There's no denying that we all love to buy things new. However, having spent half of my career in Real Estate working directly for Builders in the State of Maryland, I have learned quite a bit about how New Home Builders really operate.
In order to properly explain the differences between owning a re-sale home vs. a new home we need to understand the pros and cons of each.
First of all the biggest misconception regarding new homes is that you can get a better deal vs. a re-sale home. Not true. In fact depending on the area you purchase, you could end up losing money when interest rates go up and demand for that higher price home / Community goes down.
Resale homes are priced on the value of what other comparable homes have sold for in the area. They are realistic to the actual market and reflect the area. If a home is priced to high for the area the appraisal will reflect it.
New Homes are priced on what ever the builder can get in the area and are typically much higher then any resale, without justification. Builders push their appraisers to get as much value as possible and only care about the profit. Since most new homes are priced above FHA & VA guidelines, the government has no control over what a builder can charge and therefore they will charge whatever they can get away with. Which is not fair market value.
When buying a new home I'm getting some of my closing cost paid or the builder is giving me "Free" incentives.
Builders give away nothing. Anything that is advertised as "free" is already built into their price. Any builder that tells you different is lying right to your face. It's a business plain and simple and they need to turn a profit to operate. Try and offer less for a new home and see what they say.
With a Home Builder I am getting a brand new home and a 10 yr. Warranty to protect me.
First off all, that warranty protects the builder first and foremost, and very rarely finds for the buyer in a dispute. Second, in such a competitive market, builders will cut back on the quality of labor, materials and the way they actually build in order to keep their building costs down. It allows for them to build a home much faster so they can get paid quicker. Read your contract, the builder has every right to modify their plans at any time to suit them.
A re-sale home has settled and you will actually see and know what you are going to own. No hidden surprises, plus you are entitled to a home inspection that means something. Should the home fail to pass the inspection you are able to cancel the contact and get a full refund of deposit. With a new home, the Builder only listens to the County / City inspectors and will discourage buyers from using thier own inspector. They will say things like "this is a new home, we have the county inspect them, so you really don't need an inspection". What that means is this, if they have the final OK from County / City you're closing when they say or you will be charged extra. Holes in the walls and all.
With a New Home Builder I have more control over everything since it is being built and can make sure it's done right.
Good luck with that. Before you sign the contract, everything seems normal. The Salesperson will call you back in a timely fashion, agree that any modifications to the suggested floor plan are allowed and can be done without a problem. They'll also lead you to believe that you will be moving into your new home in no time and nothing will go wrong.
After you sign the contract, it's totally different ballgame. Good luck speaking to anyone that can actually help you. The Builder has your money or at the very least your deposit and will hold you to your agreement and threaten you should you "get out of line".
"Out of Line" = doing anything against the Builders best interests....themselves.
All those changes will cost an obscene amount of money and most builders will not want to modify their plans one bit. No matter what the price of your home is. They'll blame the county, or say that they are a "track builder". Yet, the truth of the matter is they don't want to alter their floor plans.
At the very least we can move in when they said, right? Wrong. Read the fine print. Most Builders cover themselves by specifying that they have at least a year to finish your home from either loan approval or ground breaking. So if they promised an August settlement date and haven't broken ground yet, chances are you won't be moving in that year and it is your responsibility to make arrangements to accommodate their miscalculation.The Builder said; "If I buy a home now, I will pay less then the people who buy in the next phase of construction and my home will increase in value and I will be able to make more money when I sell it."
Whether that statement is true or not doesn't matter for two reasons. One, prices go up solely because of builder or developer related fees and are not based on market conditions. Most of the time the developer will not sell the builder every lot in a community and will increase the price for future lots just for profit. Also, impact fees for schools and roads and population will get assessed that may or may not affect you directly but you still pay them.
Second, It is illegal for a licensed agent to procure a sale based on future value. How do they get away with that you ask? Most builders do not require licensed agents to sell their homes, so they can pretty much say whatever they want. Feel safe now?
The Builder says that "If I don't use their lender and title company they won't give me my "FREE" incentives".
Remember what I said about "FREE" incentives. There are many reasons why a builder wants you to use their services and "FREE" incentives isn't one of them. By law you are not required to utilize the services of any Lender or Title company you don't choose or want to use. So by going outside the builder's system you will end up losing the extra money they built into their price. Not fair is it?
The Builder might have an interest in the companies they recommend and will make money off of your loan and title work too. So it makes financial sense to them for you to go with those companies. Their Lenders rates are typically higher then most reputable lenders and the closing costs paid by the builder get used for BS Fees anyway.
If you have good credit, you'll get a loan anywhere so what's the point in forcing you to use a lender you don't know over one you trust. Thankfully, the Real Estate commission is working to stop this unethical practice and allow the buyer the right to choose and still get the same incentive. The main reason the Builder wants you to use thier companies..... complete control over you during this transaction.
With resale, you can use whomever you wish and it will not affect the price or the terms of the contact.
A Builder has told me that "I don't need a Realtor to represent me".
It's funny that most builders have an unlicensed representative working for them, yet do not want a licensed agent working for you. As I said before, it is a Builders goal to control the transaction and they won't be able to control you if they have to deal with someone who won't allow it. Buy law, when a buyer agency agreement is signed and presented to the Builder they must abide by it. The same holds true in a resale transaction. Once agency has been disclosed all communications must be between the agents unless written acceptance by both brokers to contrary is presented. Yet time and time again a Builder will break that law and side step the Realtor to control the buyer.
After reading this I hope you gain an insight to how things really work in the Builder world. Please keep in mind that not all builders act in this fashion. There are still a few and I mean few of them out there that do care and truly want you to be happy with their product.
During my career, I was fortunate enough to work for a smaller family owned builder that did care and built a great home. Yet during a recent transaction with my client and a new home builder, (a nightmare from start to finish), I was reminded of the way the majority of Builders truly act from my early days working for the National Builders. It does happen this way and it's unfortunate.
If you must buy a new home, make sure to have a Realtor present at all times and get everything in writing. Also, make sure to check the Builder out carefully. Go door to door in different communities if you have too. You need to see what the homes actually look like and find out how they handle their service after you settle. Don't let them steer you to people or houses they want you to see. They may be their only happy customer.