Buying New Construction: Home Buying Tips
Buying a new construction home? Protect yourself with these tips!
Buying a new construction home is a little bit different from buying an existing home. It’s true that you don't have to deal with the emotional attachment a seller has to the home, which often influences negotiations, but that doesn't mean it will all be smooth sailing. Before you rush off to start touring model homes, take a moment to get your ducks in a row and position yourself for success with these tips.
New Construction Buying Tips
Buying a home is the biggest financial investment you'll likely ever make. The last thing you want to do is rush into it and jeopardize your long-term satisfaction with the home. The tips below will help you prepare mentally and financially for becoming a homeowner and can help protect you and your investment for the long-term.
- Work With A Buyer's Agent. One of the most common mistakes new homebuyers make is to think they don't need a buyer's agent representing them. While it is true that the builder will have a builder's agent who can help you through the process, keep in mind they work for the builder, not you.
According to Re/Max Advantage Plus Realtor Jason Walgrave, "The builder's agent will always have the builder's best interest in mind." Meaning that trying to get the highest price for the home, not the best price for the buyer. Having your own agent protects your interests and makes the entire process less stressful on you.
Buyer's agents can help with negotiations, finding a lender, home inspections, and generally help you get the best home you can afford with the least amount of hassle. Real estate agents do work with buyers who are only interested in new construction. Just be sure to bring your agent with you the very first time you visit a development, otherwise the builder could refuse to pay them their commission. Sellers pay commissions, which is why builders like to use their own agents.
- Find Your Own Lender. There's no doubt that builders like to make it easy for people. In addition to having builder's agents on hand to guide you through the purchase process, they will also likely have mortgage lenders who will be all too eager to work with you. Similar to working with the builder's agent, a builder's recommended mortgage lender may not have your best interests at heart. Find two other lenders and ask about their mortgage options, then compare the three. If you decide that the builder's lender is the best choice for you, great, but don't blindly assume they are providing you with your best option without researching alternatives.
Kerron Stokes, a Real Estate Agent with the Resource Group at RE/MAX Leaders in Centennial, Colorado agrees that when lenders have to compete for business, buyers generally benefit: "Knowledge is power, but if you don't have anything to compare your experience to then you don't know if you're getting the best service".
Ask for a Good Faith Estimate from each lender. This document breaks the loan down for you and shows you the annual percentage rate, or APR. You can use this information to compare your loan options to one another. It will tell you exactly what your costs are, including closing fees.
- Get Pre-Approved. You definitely want to get pre-approved for a mortgage before you start house-hunting. Getting pre-approved forces you to examine your budget and decide how much you are able to spend on a home, which may be quite different from what you'd like to spend!
"It's absolutely critical for new homeowners to know what they can afford based on their income, debt and credit score," says Rosy Messina, Vice President of Sales and Marketing for ICI Homes in Daytona Beach, Florida.
The danger in browsing without getting pre-approved is that you could fall in love with a house and then realize it's out of your price range. By this time you've become emotionally attached to the home and might be much more willing to go along with the builder's financing promises, which almost won't be in your best interests. Many homebuyers have found themselves stuck with mortgages they can't afford and going bankrupt or losing the home. It's much better to start out knowing your price range and sticking to it.
- Don't Be Afraid to Negotiate. Some people think new home prices aren't up for negotiation, but that's not true. Builders often expect it and when armed with a buyer's agent, a pre-approval letter, and a Good Faith Estimate, buyers have incredible negotiating power. It's not unusual for builders to offer upgrades if a buyer uses their lender. If it sounds like a good deal, ask for a Good Faith Estimate from the builder's lender, compare it to the one you have in hand, and then ask the builder to match it in exchange for using their lender. They'll usually say yes and you'll walk away with thousands of dollars in upgrades and the best rates.
"I think the important message is that buyers should never be afraid to ask. The answer may not always be yes, but there's no shame in asking," explains Brian Hoffman, Vice Chair and CFO of Red Seal Homes in Northbrook, Ill.
- Order an Independent Home Inspection. Skipping a home inspection is a really common mistake among new construction buyers. They assume that because the home is brand-new, everything will be perfect and they can save a couple hundred dollars by foregoing the home inspection. Wrong! An independent home inspector can uncover design flaws that will cost you big time later on, or they may point out convenience factors that you never even considered, such as the location of the home's mechanicals or maintenance aspects of the home. Most home inspections average about $300 and it is money well spent! Even if concerns are uncovered, you can still buy the home, but at least this way you're walking in to it with your eyes wide open.
"Newer homes can have just as many problems as older homes, and it's always better to know what you don't know, before the last piece of paper is signed. In the case of a newly built home, a good home inspector can help identify problems before a builder's warranty expires," says Angie Hicks, Founder of AngiesList.com.
- Get a Punch List. A punch list is a list of problems that need to be fixed, like scuff marks on the walls or popped nails. They are very common in new construction and good builders will automatically provide one. The key is to not close on the property until the punch list has been completed to your satisfaction, otherwise you run the risk of the builder moving on to the next job and leaving you with a bunch of annoying issues to fix on your own.
Diane Saatchi, a Senior Vice President at Real Estate Firm The Corcoran Group's East Hampton, N.Y. office advises maintaining a good rapport with the builder, even after punch list items are fixed and the sale has closed, "because there is no predicting what problems will suddenly surface years after the home was bought".
Ready? Go Fall In “Luv” With Your New Home
Now that you know how to best protect yourself as you become a new construction homeowner, it's time for the fun part – finding that perfect house! Get started today by visiting HomLuv and start dreaming of the possibilities!