New Construction vs Previously Owned Home
As a real estate agent, I love helping people buy or sell their home. It is so rewarding to guide people through the process toward fulfilling a dream. My journey into real estate has been a little different than most “traditional” real estate agents as I have worked quite a bit with new construction. Although at the surface level, buying new construction is no different than buying a previously owned home, there are definitely nuances within new home buying that make the process unique.
Most new home buyers (vs buyers who purchase a previously owned home) choose the new construction route because they want to have a hand in the details of their home and even if they aren’t first time home buyers, the process is different enough that many questions arise. For anyone who is currently considering buying a new construction house - I’ve compiled a list of the most frequently asked questions I’ve been asked when working with buyers in this area.
Should I have my own agent when buying new construction?
When it comes to a real estate agent, buying a new construction home is like buying a previously owned home: a buyer needs a real estate agent who represents them and looks after their interest. A buyer’s agent does more than find you a house – they are there to negotiate on your behalf, represent your interests and provide you with guidance through each step of the process. New home communities will have agents on site, available at model homes within the neighborhood. The site agent works directly for and represents the builder. Just as the builder has an expert representing them, as the buyer, it is within your best interest to have a knowledgeable agent representing you.
One thing to keep in mind when looking at new construction homes: Communicate closely with your agent - most builders require that your real estate agent accompany and register the buyer on their initial visit to the neighborhood. If your agent isn’t able to accompany you, make sure to let the site agent know up front that you are working with an agent.
Do I have to use the builder’s lender?
It is common practice for a builder to require buyer to be pre-qualified by their lender. However, a builder cannot require that a buyer use a specific lender and they cannot charge a buyer more for a home when not using the builder lender. As with any home purchase, it is good for a buyer to shop around and see what is available.
The primary reason a builder urges buyers to use their trusted lender is to have a higher level of confidence that the loan will close. The builder expects their lender to provide assurance that the home sale won’t fall through because of a lack of financing. This usually is the case between the builder and trusted lender because they have better communication, which helps the builder know what is going on throughout the entire process.
Using the builder lender can be advantageous for a few reasons including that the lender may provide the buyer with incentives (for example, closing cost credits). The lender knows the builders policies, requirements and processes which can lead to a smoother and possibly quicker transaction. Also, because the lender knows the builder timelines, the lender may be more flexible with deadlines during the process.
It is worth it for a buyer to take the time to shop around and find the best option that works for them. When researching lenders especially when buying a new construction home, it is beneficial to find a local lender with new home construction experience – this will provide a smoother overall process, with fewer or no hiccups. National lenders don’t usually have the access to specific nuances of a local market. A lender who does not normally work with new construction may delay the closing process because they do not understand the differences in the timing for closing a new construction home. This can cost the buyer in the end.
How does the new construction home buying process work?
The process for buying a new construction home can vary depending on the status of the home. There are usually homes available within a new home community at different stages of construction. The biggest advantage of new construction is the available options. A buyer on a shorter timeline can purchase a completed home, at which point the process is very similar to buying any other home. Or, on the opposite end of the spectrum, a buyer with more time has the opportunity to choose from the available floor plans, home sites/lots and be part of the building process from the beginning to completion. In all cases, it’s important to keep in mind that the availability of options and upgrades will depend on where the home is within the construction process.
The #1 reason I have been given by buyer that they are interested in new construction is because they want a low maintenance home where “they don’t have to do anything” that they can personalize. While buying a house that hasn’t been built provides a buyer with personalization options, you are not buying a custom home. Each builder provides customization options with guidelines as to what options are available and no matter the builder, options and their availability must adhere to the build timelines.
Can I negotiate price on a new construction home?
Yes….but negotiate wisely! When negotiating with a builder on new construction, the best place to negotiate is on upgrades/options. Builders are hesitant to drop their prices because it is important to maintain a certain value for the homes and their neighborhood. Keep in mind that this is something that will be important to you once you buy a house in that community. Negotiating on upgrades or options is a way the builder can provide buyers with a deal while maintaining value within the neighborhood.
Another reason builders are reluctant to drop prices is that a home takes several months to build (actual timing depends on the builder but on average it takes 6-9 months) and building costs will fluctuate during this time. Over the last several years, costs have increased steadily. Builders price their homes with this uncertainty in mind.
Factors that influence pricing on New Construction Homes include:
- Location of community
- Cost of the land
- Size of the lot/homesite
- Cost of building materials
- Labor costs
- Real estate market conditions
- Builder Regulatory & Impact Fees
Knowing this about cost, another option for buyers to consider when negotiating on price is a move-in ready (or “finished”) home that has been on the market for some time. A buyer may be able to get a good deal on these homes. Because move-in ready homes are already complete, the builder knows the cost of that home and therefore may be more willing to negotiate on price.
What is a lot premium?
Within new construction communities, builders may offer several different options including choosing the floor plan and lot (or homesite) when purchasing a pre-sale home. Lot premiums are often applied to larger lots or lots that are in a more desirable location within the community.¬¬ An extreme example that can help illustrate this is where a neighborhood is located such that some of the lots are on the water. The waterfront lots could command higher prices than the non-waterfront lots. The same house and floor plan overall would cost more once you add the cost of that premium location. In new home communities this mostly happens with larger lots. If a large lot is important to you, remember you will most likely have to add the lot premium to the base cost of the house.
Can I make structural changes to a house?
Depends on what the builder offers and the building stage that a home is in. Some builders will allow certain pre-defined structural changes while others will not allow structural changes at all. If it is important for you to have this option, make sure you look for it when you are researching builders.
Will I be able to have a home inspection on a new construction house?
Yes, just because a home is new doesn’t mean you don’t need or should waive the inspection. Builders work with contractors and sub-contractors to build their houses so things can be missed, even the most well-intentioned builder. You should always have a 3rd party inspection when buying any home. The builder will usually fix any issues related to code requirements. The most important thing to note is that the transaction is not contingent upon the inspection. You can’t walk away from the sale of the home based on inspection results.
Does the home come with a warranty?
Most new home builders provide a builder warranty. This is different from a home warranty which a homeowner can purchase on a previously owned home and usually covers major appliances. Builder warranty coverage will vary depending on the builder so check with the builder for the details: find out what is covered and the duration of the coverage.
Still have questions?
Reach out, give me a call! I am here to help and happy to discuss any questions you may have.