The new construction home buying process is different than buying a resale home and there are a few things you’ll want to know before buying buy a new construction home. In this article, we will ask Realtors® to share some of their best tips when it comes to the new construction home buying process and to weigh both the pros and cons of buying a new home.
New Construction offers buyers more than just a brand new home, it typically offers even better resale value when you go to sell. This can oftentimes make it a better investment than a resale home as you won’t have to invest as much in repairs when you buy a new home and you can sell it for more.
One of the most important things to understand when buying a new construction home is that working with a Realtor® will cost you nothing. The Realtor® fees are paid from the seller's proceeds at settlement, so in this case, by the builder. Having a Realtor is instrumental to a successful purchase.
Buying from a builder vs. buying from a resale seller is a different dynamic in the fact that the builder doesn’t have the sentimental/emotional attachment to the home that the builder does. The builder is selling a product, the resale seller is typically selling something that they have called ‘home.’ A builder usually wants to sell as many homes as they can, as fast as possible, while maximizing their profits and sales velocity. A homeowner may need to sell and may not.
Tip 1: The Negotiation on New Construction isn’t in the price, it’s in the upgrades
Builders are unlikely to move much on the price of the home unless it’s one of the last homes in the neighborhood and has been sitting awhile. The reason for this is twofold: They want to maintain price integrity and value as they continue to build and sell homes in the neighborhood. By keeping the sales price high they give appraisers and buyers great comparable homes and prices to work with justifying the homes price. They also want to keep neighbors happy who have already purchased a house from the builder.
When you negotiate with the builder you’ll want to understand their motivation and knowing they want to maintain a high sales price is key! When making an offer ask for upgrades that are important to you whether it’s flooring, countertops, cabinets, or even a fence. By asking for upgrades you can keep the builder happy and watch as you pay the same price for an upgraded home!
Tip 2: Know How The New Construction Home Buying Process Works
Going into a purchase with a great Realtor® is going to help you to better understand how the new construction home buying process works. They will be able to educate you so that you're prepared and you know what to expect. When you know how the process works it makes everything go a lot smoother and allows you to sleep better at night. With so many folks relocating to Charlotte, NC your Realtor is oftentimes your only form of boots on the ground while your home is being built.
One of the most important parts of buying new construction is ensuring you have everything in writing and that nothing is left to a verbal understanding. A verbal understanding will cause issues because people forget how conversations go and oftentimes a builder will say anything to get a deal done and totally forget the promises they made. The best Realtors in Charlotte will ensure that everything is in writing and signed off on to ensure that expectations are set and agreed upon. The quickest way to frustrations is when expectations and reality don't line up with either the buyer or the builder and these frustrations can carry over.
Finding money is a crucial step in the new construction home buying process. Oftentimes the builder has lenders that work with them on financing deals. While this is sometimes a good thing or convenient, it's not necessarily something I would recommend. Finding a great lender to work with before you find the home makes more sense than finding the home and working with the builder's preferred lender. Your financing structure can be more important than the actual home itself when it comes to dollars in and dollars out.
Research the builder. What are their reviews like? What do neighbors say? Reviews are important because you can uncover a lot of the things that have already gone wrong for other buyers and address them before they happen to you!
Tip 3: Understanding the Builder’s Contract vs a Standard Contract
When buying a resale home, and when working with a licensed Realtor, buyers will submit their offer on a standardized contract. This form, which comes from the local Realtor association, is used thousands of times a year. What’s more, widely-used purchase agreements have a multi-year history of revisions (by top industry attorneys) that reflect all the current best practices, protections, and rights of buyers and sellers.
However, when buying a new home, buyers sign the builder’s contract. Buyers should strongly consider having a real estate attorney review it. Buying from larger builders, who’ve been around for many years, built thousands of homes, and has a good reputation (not a lot of lawsuits) can be somewhat assuring. Their contract has likely been revised over the years just like state Realtor association’s purchase agreement. That said, a builder’s contract still tilts in the favor of the builder in terms of its terms, rights, and protections. The team at Great Vancouver Homes advises clients to get an attorney to review builders’ contracts. It’s always the smart thing to do.
