Pitfalls of Buying a New Home

At a social gathering at a client’s house yesterday, I ended up giving an impromptu presentation on the pitfalls of buying a new home without the assistance of a real estate professional.

I met three of my client’s colleagues who had all decided to build new homes as a package deal in the hope of getting the builder to give them significant concessions. Their homes are in various stages of framing, and they wanted my recommendation for a home inspector. As it turns out, they are not happy with the quality of construction, the air conditioning equipment arrived with dings and dents in them, and the savings they were looking forward to evaporated into upgrades they are having second thoughts about.

Now that building activity is picking up momentum, it seems that many buyers are wandering into model homes unassisted by Realtors, and falling for the so called “Special -- This Weekend Only” offered by the builder. The discounts appear tempting, and the buyer thinks it’s a no-brainer. He gets to pick the design, layout, finishes, appliances and features. What do I need a Realtor for? This is what happened to a seller whose house I’m getting ready to list. Five years ago he bought a new home, and today owes more than it’s worth. A common scenario in today’s market, but he also overpaid for the house and the loan. The lender, as you may have guessed, was affiliated with the builder.

Here's a heads up for home buyers thinking of going solo with new construction:

1. Unless the subdivision has only a few lots left, a weekend special is probably offered every weekend.
2. The model home is essentially bait. Your home is likely to turn out very different, unless money is no object.
3. Depending on how many phases of development are yet to come, the value of existing homes may not significantly appreciate until the subdivision is completely built up. Your holding period is an important consideration.
4. Builders have quotas and sale targets. You have to know when they are motivated to offer the best deals.
5. The discount they are offering you may be a fraction of what a knowledgeable Realtor can negotiate for you.
6. In most cases discounts are offered towards upgrades, which in reality are worth even less because of the builder’s built-in profit margins. It is often more cost effective to install some upgrades after closing. Compare the builder's prices with similar items sold at the Home Depot or Lowe’s, and you’ll see the mark up.
7. Remember that the salesperson at the design center works for the builder.
8. At the design center you are likely to over shoot your budget, unless someone can guide you how to get the best value for money. You could also end up selecting features and materials that are no longer on the mainstream “must have” list, and may date your home on day one.
9. Even though you may be buying a house, you need to think about its eventual sale. A Realtor can guide you on features and finishes that will help sell your home fast (when the time comes) and give the best return on investment. Once the construction process begins, fees and costs associated with change orders can really add up.
10. Unless you know something about construction, you need an experienced professional to ensure the builder is not cutting corners, installing substandard equipment, or getting away with sloppy workmanship.
11. Even a new home can have termite infestation. Skimping on a home inspection may be foolhardy, because city inspectors are more concerned with code issues related to health and safety, rather than quality of construction.
12. The incentives offered by the builder, if you finance with their lender, may not be significant compared to the overall cost of the loan.

If you are thinking about buying a new home in the Austin TX area, contact the one real estate professional whose qualifications are uniquely designed to make the most of your investment. Trained as an architect, Nash Pirani knows the design and construction business inside-out, and for over 12 years has been helping his clients differentiate between price and value. The right information can make your next move more rewarding. Call Nash at (512) 657-2901.