When homebuilders stop building, inventories of homes for sale dwindle and we end up in a 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: they’re 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 new construction 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 you to ensure you enter the builder’s office prior to viewing the model homes. The Sales Representative inside this office is 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 a Realtor. The money the builder saves will never be passed on to you as a savings, but will instead be saved so the builder can offer a larger incentive for Realtors to bring clients to their neighborhoods when they need to move more houses at the end of the quarter or end of the year.

While it’s ok for you to purchase a home unrepresented, be wary. The Sales representative has a fiduciary responsibility only to their employer, so you’ll receive only limited representation and will have no one looking out for your best interest

Since the seller is paying for your Realtor’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 Chris Pesek and Jackson Properties and you can move on to view those amazing new homes.

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.

2. Research is a bit more challenging

The initial steps in the house hunt, after seeing a lender, include 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 do stop and chat with any residents you see. Ask about their experience with their homes and with the neighborhood overall.
  • Ask the builder’s representative 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 and what type of Internet and TV service will be available in the community as of your expected move-in date.
  • The Better Business Bureau and Yelp are valuable resources. Use them to research the developer/builder.
  • Visit the city planning office to determine what they have planned for the area surrounding the community.
  • If noise bothers you, check the neighborhood’s proximity to busy roads, the airport flight pattern and the number of young people residing there.
  • 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.

3. New home upgrades can be confusing

As you tour the model homes, unless you purchase identical upgrades, your home will not look anything like the model. In fact, it will be a bare shell, with the least expensive flooring, appliances 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.

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 and sometimes, the builders run great deals with a certain amount of free upgrades.

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), may be worth the money it costs. However, I have been about to negotiate the lot premiums down for many of my clients in the past, so again, a reliable Realtor can save you money.
  • 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 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.

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