How does buying a new construction home work?
When you’re buying a home, the age-old question is whether you should buy a brand new or a resale home (resale means older home!). There are pros and cons to either one and I’m here to help you decide!
When I bought my house last year, I looked and looked for a brand new house but I wanted to be in central Tampa and there weren’t any in my budget! Typically, there is more new construction on the outskirts of town since there is more land available there.
This comprehensive guide to new construction will dive into what types of brand new homes exist, how to find them, what questions to ask the builder and much more! Read on to find out and don’t forget to save the article for future reference!
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3 Types Of New Construction
What do you think of when you think of a brand new house? Do you imagine a master planned community with amenities galore? Or do you picture a custom built home on the lake? Those are both options! In fact, there are 3 common options for buying a brand new home.
They are as follows:
- Custom Home– these are the homes that are built on your own lot. Typically you would find a lot, purchase it, then have the builder build on it. You can also wrap this into one process and involve the builder from the very beginning. (I would advise this since the builder can tell you what type of lot to look for!) This is the most expensive option.
- Many people think the lot prices they see in a master planned community are the same as the cost of a lot you buy separately but the latter is typically much more expensive. Keep this in mind!
- Home With Design Package Options– This option is typically in a master planned community. The builder has a few floorplans and lots you can choose from. If you catch the builder early enough, you might be able to choose your own design package! Typically the builder will pair a few popular finishes into 3-8 design packages and each one will be a different price. Some builders will also allow for individual upgrades on top of the design packages for additional features like window treatments, screened in porch, a pool, etc.
- Spec/Inventory Home- This is a brand new home where you cannot customize it at all. The builder will build it as he pleases and you can update it later. These usually end up being the cheapest option.
What are the benefits of buying a brand new home besides the obvious low maintenance aspect? There are actually quite a few benefits that are worth considering when deciding between resale and new construction. (Resale means an older home that isn’t brand new!)
Here are some of the most common benefits of new construction homes:
- Low maintenance & cheaper to maintain
- Builder’s warranty
- Appliances under warranty
- Built to most recent city codes
- More energy efficient
- Custom upgrades
- More modern layouts
- Closing cost incentives
- Latest tech- alarm, sound, internet systems
- Neighborhood might have amenities
- Less likely to enter a multiple offer situation
Despite all of these benefits, there are also some aspects of new construction that turn buyers away from them. Read on to find out what they are!
Cons of Buying New Construction
So the benefits sound great, right? Why doesn’t everyone just buy a brand new house? Below are some cons to new construction homes that my clients have expressed in the past. There are plenty of people who prefer resale homes to brand new.
The cons are as follows:
- Less character
- Will settle in the next few years
- Less price negotiations
- Harder to sell in the future (if the builder is still building similar models)
- Might have HOA & CDD fees
- Have limited design packages to choose from
- Smaller yard
- Less established neighborhood
- Less landscaping
- Might have to wait 6+ months for home to be finished
- Typically on the outskirts of town
Is Buying A Brand New House Cheaper?
When you look at the advertised price of a brand new home it might seem affordable to you, but it is common for the builders to advertise their base price. Usually people tend to add anywhere from $20-60,000 in upgrades so factor that into your calculation.
Run your own price comparisons and see what is cheaper! If a resale home is completely renovated (new AC, roof, plumbing, electrical, etc) then chances are your home should be pretty maintenance free for a few years. So take a fully renovated house and compare it to a brand new house, what do the costs look like? Does the brand new home have HOA or CDD fees? Those can significantly impact your monthly payment.
Sometimes the “maintenance free” aspect of a brand new house is not enough to make it the cheaper option. Speak with your lender and ask for monthly estimates for both. Then with that you can decide what is a better option for you.
PRO TIP: The best time to buy in a new construction community is either at the very start of the community sales or when the community only has a few homes left. They will offer the most incentives during those times!
How To Find A New Construction Home
Not all new construction will be listed on Zillow or Realtor.com. You’ll find the most up to date information when you search the actual builder. Look up a few national builders (Pulte, Lennar, DR Horton, etc) to see if they are in your area. They should have websites with available floorplans and a way to reach out to the sales agents for more current information!
A few other ways to find a new construction home is to Google or use Hashtags on Instagram with the following phrases:
- [Your City] New Construction Homes
- [Your City] Home Builders
- [Your City] Brand New Homes
- [Your City] Custom Home Builders
WHY YOU NEED A REALTOR When Buying New Construction
As a Realtor I know I’m slightly biased writing this, but I genuinely don’t see a con to having a Realtor represent you with a builder.The builder usually pays the Realtor from a separate budget, and if you do not use a Realtor then you do not get to keep that commission. By hiring a Realtor you get absolutely free representation!
When you hire a Realtor, they will be knowledgeable of local builders and will be able to inform you if there are better options out there for you. They will also keep you informed of any current incentives, the best communities and the reputations of certain builders.
