Purchasing a new-construction home is different from buying a resale home. Here are some tips and things to keep in mind if you are interested in building your dream home or purchasing new construction.
Get a REALTOR. Buyers ask all the time if they can use a real estate agent when they are purchasing new construction. The answer is absolutely yes. First off, real estate agents are paid by the builder, not the buyer.
Second, builders’ model homes are generally staffed by sales counselors who work directly for and represent the interests of the builder. A buyer should have their own representation, looking after their best interests. Purchasing new construction can be more complicated than buying an existing home. It is important with a new home purchase that a buyer use a real estate agent to represent them in the process. This agent should be a local expert and have experience with newly constructed homes. Builder contracts and the building process is different from what most real estate agents deal with on a daily basis, so having new construction experience is important.
Keep in mind: most builders will require the real estate agent to accompany or register the buyer on their initial visit to the builder’s model home or community.
Make sure you talk to your real estate agent prior to just “stopping by” the new-home community without them; upon meeting the builder for the first time, share your agent’s business card. If the real estate agent is not registered to the Buyer at the beginning of the process, they might lose the opportunity to have their own representation.
If you’re tempted to think cutting a real estate agent out of the deal is a smart way to save money on the commission or get a better deal from the builder, keep reading.
What’s The Best Time to Buy? Many national builders are publicly traded companies. They need to meet sales goals and answer to the shareholders of that company. So, toward the end of a quarter, builders tend to be more aggressive with their incentives in order to meet these sales goals.
The holiday season from November through December is a great time to buy. Most of the country is out shopping and traveling to see family. Very few people shop for homes this time of the year. For this reason, ’tis the season to find some great incentives on purchasing a new home.
Are Builder List Prices Negotiable? Make a mental note here: builder prices are basically influenced by the following factors:
cost of the land
size of the home
cost of the building materials
real estate market conditions
builder impact fees
Builders are not like regular sellers. They are not emotionally attached to their property. They make decisions based on what is best for their bottom line. Surprise! Builders don’t like reducing their prices. If they do, it sets a downward precedent for future home sales. Builders are more likely to pay for closing costs or offer design center incentives on options than drop their prices.
There is something known as the time value of money, which means that money available now is worth more than the same amount of money later. What does this mean in the practical world? It means every day a builder has a home sitting for sale on the market, they are losing money. Take advantage of it. Look for builder inventory (or spec) homes lingering on the market for 45 days or more. These are the homes in which a buyer might be able to get better deals.
Note: Some new home buyers think that if they do not use a real estate agent for their purchase, the builder will reduce the price of the home by the amount of the commission. This cannot be further from reality. Remember, builders do not want to reduce their prices because it sets the comparison price for future home sales in that neighborhood. Builders actually add the commissions paid to the buyer’s agent into the marketing budgets of the homes. If a buyer goes to a new-home builder without a real estate agent, neither the buyer or the builder’s sales counselor will pocket that money.
Get Everything in Writing. Getting everything in writing seems obvious, but the builder’s agent can promise a lot during a showing of a model home. If something said is important to the buyer, get it in writing.
The majority of larger builders will have lengthy, attorney-written, intimidating purchase agreements that cover all the pertinent details of the new-home purchase. Ensure you (and your real estate agent) read through, review and are familiar with the purchase agreement. Ask questions!
What You See Is What You Get. Or could get. A builder’s model home isn’t always a good representation of what comes standard with the home.
Often the model home is a higher-end version of the standard home. It is the builder’s showcase home and a way for the builder to show off the stellar upgrades offered. The builder hopes a buyer will like these upgrades and ultimately add them to the purchase of the home. In general, these upgrades have really good profit margins for the builder.
When touring the model home, find out exactly what options are standard, what options are available, and, of course, what any additional options will cost. Each builder will have their own set of standard items that come with a house. A standard item for one builder might be an upgrade for another.
Purchase the Builder’s Model Home. Purchasing the builder’s model home can be an excellent deal. Remember, these homes are the showcase homes for the builder. The builders have packed great upgrades and features into the model. Typically when the community is almost complete, the builder will put the model home up for sale. Be on the lookout for them.
The one downside of buying the model home is that the buyer generally does not get to pick the floor coverings, the color of the paint on the walls, the kitchen cabinets, appliances or any fixtures. Also, these homes have typically served as the store front of the builder, an office, having had hundreds of prospective buyers walk through and view them. Still, it is like buying a newer, professionally designed existing home, and gently-used (relatively) model homes are typically attractive deals. They tend to resale for market value and include all the showcased upgrades (which other buyers paid top dollar to get).
Research the Builder. Not all builders are created equal. Do your homework and get to know the builders, their reputation and what they offer. To do this, visit other communities the builder has built in, try to speak with past buyers and look for online reviews. Saying it again, your real estate agent is a great resource here.
About the Builder’s Lender. Builder’s love it when a buyer uses their preferred lender. In most cases, they will even offer some enticing incentives to ensure a buyer chooses the preferred lender. Even so, a buyer should not just automatically use this lender. They should shop around and find the best loan for them, not for the builder.
These are just a few of the first thoughts to consider when building or buying new construction, but there’s one more …one day, you will probably be selling your dream home. Getting a Realtor involved now, guiding you in the process of lot selection, prioritizing and budgeting for options, understanding the contracts, etc. can help you sell one fine day when it comes.
courtesy of Jeff Gould, contributor at Inman