Opting for new home construction

Whether to buy an existing home or have one built is yet another decision to make during the home-buying process. If you decide to go with new construction, a real estate agent can be a powerful advocate in your corner as you negotiate upgrades, a move-in date and other terms with the home builder.
Below are some basic pointers to prepare you for the journey ahead.

Selecting a builder
Shopping for a large production or custom home builder can be a daunting task. Start by defining what architectural styles appeal to you and then seek out the builders in your area who offer those styles. Due diligence is essential. Ask friends for referrals to get firsthand accounts; verify the builder’s state license status, if applicable; and check whether they’re certified by the National Association of Home Builders. Most of the time, buyers choose neighborhood before builder, in which case your choices are going to be limited to that neighborhoods builder team. Even so, it is important to evaluate each builder on their own merits, track record, and what they can offer.

The builder representative and your real estate agent

The builder representative or on-site sales agent is there to SELL YOU A HOME. They represent the builder, and although they are nice and cordial they do not represent you or your best interests. They can be very helpful when it comes to providing information on available home plans, design options, neighborhood restrictions or amenities, warranties, etc. However, it is essential when visiting new home communities to not tell this person anything they can use against you in negotiations. That means motivation to buy, financial wherewithal, timeline, or the extent to which the house or community appeals to you. In new construction purchases it is essential to have your own Real Estate Agent to represent you throughout the process. It does not cost you anything as the builder pays all Real Estate commissions, and a real estate agent knowledgeable in new-home construction will be able to help you wade through all the data and point out the downsides and upsides of each line item. Your agent also can look out for your interests in reviewing the builder’s contract, which often contains more legal jargon than consumer-friendly language.

It’s all about timing
Market conditions greatly dictate a builder’s incentive to make a deal you cannot refuse. When a builder has inventory on his hands, his carrying costs start adding up. “Inventory” is what we call homes that are built based on specific plans and design features, and are completely finished. When a builder has finished homes in inventory, they might be more amenable to strike a favorable deal, whether it’s throwing in upgrades or taking a bit off the asking price. A real estate agent can help you know when market conditions are right for these benefits. Also, watch for builder close-out sales. Builders promote these special events when a new subdivision is near completion but empty inventory still remains.

What is a Pre-Sale?

The term pre-sale is used to refer to a situation where a contract for sale is signed before anything is built. Usually this means that the customer is choosing the lot to build on, the floor plan to build, and the design features of the house. This “built-to-order” situation usually means that the builder will not discount the prices or negotiate on options for two reasons: A) They don’t have any money tied up in the house yet (unlike an inventory home where they’re anxious to get their investment back), B) They are building the house specific to your choices, rather than choices that they’re making based on market data of what would be easiest to sell. This presumed cost of customization is only realized if the purchase falls apart for some reason prior to close, and they end up having to list the home for sale as inventory.

A word about paying up

While there are always exceptions, most builders require a deposit when a purchase agreement is signed. They also require that the buyer pay for any upgrades prior to closing. If you back out prior to closing, unless the agreement states otherwise, you will lose that money. Make sure you understand every detail in the builder’s contract before signing it.