Livingston's Local Experts

Is New Construction Right For You?

Posted on June 14, 2015 | in Buying a Home, Mortgage Info, Real Estate | by

Many homebuyers think that purchasing a brand-new home is smarter than purchasing a “used” home. A new home’s maintenance costs should be minimal; its construction materials, systems and appliances should be up-to-code and energy efficient; the floor plan and amenities should meet the needs of modern buyers; and the home should be move-in ready. A new construction home also has an emotional appeal for buyers who like the idea of living in a home that’s completely clean and potentially perfect.

What many buyers don’t realize is that new homes often have numerous hidden costs. If you’re considering new construction, here’s what you should look out for to make sure you’re spending your money wisely and you don’t experience any unpleasant surprises.

Lack of Representation
When you buy a new home, you shouldn’t walk into the sales office unarmed. The builder’s sales agent represents the builder–not you!  Working with a professional Realtor, you will be armed with current market comps, sales trends and better understand the value of including the proper upgrades to best optimize your homes comfort and resale value. The builder’s factor in the agency commission so it is no cost to you, and the agent is your best protection against over-paying for a home and costly extras.

Additionally, any financing the builder may have arranged will not necessarily be the best available financing. Get your own local agent and your own local lender to make sure you get the best price on the home and the lowest interest rate and fees on your mortgage.

Appraisal Value
The last thing a builder wants you to know is the comps and the appraisal value of a home. Their costs are not fixed and to cover their costs, they typically have to continually raise prices in order to stay profitable. Conventional wisdom has been the early bird into a development gets the best price and opportunity for equity growth. That was true prior to the recession and mortgage crisis. Today, A home will appraise by independent and standardized protocols – neither the builder and their “preferred” lenders have a say in it.

Hidden Defects
Just like an older home, a brand-new home can have hidden defects (also called “latent defects”) that require expensive repairs. Heavy rains can reveal inadequate waterproofing or grading that leads to leaks or flooding in your home. A weak slab could crack. Siding could fall off. The wood floors could warp. Your toilet could overflow. Electrical wiring could be done incorrectly. Any problem that you might be afraid to find in an older home can also appear in a brand-new home.

To protect yourself, research the builder’s reputation and don’t skip a thorough inspection by an independent home inspector who is not affiliated with the builder. Ideally, you would have one inspection after the home has been constructed but before all the finishes have been put in, when some problems are easier to identify, and another inspection just before your loan closes and you take possession.

Also, find out what kind of warranty the home comes with and read it carefully before you buy the home. You may have to rely on that warranty if any latent defects pop up, because your homeowners insurance policy may not cover them. Different aspects of the home may be covered for different lengths of time, so make sure you’re aware of those limitations. Report any problems to the builder as soon as you notice them.

Missing Necessities
New homes often don’t come with everything you need. It’s quite common for them to lack fences, decks, window coverings, appliances, landscaping, air conditioning, garage door openers, enough power outlets, room lighting, electric service size and other essentials.

Each of these missing items can be a major added expense. Before you make an offer, note what’s missing and do some research to figure out how much these items will cost. Make sure to factor these purchases into your budget. If you can’t afford to pay for them out of pocket, getting the builder to pay your closing costs might free up the cash you need for blinds, sod and a washer and dryer.

If that doesn’t work, look for a new home that comes with all the essentials, or consider a property that’s almost brand new and is just lived-in enough that the previous owner has installed all the missing necessities.

Pricey Upgrades
The showy model you’ll tour will typically have all the upgrades the builder offers, from hardwood floors and granite counters to bay windows and over-sized bathrooms. Seeing what you could have can lure you into spending significantly more than the base price that originally attracted you to the community. The price difference between the base model and the model with all the bells and whistles can be tens of thousands of dollars.

Also, if you buy the upgrades through the builder, you might pay an up-charge and have a limited selection compared to doing the upgrades yourself. You also have to consider the future resale value. Choose finishes that will appeal to a wide variety of buyers and pick options that won’t make your home over- or under-improved for the area.

Some builders do include upscale features in the standard model and factor them into the base price. Just make sure you know what you’re looking at before you tour a home and fall in love with something you can’t afford.

Uncertain Future
In a new community, you don’t really know what you’re buying into. Who will your neighbors be? What will get built on that vacant land? How good will the new school system be? How will these unknowns affect your quality of life and your home’s resale value? “New construction” is not a synonym for “low crime,” “friendly neighbors” or “excellent education.”

It’s OK to take a chance on these unknowns–just realize that you’re taking a chance. Conditions can change in established neighborhoods, too, but a well-established area might give you a better idea about what life will be like in your new home.

Conclusion
Don’t make any assumptions about what you’ll be getting if you buy a new home. Buying a new home can be more expensive and come with many more uncertainties than you bargained for. Going into the process with an experienced agent is essential to review protect your investment. Creating a relationship with a local lender and professional, full-time local real estate agent will help you to understand the cost, value and outlook for your most important investment.

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