by Sean Hess (www.SeanHess.com), Broker and Manager for St. Augustine Team Realty (www.StAugustineTeamRealty.com). Follow us on Facebook.
I was reading an article online today called “Considering New Home Construction? Top 5 Tips for Buying a Newly Built Home” by Dan Steward. I put Dan’s comments in italics and weigh in myself after.
1. Choose a Realtor Who Has New Home Experience
The builder’s sales agents are paid to represent the builder, regardless of what they may tell you. Many will use high pressure tactics to persuade you to sign the contract. Due to the high volume nature of brand new home sales, lots of builder’s agents are paid less than a traditional commission; some earn a salary plus incentives, so turnover is important to their livelihood.
The thing about buying new construction is that your negotiating power on a new home is only as strong as the market is weak. Are the homes selling well in this development? If they are you will have very little room to negotiate. If it’s a poor market you’ll have much more room, but instead of expecting to get money off the price, expect them to bulk the home with upgrades. Just whatever you do, don’t pay for crown molding. A Realtor who is experienced with new home sales can help you get these extras.
2. Carefully Evaluate the Seller’s Lender Before Committing
Builders will offer huge incentives to get you into your new home; sometimes up to 15% of the value of the home. However, they will often put one big stipulation on those incentives – that you use their lender. There are many problems that may crop up when you pigeon-hole yourself to one lender – higher rates and higher closing costs are the two biggest.
Upgraded kitchen pakages…upgraded ceiling fans…you can get those “free” if you use the builder’s preferred lender, or they may let you roll your closing costs into the loan. But your closing costs will be higher, and you will probably pay a higher rate if you go this route.
Advantages? You will get a much nicer looking house and if you roll the closing costs in it will really improve your cash flow at closing.
Disadvantages? You’re going to pay that crown molding “upgrade” (stifling a giggle here) and/or those closing costs for the REST OF YOUR NATURAL LIFE.
Here’s the deal: if you plan on only being in the home for 5-8 years (or less), roll it in and take the upgrades. The house will look nicer and you will pay more interest, but only for the short term. If you plan on being in the home much longer, use your own lender and get the best rate. Otherwise you’ll still be paying for that “upgraded” kitchen 15 years later when it looks horribly out of style and you go to renovate again. Even worse, if you re-finance down the road, in 30 years when you renovate the kitchen a second time you’re still paying interest on that original kitchen “upgrade” from back in the dark ages. Interest do take a bite, don’t she?
3. Check out the builder’s Reputation
Talk to the neighbors and scrutinize the construction quality of surrounding homes. Is the builder consistently building same-sized or larger than existing properties, or are homes shrinking in size, which could reduce neighborhood value?
Right now new construction starts are at an all time low, so these days you don’t have to worry so much about slapdash neighborhoods springing up overnight. There seems to be a real emphasis on quality right now because buyers have a lot of choice in the market. That being said it is a good idea to talk to the neighbors and scrutinize the construction…if 4 out of 5 neighbors report the same problem, buyer beware. But they could have good things to say as well.
No neighbors? Find another community that the builder is working in and ask those folks.
4. Hire a Home Inspector
Many people who buy new construction homes don’t bother to get a home inspection. Most new homes come with a one year “bumper to bumper” warranty that includes everything, and many home buyers feel that they can find out if there are any construction flaws during those 12 months. The problem is that many problems won’t surface until well after the 12-month warranty has expired.
Yes. Yes. YESSSSSSSS! Do This!
Some builders try to discourage this because it “affronts their honor,” but man-oh-man the corners some subcontractors will cut when they build a house. The most likely problems that a home inspector will find relates to the insulation: it wasn’t blown in correctly, it didn’t cover all the areas of the house (blank spots), or they blew it into the soffet resulting in a house that can’t breathe. In some cases the insulation isn’t blown in at all. And yes, building code requires it, and no, nobody catches it.
5. Obtain Legal Advice before Buying a Brand New Home
Before you sign a purchase contract, talk to a real estate lawyer. Standard purchase agreements are designed to keep everybody out of court, but they don’t necessarily contain language that protects the buyer.
Understand this, a builder’s contract absolutely does not protect you. But it does protect the builder three generations down the line. In most cases you won’t be able to change one thing in the contract unless it’s patently illegal, but an attorney can at least explain it to you so you fully understand the consequenses about things like your downpayment and if things don’t work at or after the time of sale.
Another good bet? Get a home warranty from your Realtor. If something minor breaks there will be a lot less hassle calling the home warranty than it will a builder.
We’d love your comments, please e-mail them to Sean@StAugTeam.com.