Buying a new home can be a great experience but it can also be a daunting one as well. For homeowners that have previously only purchased an existing home, they will quickly find the process is much different. From the number of decisions that must be made, change orders and other financial surprises along the way, it can be a little overwhelming for a buyer. Particularly one that went into the process ill prepared or without proper representation by a buyers agent that is experienced in new construction.
What you need to know BEFORE buying a new home…
For more complete information, you can find my complete new home buying report here but I have highlights of the report below:
Buying a new home, as opposed to an existing home, is generally more expensive. Why? Because if you are buying a new home you are going to have to pay at least 100% of the cost to acquire the lot, build the home as well as the builders “soft costs” (interest, insurance, utilities, architectural fees, etc) as well as the builders profit margin which, in the end will be at least equal to the market value of the home and typically more than the actual market value of the home.
Unless you are buying a “spec” home, one that is completed already, there will be an investment of your time necessary as well as an emotional investment. Your time investment will include not only waiting out the time it takes to complete.a new home but also the time you must invest meeting with the builders representative to make material and finish selections, do periodic site visits, etc. There’s an emotional investment as well as you will be faced with financial decisions along the way. As you are finalizing lot selection, selection of the elevation, options, finishes, etc, you will find everything has a price tag. This will put some emotional strain on many homebuyers as they wrestle with a balance of their desires and their checkbook.
Often new home buyers operate under the misconception that they don’t need to be represented by a real estate agent or broker, that the builder will not allow it, or that the house will cost them more if they are represented. Considering a home purchase is, for many buyers, the largest single investment they will make, it just doesn’t make sense for you to do this without being represented by a competent professional with a legal obligation to work in your best interest. A good, new home buyers agent, will make sure you have all the information and resources available you need to make an informed decision when it comes to selecting a builder, subdivision, etc.
One of the biggest mistakes I’ve seen new home buyers make over the years is wanting too much and stretching themselves too far. What I mean by this is often buyers will want to get the biggest house possible and focus on the maximum square footage they can get within their budget without giving enough consideration to how much options and finishes will increase the final price. When buyers stretch too far at the outset, the whole transaction becomes very emotional and stressful.
A much better approach is to be conservative and shop homes based upon a realistic “final” price taking into consideration the options and finishes you are going to want. Once again, this is where a good buyers agent and a good builder will be an invaluable combination and both will help steer you down the right path.
Another mistake I’ve seen made by new home buyers is to get so focused on shopping price, particularly price per square foot, that they end up in a bad builder relationship or in a community that really wasn’t what they were looking for. My suggestion would be to shop for a new home much like you would for an existing one, at least to start with. Begin by selecting the area then see what builders are building homes in that area that are within the price range you are looking. Then, with the assistance of information provided to you by your buyers agent, you can begin the process of selecting a builder that you feel would be a good fit, or at a minimum, eliminate the ones that would not be a good fit. Then start shopping houses and remember that there is much more to price than just a square foot price.
I could write a book on this topic alone, but here is the short version. Many of the builders that are in business today survived the downturn of the market that took out many home builders so that in itself says something for them. Once you have selected and area and narrowed down your builder choices, I would drive the community, or communities they are building in and see how everything looks. The next step would be to get a client list from the builder (something your agent can do for you). Oh, and not just the “happy client list” but preferably the complete list of everyone that has bought a new home from the builder. If your agent cannot obtain this list, or gets an incomplete list, he or she should be able to obtain information on the builders buyers from the tax records and other resources available.
The next step would be to contact several of the buyers, preferably in that particular development and at least some from a year or two ago, to see how they feel about the builder, their home and the community. Finally, assuming everything is ok up to this point with your builder research, I would ask my agent to schedule a meeting with the builder and/or key personnel that will be involved in the home building process. You don’t need a long meeting, just long enough to ask what questions you may have and give you an opportunity to size up the person and see if your personalities mesh well and he or she is someone you are going to enjoy working with.
In my complete report I go into detail on all fo the topics below, but below is a list of other key items to pay attention to.
- Sale contract – Builder’s contracts and what to look out for.
- Building Inspection – Something often overlooked by new home buyers.
- Mediation – Sounds good but you need to dig into it and understand it.
- Disbursing –
- Title Insurance – The builders company versus yours.
- Stake survey – A key thing ofter overlooked by buyers.
- Subdivision indentures and restrictions.
- Choose the right lender – The builder may have one but why you may want your own.
As I began by saying, buying a new home can be a great experience and it should be. With a little advance preparation, homework and proper representation, it most likely will be.
