Buying New Home Construction: Tips for Getting it Right
Buying new home construction -- is it making a fresh start or a journey into the unknown?
It's actually both, but with some effort and planning you can limit the unknowns. You want the benefit of a brand-new home you can customize to your specifications.
Here are some steps you can take to manage the unknowns of buying new construction:
1. Check the home builder's reputation
If you purchase a home that's new or still under construction, you'd better consider the builder's reputation. Check out past projects. Visit those neighborhoods to see how the properties have held up. It's great if you can find older developments to look at. If possible, chat with homeowners to find out what their experience with the builder was like and how the home has held up.
Also, check out online forums and your local Better Business Bureau to see what you can find out about the builder's reputation. You can also contact your local contractors board to see if there are complaints or disciplinary actions against the builder.
You might also check the licensing status of your builder or contractor, and see if they are members of local, state or national trade associations, who often have codes of ethics members must adhere to.
2. Remember who the agent represents
Most real estate agents get their commissions from the seller. And in any case their incentive is to close the deal. They might find you the right property and give you some sound advice. But rely on yourself when you choose a property and negotiate with the builder.
This is especially true if you're dealing with agents marketing a development for a builder. They are sales agents, not objective third parties. If you're not a strong negotiator, consider enlisting a friend or professional who can negotiate on your behalf.
Related: Are You Ready to Build a New Home?
3. Don't take the home builder's list price at face value
Just because you're dealing with a property developer and not a homeowner doesn't mean the price isn't negotiable.
If the builder has multiple properties on the market, find out how many are unsold and how long they've been on the market. The more properties home builders have on their hands, the more apt they are to make price concessions.
Sluggish sales may prompt builders to offer a range of concessions, including price discounts, upgrades to appliances or fixtures and even financing supports or discounts. Develop an understanding of the market in which you're buying, and you may be able to get a better deal simply by asking.
4. Look beyond the builder's recommended lender
The builder may offer to arrange financing for you. That might prove helpful, but do some comparison shopping of your own.
The builder might have a financial incentive to steer you to a particular lender or their own financing arm, but don't assume that's the best deal. Listen to what the builder's lender has to offer, and then do your own research to see if you can find better mortgage terms.
That's also true if you're putting up the money to build the home. Construction loans come in two forms -- straight construction loans and construction-to-permanent financing offers. If you're going this route, you'll want to shop around to find good deals for both portions of the financing.
5. Leave yourself a cushion of time and money
If you're buying a property that is not yet built, do yourself a favor and expect it to take longer and cost more than quoted. Most construction lenders build in a 10% contingency for just that.
When you talk to people who've gone through the experience of having a home built, you'll find the phrase "on time and under budget" almost never comes up. Supply-chain issues and cost increases can crop up without warning, so assume the build will take longer and cost more than you expect. Keep in mind that you might avoid having to arrange temporary housing or extend any lease while your new home is finished, or may need to come up with more money on short notice.
6. Buying new construction: up-charges and options
Minimize financial surprises in the home-building process. Clarify upfront which items the builder's standard package include, and which entail up-charges for optional features or materials.
Try to get all these options laid out for you before you commit. Costs tend to creep up when homebuyers have to make choices during the process. What feel like relatively minor cost additions can add up to big bucks over time.
And, of course, get documentation for any choices you do make, so you can be certain what you chose is what you ended up with -- and at the agreed-upon price.
Related: Is it Better to Buy a New or a Used Home?
7. Check new home construction documents
The builder may present you with its standard form of agreement, but that standard form was written to protect the builder, not you. Have an experienced real estate attorney review the documents before you sign.
8. Hire your own home inspector
You might think a home inspector unnecessary for new property, but new construction can have as many defects as an older home.
Even the best home builders experience time and financial pressures that may cause them to cut corners. Don't settle for the builder's assurance that the property has been inspected. Get your own licensed home inspector to make sure the work is sound.
If you like the idea of buying a brand-new home, you don't necessarily need a builder start from scratch. Many develop housing tracts or construct individual properties "on spec" before they put them on the market. That can give you a chance to be the first to own the home, but still see in advance what you're getting into.
9. Insist Upon a Home Warranty
Just because it's new doesn't mean it won't break, or leak, or crack or fail. Have the builder provide a copy of any home warranty they may offer, and make sure there are clear instructions as to how to proceed, who to call and where to file a claim if your new home should develop issues. Understand what is and what isn't covered, whether or not you are liable for any costs of repair or replacement, who will come make any needed repairs (and when), and more.
This article was updated by Keith Gumbinger.