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October 31, 2017

10 things you need to know before buying a new construction home

Hey Sunshine, grab your favorite beverage and have a seat; we're going to talk about new home construction.

Let's say you've been looking at homes for a while and after weighing all the pros and cons, you've decided on new construction (versus an existing home) as the best thing for your needs (don't worry partner, we'll discuss the topic of new constructions vs. an existing home in a future post).

Let's also say that you've done your homework and checked out the builder's references, home warranty, the neighborhood, etc. and you're ready to move forward to build a house. Before you excitedly sign your name on the dotted line, I've compiled this list of 10 things you need to know before embarking on your new home construction adventure all of which I've extracted from my time and experience working for a home builder (yep, this is real world stuff).

1. Hire a buyer's agent with new construction experience.

If you take just one thing away from this post, I hope it's this; find/work with a buyer's agent who has previous new construction experience. Why you ask? Because the process of purchasing a newly constructed home can be different from buying an existing home, and an experienced agent will:

  1. Help set the proper expectations
  2. Ask the right questions of the builder and community
  3. Be better equipped to negotiate for you
  4. Generally, help ensure as smooth an experience as possible

I've worked on the builder side with agents with no new construction experience, and sometimes it didn't end well. Because the inexperienced agent didn't understand the entire building process, they escalated minor issues along the way causing unnecessary alarm with the buyer. In the agent's defense, they were representing their client with zeal, which is a good thing, but because they themselves had no understanding of the new construction process, they were causing alarm and raising emotions through what is already an emotional process.

On the other side of the coin is the agent who shows up for the contract signing and then is not heard from until closing day leaving you, the buyer, to navigate the process virtually alone. This is probably worse than using an agent with no experience. Not only is it unfair to you, but inevitably the agent will try to raise some issue the day before closing when it's too late to do anything about it. Yes, it can get ugly.

So when you're shopping for an agent and you're considering new construction, don't hesitate to directly ask the question ‘do you have new construction experience?' If they say ‘no' or comment something like ‘all transactions are basically the same', I'd carefully consider if they are the right person to properly represent your best interest.

2. You can add options, but you generally can't customize.

One of the ways “production builders” keep their prices competitive is by limiting options, and generally (unless you're using a custom builder) you won't be able to make major structural changes.

Usually, builder's floorplans show what options they offer (e.g. bonus room, luxury bathroom, added bedroom, front elevations, etc.). These are most likely the only structural options offered; so, don't get upset or think they're being uncooperative when you ask to ‘knock out a wall to create more flow or add three feet to the garage so you can fit your tractor inside' and the answer is no. Even though you're willing to pay for the changes and they seem easy for the builder to do, it probably won't happen if it's beyond the scope of the options they provide.

All that being said, sometimes it doesn't hurt to at least ask as you may be working with a builder who is willing to accommodate your request.

If you just can't live with the limited structural options a builder offers, you may want to consider going with a custom built home. I know, I know, you don't want to spend that much money. Then you need to understand what you can get for your budget and be willing to build within those parameters. You could always make some changes once you've moved in though. For example, if you wanted to get a fence put up around the house, check out Illinois Fence Company (or another similar company) once you've moved in.

3. Don't go crazy on upgrades.

You're probably going to see the builder's standard features and the first thing you'll think about is upgrades. You're going to want hardwood floors, tile, crown molding, additional lighting, and a slew of things that you have to have in your dream home. Stop. Before you consider any upgrade ask yourself (and your agent) the question: “Does this upgrade add value to the home, or is it only for my personal taste”?

Sure, you should have the home the way you want it, but you don't want to go too crazy on upgrades, because the home may not appraise (you don't want this).

For instance, if you decide to go with the gorgeous level 3 hardwood flooring for an extra $10,000, an appraiser isn't going to necessarily adjust the value of the home by $10,000 to accommodate your highfalutin taste. Keep in mind an appraiser doesn't care if the wood for your floors was excavated from a medieval castle that was once the home of a famous Russian Czar or was grown on the south side of a Brazilian mountain because the extended duration of sunlight in that region adds to the density of the grain. The appraiser only sees hardwood and will adjust accordingly.

So when you go to your selections appointment, understand the difference between adding value and personal taste. Usually, the builder will keep you in check on this, but don't assume that's the case. If you have a doubt, ask your agent – who should ideally be with you when you're selecting upgrades.

