It is very exciting to buy new construction but you need to keep your eyes wide open. Here are a few things to keep in mind.

Using an agent to represent you can actually save you money

The price is set for that new construction and it includes a commission for the buyer agent. If you are not going to use a buyer agent, the builder will simply pocket that extra money. The good builders will not give it back to you as a concession because they do not want to appear to be working against the realtor community. If you go under contract without agent representation, you typically do not save money and you do not have anyone fighting for you. The site agent for the builder represents the builder and not the buyer. They negotiate on behalf of the builder – and they have negotiated a lot more new home contracts than you have.

Your agent knows the local real estate landscape better than you do. Expect your Realtor to provide unbiased feedback on that builder and the customer experience you should expect.

Your agent should be familiar with the new home sales process, how to best to negotiate, what can and should be asked for, as well as things that may not fly. Your agent can provide you with comparable sales of new construction homes nearby and local market trendsto make sure that you are not overpaying for that dream home.

Be sure to have your agent accompany you on your first visit to a new construction community so that your agent can be registered as your Realtor. If you do not discuss having an agent and then try to involve him or her as you get close to making a decision, your builder may not recognize your agent as working on your behalf.

Be wary of site agents who discourage you from having your own agent. They are clearly not representing you and they are trying to discourage you from having anyone else to represent you.

Choices are subject to change at any time

Base prices and available lots change over time. Builders typically raise prices based on a certain number of sales if demand is strong. Any incentives towards the price, options and upgrades, and/or towards closing costs could be pulled back or eliminated altogether. Additionally, if the market slows, buyers could find builders willing to offer incentives that were not previously promoted. As a builder begins a community, prices typically are low in order to encourage sales. This is a great time to buy – as long as you don’t mind living through several years of construction as the builder finishes the other homes around you. It can be risky though because you are buying into a community that doesn’t have the promised amenities in place and is not established enough to get a sense of your neighbors and future home values. Sometimes, if a community is slow to sell, the builder may change the base price of the homes offered by building smaller homes or ones with lower priced finishings.

The other great time to buy new construction is at the end of the project as the builder offers great incentives to finish the community and move on to his next project. The risk here is that you may not be able to buy a home on a lot that you like or a model or elevation that you prefer. There are obviously fewer choices at the end of the project since everyone else has already made their choices.

Contracts might not be negotiable

Builder contracts are typically not negotiable. They are designed and written to protect the builder and focus more on what they are not responsible for or do not warrant rather than the buyer’s obligations.

Read the fine print closely and have your attorney review it. Builder contracts typically don’t allow “outs” that a residential resale contract allows. Typically, the builder contract allows the builder up to two years to build your home. The builder may have the right to change the house to accommodate the site or if some finishes are no longer available.

Another important thing to be aware of is that many builder contracts require that disputes be resolved through binding arbitration. You won’t even be able to sue the builder for shoddy workmanship or a failure to perform!

Pay attention to the terms the builder’s lender offers

Builders typically offer incentives to a buyer for using their “preferred” lender(s), such as credits toward closing costs or extra upgrades. It is good that you get a credit for closing costs because there are more closing costs that a buyer is responsible for in a builder transaction versus a resale where the seller may be picking up some of those costs as dictated by what is customary in the market where the closing takes place. For example, in the DC metro area, it is customary for the buyer and seller to split the transfer and recordation costs. New build contracts typically have the buyer paying both sides of the transfer and recordation fees. That is an additional 1.1 to 1.4% of the sales price. OUCH! By not using the builder’s lender, the buyer still pays all the closing costs without the benefit of those closing credits. .

Of course, nothing is free. Sometimes, the builder’s lender has higher interest rates and fees so you should talk to a lender recommended by your agent to compare the overall costs both for closing and over the life of the mortgage.

The base price is probably not going to be the sold price

The site agent will talk to you about the base price of the home, but even that can change depending on the location which would carry a premium on it and the elevation that is assigned to that lot.

The builder will charge extra for structural options and any upgrades. Talk with your agent about the difference in cost between having the builder do the upgrades or structural options before you move in and those that you can add later. For instance, it is probably hard to add a balcony off the master bedroom post closing but easy to add a deck later.

Upgrades can be costly

Don’t set your expectations for what is included as standard on the basis of how beautiful the model home is! Ask and ask again what the builder offers as standard and what’s an upgrade along with what the different levels of upgrades mean. Builders typically offer a lower grade (often referred to as a level) of flooring and cabinetry as standard – and it is NOT what is in the model home.

You need to understand the cost difference if you choose to upgrade the flooring, cabinetry or counter tops. Again, make sure to only upgrade the things that you positively can’t live without and can’t reasonably be upgraded at a later date.

Make Your Decisions and Stick to Them – or Be Prepared to Pay Extra

Change orders – such as the addition of a new room – may be impossible to accommodate later – particularly if they require new permits. If a builder can make the change, there could be a fee charged for it. Find out when first discussing options and upgrades what kind of fees would apply if that should happen.

In addition, you need to understand that the builder has preferred and approved lists of suppliers that they’ve negotiated pricing with on everything from framing and flooring to cabinetry. That is why most builders do not want to put in your light fixtures or your cabinets – even if you are paying for them. Again, be prepared to change out those light fixtures after closing.

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