New Home Construction
I am a huge fan of buying new construction homes. In fact, 4 of the 5 homes I have owned have been new construction. Living in a home that no one has ever lived in is definitely cool and gives you a strong sense of confidence that you should not have to worry about many of the repair issues that go along with owning an older home.
There are a few things you do need to consider when buying a new construction home:
The Contract
Often when purchasing a new construction home from a large national builder they will insist that the purchase contract be written on their contract versus the standard contract that is provided to real estate agents thru TREC which is their governing body. Both contracts are legal and binding and spell out the obligations of both parties and the remedies for failure to perform. The differences can be very stark with the TREC contract giving more protection to the buyers vs the construction companies’ contract which gives them more protection.
An example of how these contracts differ is apparent in what is happening right now with the cost of lumber and the impact that is having on the prices of new construction homes. There are customers of new construction homes who are under contract and waiting for their home to finish being built who have received communication from their builder that the contracted price is being raised in some cases tens of thousands of dollars as a result of the increased cost of lumber. Under the terms of the builder’s contracts, there is little recourse for the buyer other than to agree to the increase in cost or terminate the contract. Under the TREC contract, there is far more protections for the buyer and could allow the buyer to compel the builder to honor their contract under a principle called specific performance.
The Lender
Very often the builder will offer you special incentives and upgrades if you agree to use their lender. It is very important that you shop at least 3 lenders prior to agreeing to use the builder’s lender. Small savings on the annual percentage rate from another lender over the course of your 30-year loan could make the lender’s incentive seem insignificant.
Included vs. Upgrade
Very often people make their buying decision about new construction following a visit to a model home. A model home is a staged version of what the completed home will look like but often contains many upgrades. It is critical to understand exactly what finishes your home will have if you are purchasing your home in the early stages. Possibly you will purchase your home in time to do some customization with paint, floor coverings and lighting fixtures. National Builders will routinely direct you to their Design Centers to make your selections. Buyer Beware that the allowances you are granted might only cover “base” level items and anything you choose above that will be an upgrade and consequently an upcharge. Usually, upgrades have to be partially paid out of pocket with the remaining portion rolled into your mortgage loan. It is extremely important that you communicate with your lender to ensure the cost of your upgrades doesn’t cause your loan to exceed your loan approval amount. Also of note, many times monies paid to upgrade are non-refundable to you in case you terminate your contract.
Another consideration is that some new houses do not come with window coverings, fences, or sod. It is important to factor these costs into your budget as these can end of being costly additions to your new home.
As I said earlier, I am a huge fan of new construction. My advice to you is to make sure you have a real estate agent representing you and your interests during the transaction to make sure you get the house of your dreams. Many large home builders do a great job with their construction and customer service but they are for-profit business that is going to do as many things that benefit them in each transaction as possible.
Let Coastal Living Realty Group Help You!
If the thought of buying a home stresses you out, I encourage you to speak to a real estate professional or take a first-time home buyers class just to learn more. Both are no-cost options to learn more about how homeownership might truly be within your reach. You will be glad you did!
