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Buying new construction? Here’s what you need to know

Buying new construction is different than buying a home for resale. It’s important to do your homework, ask the right questions, dot your i’s, and cross your t’s. If you’re thinking about buying new construction, here’s what you need to know to save you time, money and stress throughout the process.

A real estate agent should represent you

If you stop by a builder’s model home, you’ll speak to the builder’s real estate agent. This agent represents the builder, meaning they have a responsibility to the builder, not you.

You need someone that specifically represents your interests and has a responsibility to you throughout the process. Having an agent on your side to help you every step of the way is invaluable.

The seller or, in this case, the builder, typically pays all the commission fees for both the buyer’s agent and their own. Some buyers hope to get a discount on a new home by working directly with the builder (or the builder’s agent). The hope is, by saving the builder commission costs, this will lower the price of the home. Yet these fees are generally figured into the price of the home regardless of whether you have your own agent or not.

Researching builders is essential

Not all home builders are created equal. Finding the right builder to suit your home building needs is essential. Do your homework, ask for referrals and ask questions!

Home builders don’t like to negotiate on price

Negotiating price is the name of the game for resale, but this isn’t so with new construction. Builders don’t typically negotiate their prices because they don’t want to set a standard of price reductions on future home sales.

That doesn’t mean you can’t get discounts. You simply have to take a different approach. Instead of negotiating price, you can ask the builder to throw in upgrades, such as better appliances, or pay for closing costs. Your real estate agent will help you with negotiations.

Model homes can be misleading

Model homes can include upgrades that don’t come standard in builders’ homes. Some builders pull out all the stops for their model homes and feature every upgrade available. Just because it’s in the model home, doesn’t mean you’ll get it in your new home.

Request a list of standard finishes and fixtures along with available upgrades and the additional cost of each upgrade. What is standard and what is an upgrade varies from builder to builder.

If you want to take it a step further, you can request to see a home built for a customer, in addition to the model home. Though it’s not always possible, it never hurts to ask!

A warranty is a necessity

If a home builder doesn’t offer a warranty, run away.* Any reputable home builder will offer a warranty. Ask to review the written warranty prior to signing a contract.

*Some state laws require home builders to offer a minimum warranty. While Iowa does not require builders to offer a warranty, reputable builders will offer a minimum 1-year warranty. In Iowa, there is some basic protection under Iowa Code Chapter 614 “Limitation of Actions” for 15 years of implied warranty of workmanlike construction for structural defects.

Get everything in writing

Most builders have a standard contract. If your builder has a standard contract, ask if you can review it ahead of time.

If your house hasn’t been built yet, make sure the contract includes details on price, how it will be completed, features and upgrades, timeline, and how changes will be handled. For example, is landscaping included? What about gutters/downspouts? What upgrades are included? Who approves changes?

In addition, the contract should include what will happen if the house isn’t completed according to the agreement.

Verbal agreements or statements builders make should be in writing. Make sure everything is written into the contract before you sign. Read the entire thing…even the fine print and make sure you understand it.

Ask your real estate agent any questions you have and, if in doubt, it’s a good idea to have your attorney review the contract.

Future development of the community can affect resale

Consider resale potential in the neighborhood and community where you build your home.

In 3, 5, or 10 years, what will the neighborhood look like? Is the area growing? Will that amazing view be there in 5 years, or will new houses and buildings block it? Will the area be able to handle growth and expansion?

You might think you will stay in your new home forever, but circumstances can and do change. Life happens and jobs change, which can make it necessary to move before you planned.

Homeowners’ associations have varied rules and regulations

If you purchase a home in a neighborhood with a homeowners’ association (HOA), read through the HOA rules and regulations in addition to assessing the cost. Get a copy of the covenants from the builder and review them prior to signing a contract to build.

Some HOAs have restrictions on house size, exterior materials, landscaping, storage sheds, fences, and more. If a homeowner is in violation of the written rules and regulations, associations can impose penalties.

Homeowners’ associations usually require homeowners to pay monthly dues. If you move into an area that is still being developed, the builder may cover a portion of these fees until the development is complete. Factor into your budget the current fees and any increases in the future.

The builder’s lender could save you money (but not necessarily)

Go into the process with your financial ducks in a row. Get pre-approval from your own lender before even looking at new homes. Know how much you can spend, your down payment, and your estimated mortgage payment.

The builder probably has a lender they work with on a regular basis. They might recommend you go to this lender to secure your mortgage. This is worth looking into to see if you can secure a better rate, terms or special offers. But always do what’s best for you and your finances.

An independent inspection is up to you

Cities require building, electrical, and plumbing permits on new construction projects. The city performs periodic inspections and final approval of the work to ensure it’s done according to code.  

In addition, prior to closing, you will do a “blue tape” walk-through of your home, placing blue tape anywhere in the house that needs to be fixed or is not to your satisfaction.

If you build a custom home and were involved in the process from the beginning, been on site, and are satisfied with the quality of the work, you may choose to forego an independent inspection. It’s all a matter of your comfort level.

However, if you buy a spec home*, haven’t been there throughout the building process, and want reassurance your new home is up to par, consider getting an inspection.  

**Spec is short for speculation. This is a home built without a specific buyer, built with the speculation of what buyers would like at a particular price point. Though you cannot design these homes from the beginning, it’s possible to make some finishing decisions.

Building takes time and patience

If you’re not building a spec home that is move-in ready, you will need the patience to get through the building process. Building a home takes time and there are a heap of decisions to make along the way. But it’s important to allow the time to make these decisions and make sure everything is done right. In the end, it will all be worth it!

 

Whether you’re selling or buying a home, the process can feel intimidating and overwhelming. But it doesn’t have to. At Coluzzi Real Estate, we answer all your questions and simplify the process. We’re here for you every step of the way. Please don’t hesitate to contact us today!

 

Image credit: Pixabay

2018-07-25T16:16:35-06:00

About the Author:

Amanda has lived in the Des Moines area since 1999, where she and her husband have bought and sold a handful of homes over the years, including a recent flip. Amanda enjoys writing, obsesses about personal finance and is fond of looking at houses. She loves sharing useful tips and info to make life easier for anyone wanting to buy or sell a home. In her spare time, Amanda cherishes time with her family, volunteers with IHYC, gardens, hikes, and practices TaeKwonDo. You can read more of her writing at whywemoney.com