Tip 4: Understand the Pros and Cons of New Construction vs. Resale Homes
As with anything in life, there are pros and cons to every decision you make and the decision to buy new construction vs. resale is no different. Let's discuss some of the major pros and cons of the two so you can be better prepared in deciding which purchase makes the most sense for you.
Pros for New Construction Homes: Resale value will typically be greater for new construction homes in comparison to resale homes, though this is only taking into account the overall average. It's very possible that a resale home will appreciate more, especially if the desirability of the location increases. Additionally, everything is brand new in the home so you don't have to worry as much about things breaking, especially if the home comes with great warranties.
Pros for Resale Homes: Typically a more mature neighborhood with trees and oftentimes, larger lots. You don't have to 'guess' what the neighborhood will look like when it's finished because it's already been built. Resale homes are often in locations that are more desirable due to the land values that builders need to take into account when buying large pieces of land to build homes on.
Tip 5: Work The Neighborhood
A crucial part of conducting due diligence on a new construction property is canvassing the prospective neighborhood. An intimate understanding of a neighborhood and its developer can provide buyers with a significant advantage during the negotiation process.
For example, speaking with potential neighbors can yield a treasure trove of information. This is especially true if the home being considered is located within a planned urban development. These neighbors are able to comment on their first-hand experiences with the builder and the quality of the product they received. Consider asking them the following questions:
How flexible was the builder on price during your negotiation? Did they offer any incentives or upgrades?
Did you have any problems with the builder’s workmanship? Was the builder credible and honest throughout your homebuying process?
Do you like the neighborhood?
Did you opt for any upgrades? If so, do you find them to be useful and worth the added cost?
Is there anything you wish you knew before purchasing the home? Did you ever consider backing out of the contract?
Neighbors should be more than willing to talk about their experiences. This information may provide an edge during the negotiation process and prevent headaches.
Tip 6: The Future of the Neighborhood
What will the future of the neighborhood look like? If you're buying early on in the development of the neighborhood it's important to understand where the neighborhood is going. You don't want to buy a home on a lot and then find out that your neighbor actually owns the land behind your home you assumed was yours. This happens too often with the way builders develop neighborhoods and lots.
Is the builder going to increase prices as the neighborhood is developed? How long will it take before the entire neighborhood is complete?
Knowing what to expect in the upcoming months/years will make your buying process easier.
Tip 7: Get The Home Inspected
A lot of folks will want to skip this step because they assume since it's a brand new home nothing is wrong with it. Sometimes the new construction homes are actually worse than homes that have been lived in because you can't spot the issues until you move in! THis is why it's helpful to have a great home inspector to check and test everything inside the home to make sure it is operating as it should be. Try to avoid the large national companies and find someone who's local that builds their business on the reputation of their work and not the overall companies' work.
Many times, builders and project managers are not keeping a close watch on their subcontractors and are assuming things are getting done that may not be. A home inspector will find the things that others won't and ensure you're buying something that is structurally sound. You may have heard some nightmare stories, don't let that be you!
Final Thoughts on Buying New Construction Homes
When you're buying a new construction home you want to make sure you're not going to be taken advantage of by the builder, the mortgage lender or anyone involved in the transaction and the best way to do that is to find the best Realtor you can to help you. With so many folks moving to Charlotte and Raleigh it's no wonder builders are determined to set up shop in these growing mrakets. A lot of time folks will assume they can do it alone, without a Realtor, however, a Realtor costs you nothing and is one of the best lines of defense for buyers... as well as a wealth of knowledge!
Hi there! My name is Ryan Fitzgerald, and I am a REALTOR in Charlotte, NC. My goal is to help you learn more about real estate through our Charlotte Real Estate Blog! Hopefully, you enjoyed the above blog post and it found a way to provide help or value to you. When you're ready to buy or sell a home of your own let us know here. Please feel free to join the conversation by dropping us a comment below... We love comments!