So, you've looked around at a few new developments and you really want to buy, but you've fallen in love with the model. What, with all the decorator touches, the furniture, and all the upgrades, how can you lose?
Well, here are some possible pitfalls to consider when buying the builder's model:
- From a Lending standpoint oftentimes it is hard to get the value if the price includes the furniture and/or built-ins etc.
- The builders warranties may not convey to a future buyer.
- They are sometimes built a little faster than the rest, and perhaps a bit more carelessly than others. For example, the non-models have a chance for pre-drywall inspections etc. But because the builder is hurrying to open a model to help sell the rest, they might skip this step. The lots are often not the best so be sure they are comfortable with that. Negotiate hard on the price, Model homes may be considerably harder to resell because of all the "decorator" touches and upgrades. If there are too many, you may end up paying too much for them, affecting your future bottom line.
- Prior to settlement, the house should look like essentially a new home, just like all the other houses delivered by the builder. If the carpet is worn, it should be replaced, paint fixed, etc. Of course, if the buyer makes a killing on this purchase, the terms could be different than if they bought a newly built home, such as lender incentives, etc. At a minimum, you need to know about the warranties on appliances, etc. and at least get seller to pay for home warranty.
- If you buy the home before the development is finished and the builder "rents it back" to you, the builder will pay you rent equal to the PITI. But the IRS may consider the rent as income and you may have to pay taxes on it. If you are buying the model after the builder is through with it, then this would not be an issue.
- If you buy the model and the builder rents back to you, some of the "normal" time-sensitive new home construction warranties may not apply because of the age of the house. Lets say you bought a model home that's 2 years old at settlement and the builder rents it back for a year, therefore, its 2 years old at the time of settlement and 3 years old when you move in. Lets say 6 months after you move in, some large windows lose thieir seal. They may have been improperly installed, but the builder will not honor the normal procedure of replacing it because of the age of the house. So, between the as-is clause typically employed in a model home purchase and the time limits on new home construction warranties, you may end up paying for some repairs on your own.
- But all in all, you may get a great purchase and really enjoy all the bonuses and upgrades that came with the house because it was the model.
Many thanks to Stephanie Reimann, Dan Stone, Claybrooke Dean, Zinta Rodgers-Rickert, Gayle Yates, Wendy Cervantes, Patsy Humphrey for contributing to this article.