Lastly, if you choose to ignore this advice and upgrade to the level of a Rock Star crib, expect to pay the difference out of pocket at closing. Make sure you understand all details of this on the front end before going to contract, and don't you dare say that Uncle Tony didn't warn you!

4. Prepare for months of emotional distress.

This is no joke. You decide on the floorplan, make your down payment, secure financing, make your selections, you've even put some new patio furniture on layaway. You're happy, excited, overjoyed, you even pretend to like that annoying co-worker that nobody in the office gets along with.

And then you have to wait… and wait… and wait. You will go crazy counting down the days to completion. You will hate rainy days that cause weather delays. You will visit the model home and sales agent often just to ‘check in' and see if everything is ok. You'll freak out if you see something during the framing process that ‘doesn't look right' (as if you'd actually know that), and you will more than likely completely lose your mind when you get word that there's been a delay in your close date (because now you'll have to pay a higher month-to-month apartment rent and reschedule that visit from your in-laws who you promised would be the first to sleep in your brand new spare bedroom).

Yes, my dear friend, I've seen the building of a new home break the strongest of men. I've seen it bring out the worst in married couples (reality show style). But mostly, I've seen people look at me and wonder how I manage to remain so calm when their lives are in turmoil because they're waiting for their house to be built.

I'm serious, buying a new home can be an emotional roller coaster ride, hence my emphasis on working with a great buyer's agent who can be by your side throughout the journey (see #1).

5. Be kind when asking for things from the builder.

If you have an issue or see something that maybe doesn't look right, you should, of course, ask about it – albeit nicely. I've seen builders go over and above because the buyer was kind when asking for something, and I've seen builders do only what was required simply because the buyer (or the buyer's agent) was being a jerk about it.

Yes, I get it, you're the customer and you're spending a heap of your hard earned money on a new home; it shouldn't matter how you ask or what you ask for. This is true. But with respect, keep in mind you're still dealing with a person on the other side of the transaction and their attitude toward how they're being treated could make the difference between getting what you want and getting more than you expected.

6. You won't see people working on your home every day.

Allow me to prophesy your future for a moment please; you sign the contract on Sunday, then you drive by on your way to and from work on Monday to see that no work has been done. You think to yourself, that's ok, it's only been a day. Then you drive by every day, and after a week you're getting concerned that the builder took your money and ripped you off.

Or, scenario two; the home has been started and you drive by and see people working, you are pleased. The next day you drive by and you don't see anyone working. The same thing happens the next day. Then you start getting mad and accusing the builder of not working on your house because you see they are working on other houses across the street which you believe is causing a delay in yours.

This is generally not the case. Do yourself and your agent a favor and write the following on a post-it note and put it on your dashboard; there will not be someone working on my new home every day.

Just because you don't see work being done on your new home every day doesn't mean the builder has stopped working on it. They may be waiting on an inspection from the city at which point no work can be done until the inspection has been passed. Or, a contractor may be sick, had a vehicle breakdown, taken a vacation day, etc. Building the home is a process involving dozens of people and there may at some point be extenuating circumstances that make it appear that work on your home has stalled.

Of course, during this time your emotions are in overdrive (see #4) and it's easy to make a mountain out of a molehill by assuming the worst.

If the build progress actually does appear to have stopped and you're wondering what's going on, call your agent and/or check in with the builder to ask if the completion date is still on schedule (see #9). If so, you more than likely have nothing to worry about. If there is a delay, the builder should enlighten you as to what's happening and though you may not like the answer, at least you'll have an explanation and won't have to worry about your imagination running wild with thoughts that your home will never be finished.

7. The model home is a showroom.

All of the nice options and finishes you see in the builder's model home more than likely will not be included in the base price of the home you want. Think of the model home as a showroom to display the many possible options that the builder offers. Don't be surprised if you ask how much it would cost to build a home just like the model and it's way out of your budget; remember it's a model home, the builder's showroom.

The next question you have might be why don't they just add in all the upgrades and change the price? Ah, if only it was that easy. There are a few reasons for that, namely it may keep the builder from being competitive with other local builders, and perhaps more importantly, every home buyer has different needs; there is generally no ‘one size fits all' when it comes to new homes.