It’s easy to fall for a house as soon as you walk through the model home. Everything that you’ll see there is chosen to impress customers. The builder’s sales agents will act kind but at the end of the day they want to sell you one of their homes and they have the builder’s best interest at heart.
They will also be there to help negotiate the best possible deal for you, and explain the contract. Here are a few other reasons why a Realtor will be helpful.
- Will help find the right builder and community for you
- Will fight for incentives for you
- Will keep the builder on track to meet their deadlines
- Will help you find a reputable inspector to inspect the home
- Will inform you of any other builders that might be a better fit
- Will explain the whole process to you
- Will thoroughly read the contract and note any red flags to you (Typically the builder has their own contract and sometimes they can be highly unfavorable for the buyers)
Some of the items that a Realtor can negotiate for you are:
- Home warranty
- Closing costs
- Upgrades
- NOT price- the builder will almost NEVER budge on the price. This is because they are trying to keep a standard price growth in the community so that homes can keep appraising well. If the builder drops the price for you then the rest of the community immediately loses value.
Despite the benefits of using a Realtor in the transaction, you can purchase a brand new home without one. In fact, many buyers do this because they do not realize they can bring a Realtor with them!
What To Ask The Builder
Before heading into your first meeting with a builder, do some research! Look up what floorplans they have, find information about the community, and see if there are any reviews up! Oftentimes there will also be YouTube video tours of the more popular builders in your area.
Remember, the sales agent represents the builder! Do not let on how much you love the property or you will lose all negotiating power. If you decide against using a Realtor, be sure to ask all of these questions and more!
- What was on the land before construction? – I’ve heard of new construction communities being built on old landfills and causing issues in the future.
- Which upgrades are included? – Usually the model home you walk through has been upgraded to the MAX. This can be quite deceiving for a buyer so make sure to ask what the upgrades are. They can be anything like the light fixtures, railing style, flooring, counters etc.
- What finishes can be changed? – Some builders allow for you to customize the home slightly whereas others do not allow any deviations.
- Is any landscaping included?
- What deposit is required? – It is common for the builder to request a 5% or higher deposit. The more custom the home is, the higher the deposit tends to be.
- Is there a home warranty? – Builders are usually required to include at least a 1 year home warranty.
- How does the process work? – Every builder does things slightly differently so they should explain to you the process!
- How many walk-throughs are allowed? – Typically you should be allowed a few walk-throughs of the home (The most common are pre drywall, blue tape, and final)
- What is the construction of the home? – Is the home all block? Here in Florida all block is preferred due to the high number of termites we have.
- What are the HOA fees? – If you’re purchasing in a planned community most likely you will have HOA fees to cover the amenities and common areas.
- What is included in the HOA?
- What are the CDD fees? – This stands for Community Development District. Many planned communities have these and they cover items like the cost of new roads, stormwater drainage, the street lights, etc. These are typically included in your taxes.
- What are the estimated taxes?
- How long will it take to build? – Most new homes take at least 6 months to build from start to finish.
- What are your current incentives? Are you offering any closing cost help?
Those are just a few of the questions I normally ask a builder in Florida, but some of these will vary by state.
Typical Features Not Included
Remember to ask the builder what features are included in the standard price. Have them point everything out as you walk through the model home and explain if it is a standard feature or an upgrade. This will help you better picture the actual product they are offering.
The most common features that are not included in brand new construction are as follows:
- Refrigerator
- Window treatments (blinds)
- Gutters
- Stone counters
- Irrigation
- Fence
- Bathroom hardware (towel racks, etc)
Some of these are negotiable, but if it is a hot community and in a seller’s market it can be more difficult!
Read: Hidden Costs Of Buying A House
How Does The Mortgage Process Work?
Most national builders will have their own preferred lender to run the pre-approval process. Most of them will only offer closing cost incentives if you choose to work with their lender. You are usually allowed to work with your own lender, but they will still require you to get pre-approved through theirs to determine your eligibility.
The pre-approval happens before you are allowed to go under contract, and again right before closing. Since it is a ~6 month process, you need to be mindful of your spending, credit, and down payment for 6 months! The lender won’t start the actual mortgage process until about 1 month before closing. This is when they will collect all final paperwork and take you through the final underwriting.
Which Home Would Suit Me Better?
At the end of the day, it all boils down to what kind of homeowner you’d like to be. If you’re looking for the most charming home on the block but you HATE doing any kind of home maintenance yourself then you might want to consider a brand new house. If location is everything for you and you want to be near the hottest part of town, then chances are that you will have to purchase an older home.
I’ve had clients who vowed to buy 100 year old bungalows only to end up buying a brand new home, and I’ve also had clients who were excited about dealing with the history that comes with a resale home.
Be sure to share this article with your friends and family as there isn’t much information about new construction around!
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