder was throughout the new home build.
  • Ask the builder’s agent about the Homeowners Association (HOA) and how much the monthly fee will be. Ask to the see the HOA documents, such as the CC&Rs – the covenants conditions and restrictions. Run them by your attorney if there is anything you don’t understand.
  • Determine if Internet and TV service will be available in the community as of your expected move-in date.
  • The Better Business Bureau can be a valuable resource. Use it to research the developer/builder.
  • Visit the city planning office to determine what they have planned for the area surrounding the community of your new home.
  • If noise bothers you, check the neighborhood’s proximity to busy roads, the airport flight pattern, and trains.
  • Although it is great to be one of the “founding” fathers or mothers of 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.  The plus side to this is, usually you end up buying at a discounted price than everyone else in the neighborhood.

3. New home upgrades can be confusing

As you tour the model homes, unless you purchase identical upgrades, your new home will not look anything like the model. In fact, it will be a bare shell, with the least expensive flooring, appliances, cabinets, countertops, and fixtures. Find out exactly what comes with the basic home price. With that in mind, you can add upgrades and keep within your budget.  You will need to make sure you do not choose too many upgrades that put you above your loan approval amount.

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.

Let’s take a look at three of the most popular builder upgrades.

  • The lot — The one upgrade that you can be assured will hold its value is land. Unless you live in Hawaii, no more land is being created. A larger lot, or a better-located lot (if you can afford it), is worth the money it costs when building a new home.
  • Structural upgrades — Creating a three-car instead of a two-car garage or adding an extra bathroom are popular upgrades because of the expense homeowners would incur if they saved these upgrades for after they close escrow.
  • Plumbing and electrical — Anything that will help save money while you live in the new 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. Any time a wall needs to be opened you can expect a huge mess that costs lots of money.  Last, if you have more questions about buying a home, I’ve written a blog about questions from home buyers that you might find helpful.  Let me know how I can help you find your new home!

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