Yes, there are builders out there who build and sell homes with all ‘upgrades' included in the base price, but you may not get to choose any of the finish options. This works for some people… others, not so much. In most cases, you may want to keep in mind that you won't pay the base price for a new home. I suggest asking the sales agent what the ‘average buyer' is adding in upgrades along with an estimated dollar amount; this can help get you closer to what your new home may cost. Or better yet, ask to sit down with the on-site sales agent to have them calculate the actual cost of what a home built to your specifications will cost. I suggest you do this before sitting down to write a contract so you can make sure all the numbers work for you.

8. If you're building a home in a new community, you may have appraisal problems.

This doesn't always happen, but if you're building a home in a new community and there are no similar/recent home sales to compare to, the home may not appraise for the final purchase price. This is something you want to ask about on the front end before the contract. Ask if the builder's new homes have been appraising; if not, ask if there is a particular reason why and if they'll accept an appraisal contingency (many builders won't).

If the builder won't take an appraisal contingency and the home doesn't appraise, you generally have two options: pay the difference out of pocket at closing or ask the builder to lower the price to match the appraisal.

You want to make sure you understand all of these particulars as well as discuss with your lender how appraisal issues might affect your loan.

9. The ‘estimated completion date' is just that, an estimate.

OK, time to really pay attention here; I'm only going to say this once, and I don't want to hear any whining or complaining when this happens to you. There's a pretty good chance your new home won't be finished on time. I don't care what the builder's sales rep told you or what date is written on the contract; know this fact of life going into it.

Now before you fault the builder for not keeping their word or failing to do their job, keep in mind there are many balls in the air during the building process (see #6), many of which the builder has no control over. In a hot market there could be labor or material shortages, city inspections that normally take a day may take a week, and of course weather can be a major contributing factor particularly during the early part of the build (for example, one day of rain doesn't put the build behind by one day; it can throw things off several days or even weeks).

Though builders try to anticipate delays and build some time into their work schedule, things outside their control just can't be helped. And trust me when I say that the builder wants to finish your home on schedule just as much as you want them to. Though it may not seem that way, when build schedules get delayed, it can end up costing the builder money and may result in lost profit.

10. The home is not finished until the final completion/close date.

Before we go any further, please repeat after me: There's no such thing as a perfect house. Go ahead, say it again just so it sinks in. Got it? Good.

The drywall is up, the flooring is in and the place is starting to look like a house. But as you walk through you see dings in the wall, poorly caulked crown molding, and (gasp!) there's a piece of shoe molding around the kitchen island that has no wood stain on it… somebody call 911! Please keep one thing in mind during the build: your home is not finished until the final completion date (or as one builder I worked with would put it, they're still ‘baking your cake').

Generally, the cosmetic things you see will be fixed before you move in; you'll have the opportunity to confirm that during your final walkthrough and inspection of the home shortly before your close date. But even before that, you will more than likely walk through the house and be tempted to freak out because you see things that need to be ‘fixed' all the while not realizing that the issue isn't that they need to be fixed, it's that they aren't actually finished being fixed yet.

Patience Grasshopper.

The builder should give you the opportunity to do a ‘punch list' walkthrough a week or so before your final closing walkthrough. During the punchlist walkthrough you'll be able to point out any paint touch-ups that need to be done as well as anything else you see that needs to be fixed. Some builders also use this time to show you how everything works in the house (e.g. appliances, thermostats, windows, etc.).

If you see something you just can't live with, feel free to discuss it with the builder and do keep in mind the builder will usually finish the home to their standards, which generally means the same standards as the model home. If you have doubt, ask if you can compare whatever it is you have an issue with to the model home (if this is an option). If you nitpick something to death, it could mean that your taste is different from the builder's standards, and generally, the builder's standards will prevail. Refer to #5 above when requesting repairs… a little kindness goes a long way.

There you have it… 10 things you need to know before buying a new construction home. Bookmark this page and use it for reference in your new home search, and remember: friends don't let friends buy new homes without sharing the '10 things you need to know before buying a new construction home' checklist!

Peace, and happy home building!

Do you have an idea for a subject you want me to cover? Do you have a question you'd like me to answer? I'd love to help! Contact me at tony@chordrealestate.com

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