How is buying new construction different than buying an existing home? For starters, a newly built home likely includes up-to-date design, the latest construction standards and new appliances. And since many new construction homes are sold before they are finished, you may have the opportunity to make some design choices, things like upgrading tile or selecting the carpeting color. You won’t be moving into a home with a honey-do list of projects and repairs.
Here are some tips to help you shop for and buy new construction.
How to find a newly built or under-construction home? You can refine your search on Zillow to show only new construction but don’t stop there. A good real estate agent will know about new developments in your area. Of course, new construction isn’t always in a new development. Some builders pick up lots and build one or two homes at a time. So keep an eye out for new places under construction in your target neighborhood and ask your agent to contact the contractor or developer.
Builders of larger developments often have a sales force that works directly for them, bypassing traditional real estate agents. Other times they have a real estate agent who handles their listings. In either case, you will want your own agent to represent your interests.
The same goes for lenders. Don’t be surprised if builders require you to be pre-approved by their preferred lender. They just want assurance that you are a serious buyer and the deal won’t fall through. In most cases, you can still use the lender you choose. But if it’s a development with no finished homes, you may have a tough time finding another lender willing to loan you the money.
You want to know who you’re putting your money behind, so go online to read reviews of builders. Do they have a reputation for quality work they stand behind? Or are they better known for putting up shoddy homes that look nice but quickly fall apart? How financially sound are they and their financing? You don’t want to put down a deposit only to watch the builder declare bankruptcy before finishing your home. Ask what kind of warranty is offered on the home.
When buying new construction, you may be purchasing your home before it’s finished. So how do you know what it looks like? You’ll tour a model home or homes in the same development. Models give you a feel for the floor plan and display finish options. But beware! Oftentimes model homes have a mix of standard and “custom” or “premium” finishes. You don’t want to fall in love with a back splash in the model only to find out later that it’s a pricey add-on. Ask for a list of standard and upgraded features, including their costs. You have to make sure you know exactly what is included.
Builders aren’t emotionally attached to the homes they construct. It’s their business and they usually aren’t keen on negotiating price. For one thing, if they cut the price for you, the next buyer is going to expect a similar discount. For another, they need to show their own lender that homes are selling for the prices they expected to.
So what can you negotiate? Everything else. Upgraded cabinets or flooring? Negotiable. Closing costs? Negotiable. Anything that isn’t going to show up in the county records to lower the sales price can be negotiated.
It’s also true that most big developments come in phases. Buyers who jump early, getting into one of the first homes available, sometimes get a sweeter deal. Why? Because the builder wants to build interest in the development as well as start some cash flowing to help finish the next phase. If the housing market is strong, builders can raise prices with each new phase of the development. That doesn’t mean you’ve lost out by buying late. You can still negotiate some sweet upgrades from a builder who wants to complete that development and move on to the next.
There is some risk with jumping in early. If the rest of the development doesn’t sell and the builder runs out of money to finish your home, you could be out your down payment with no home to show for it. Or you could find neighbors moving in a few months later having paid significantly less than you did. (Always a risk, no matter what kind of home you buy.)
Your new home may still be under construction when you sign the contract. You’ll need to provide a deposit (from a few thousand dollars to 10 percent of the home’s price) so make sure your agent explains the contract. You will need to know if and when you can get your deposit refunded; your agent can make sure a review period is written into the contract. The contract should include a specific completion date, but know that many builders have provisions that allow for some wiggle room in case materials or permits cause delays.
Your contract should spell out what recourse you have if your home isn’t ready on time. Get everything in writing. Don’t assume that because you talked to the builder that’s good enough. Even an honest builder can forget things. That’s harder to do if it’s written down in a contract. Ask your agent to walk you through the details.
Just because your home is brand new doesn’t mean you should skip the inspection. For a few hundred bucks, you get an unbiased and trained set of eyes making sure things are in order and up to code. A good inspection gives you the opportunity to work with the builder to correct problems before you close. Make sure your agent explains your rights. Most times, the builder will fix any code issues, but you aren’t able to simply walk away based on inspection results.
In addition to manufacturer warranties for new appliances, new homes may include a builder warranty, often through a third-party warranty company. Your agent can explain what the builder’s warranty covers and for how long. You’ll want to make sure you understand the details before signing your contract.