When homebuilders stop building, the inventory of homes for sale dwindles, and we get a tight sellers’ market. There are many reasons for the recent slowdown in new home construction – including high material costs, unavailability of labor, etc. – there is good news on the horizon: They’re building again.
New home sales increased more than 6 percent in February, “nearly 13 percent higher than February of last year,” according to AP economics writers Christopher S. Rugaber and Josh Boak.
This news makes now the perfect time to learn about the ins and out of buying a newly constructed home. Much of the process is similar to buying an existing home, but its critical to understand some of the differences – both to your sanity and your pocketbook.
The builder has an agent and a lender . . . do you?
Ever visited a new home community? You’ve probably noticed the fencing that corrals you to make sure you visit the builder’s office before you view model homes. The greeter inside this office is typically a licensed real estate agent who is employed by the builder or developer. The agent’s job is to let you know about all of the fabulous features of the home and community but also to peel off those potential buyers who aren’t working with another agent.
While it’s often legal for an agent to represent both the seller (the builder or developer, in this case) and the buyer, be wary of a “dual agency” situation like this, even if it seems handy to you. Dual agents can’t represent one party exclusively, so you’ll receive only limited representation.
Since the seller is paying for your agent’s services, your best bet is to have your own representative. So, when the builder’s agent asks you if you’re working with an agent, say “yes, and you can move on to seeing the amazing new homes.
Whether you should work with the builder’s preferred lender may take some research. Often, the lender can save you money, but the only way to know for sure is to get quotes from other lenders and compare them all.
Research is a bit more challenging
After seeing a lender, the first steps in a house hunt include deciding where you want to live and in what kind of home. When the neighborhood is brand new, you’ll have several challenges not present when you buy an existing home. Keep these considerations in mind when researching homes and communities.
- Even new homes can have problems. Visit areas of the new community where there are already people living, and stop and chat with any residents you see. Ask about their experience with their homes and with the neighborhood overall.
- Ask the builder’s agent 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 Internet and TV service will be available in the community as of your expected move-in date.
- The Better Business Bureau is a valuable resource. Use it 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.
New home upgrades can be confusing
Model homes showcase the best of the best. Unless you buy identical upgrades, remember that your home will not look anything like the model. In fact, the home is most likely to be a bare shell, with the least expensive flooring, appliances, and fixtures. Find out exactly what comes with the basic home price. Once you know that number, you can add upgrades and stay within your budget.
Upgrades done by the builder during construction are typically more expensive than if you hire someone to do them later on. There is an advantage to having them done during construction, though: You can roll the costs into your loan.
Here are 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), is worth the money it costs.
- 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.
Consider your wants and needs and whether any of them would be more expensive to add once the home is built. Whenever a wall needs to be opened, you can expect a huge mess that costs a lot of money.
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