New Home Builders....Buyer Beware!

By
Real Estate Agent with Long and Foster Real Estate Inc
https://activerain.com/droplet/dHH

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.

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Anonymous
HouseWrecked

I forgot to mention.  The BBB is should not be your only resource when researching the builders.  Just because they are not listed with any complaints does not mean they are good.  Sure, check them out with the BBB, but don't put much emphasis on it.

Google search the builder's name and see what you find.  More often than not, if there is a bad builder out there, someone has complained about them online.

Check with anyone and everyone you can that has purchased from the builder.  Ask them (not just one) if they would purchase from this builder again.  Ask them questions, find out everything you can.  Were there problems?  Did the builder fix them?  Ask, ask, ask.

But realize, many homeowners will not admit that they purchased a home that they regret.  Don't trust anyone.  Sad, but true.

Dec 05, 2008 08:08 AM #38
Anonymous
HouseWrecked

Wow, So Pretty

We all get caught up in how "pretty" the house is.  Many people don't realize how many problems this "Pretty House" may have.  Here is just one problem that could cost 10's of thousands to fix.  A sloping or wavy floor, that is a floor that is not level and not flat.  Imagine having to pay contractors to fix it.  And that is just one problem that "Pretty House" may have.

Look past the Pretty and thoroughly inspect what you are buying.  Granite counters, hard wood floors, so pretty.  Get your level out.

Don't wait till you move in to discover the problems.  Inspect the heck out of the house before you close.  Tell yourself that this new "pretty house" has lots of problems and try to find them.  More often than not, you'll find lots of them.  Bring someone with you that is very familiar with home construction and have them help you find them.  If your list is short and trivial, then you found a good home.  Otherwise, it's just a "pretty" piece of junk.

 

Dec 05, 2008 08:16 AM #39
Anonymous
John

BUYERS BE WARE "CAVEAT EMPTOR". NEVER EVER TRUST THE BUILDER. PROVINCE PARK IN FORT MYERS FLORIDA HAS BEEN A NIGHTMARE FOR MANY PEOPLE. THEY TOOK MY DEPOSIT AND HAD STILL NOT COMPLETED MY CONDO AND IT IS OVER 3 1/2 YRS LATER. UNTIL TODAY WE ARE BATTLING TO GET OUR MONEY BACK AS WE WAITED IN GOOD FAITH AND LOST INTEREST ON OUR MONEY ALL THESE YEARS. THEY HAVE AN IN HOUSE ATTORNEY. DOES THAT TELL YOU SOMETHING? THEY HAVE THEIR OWN ESCROW ACCOUNT SET UP IN MIAMI AND WE ARE IN FT MYERS WHICH IS A MERE 2 1/2 HRS AWAY? HUMMM WHEN WE CALL THEY ARE EITHER ON THE PHONE JUST STEPPED OUT OR NOT IN OF COURSE. THEY HAD US SIGN AN EXTENSION 6 MOTNHS BEFORE THE CONTRACT WAS TO EXPIRE. GEE THINK THEY ARE STRAIGHT~~~~~~~ WE ARE RETIRED 67 YRS OF AGE AND PLANNED ON LIVING OUR RETIREMENT IN THE SUNSHINE STATE. ONLY PROBLEM IS THERE ISNT ANY SUNSHINE. BUYERS BEWARE OF PROVINCE PARK AND CHECK THEM OUT AND CALL A FEW OF THERE CLIENTS TO SEE WHAT THEY HAVE TO SAY OR ANY LOCAL REALTOR WOULD BE AHPPY TO FILL YOU IN!

Jan 19, 2009 02:33 PM #40
Anonymous
Lois

I am a former buyer in Province Park. Let me tell you STAY away! They are very evasive and will avoid you once you sign the contract and disappear. I lived a nightmare not knowing whether I needed to file bankruptcy and ruin my life or if they would do the proper thing by giving me my money back when we were out of contract by a whole year. Yes this development keeps peoples money and makes you beg while they get interest on your money and use your hard earned money. I will never recommend anyone to buy in Province Park as it is heading for a nervous breakdown. The government needs to investigate these people for corruption just like the banks and other corporations that are getting away with stealing from people!

Jan 19, 2009 02:48 PM #41
Rainer
1,509
Michelle Glen
William Ryan Homes - Franklin, WI

I still haven't picked my mouth off of the floor after reading this GARBAGE. I proudly work for a builder in Wisconsin and take offense to every thing that our friend Brian has written.

And by the way, I am a licensed salesperson, thank you very much.

I'm wondering if Brian is still in the business today or if he was one of those that dropped out of sight when the going got rough and a sale took more than just being a paper pusher.

Feb 24, 2009 03:21 PM #42
Rainer
1,509
Michelle Glen
William Ryan Homes - Franklin, WI

I forgot to comment on the fact that Brian touts the fact on his profile that he's had "3 National Homebuilders" as his clients. But yet he so easily stabs them in the back....not a person I would want walking into my sales center even with a buyer because he probably is going to be more difficult to work with then even the most demanding customer.

Feb 25, 2009 02:45 PM #43
Anonymous
Penz

Thanks for the great post!  I found it very interesting.  When you get a chance please check out my site at <a href="http://www.penzcustomhomes.net/">Rochester MN Real Estate</a>.

Jul 29, 2009 09:12 AM #44
Anonymous
Ron

I recently purchased a former model home from a builder and they sold it "as is". however, I had put some provisions to cover some wood rot that I had seen, which they honored. Within 3 weeks of moving in, the central vac stops working, the tile in the master bath shower cracks as if the subfloor was not installed properly, water leaks through some of the faucets into the cabinets etc. I brought it to their attention and they simply state that the house is "as is." If I was buying a foreclosed property, I would understand. But, from a builder? Especially considering that they are selling new houses just like mine up the road? How can they not honor their workmanship? My neighbor apparently had the same issue and simply paid to fix it himself. I bought the property for market price so it was not a steal and now I am stuck with expensive repairs after 3 weeks of settling. Is there no recourse to this type of business activity? Any ideas?

Sep 09, 2009 11:01 AM #45
Anonymous
Ron

I recently purchased a former model home from a builder and they sold it "as is". however, I had put some provisions to cover some wood rot that I had seen, which they honored. Within 3 weeks of moving in, the central vac stops working, the tile in the master bath shower cracks as if the subfloor was not installed properly, water leaks through some of the faucets into the cabinets etc. I brought it to their attention and they simply state that the house is "as is." If I was buying a foreclosed property, I would understand. But, from a builder? Especially considering that they are selling new houses just like mine up the road? How can they not honor their workmanship? My neighbor apparently had the same issue and simply paid to fix it himself. I bought the property for market price so it was not a steal and now I am stuck with expensive repairs after 3 weeks of settling. Is there no recourse to this type of business activity? Any ideas?

Sep 09, 2009 11:03 AM #46
Anonymous
Alan

Anyone thinking about purchasing a Milller and Smith home, think again. They are as bad as the insurance companies, where any warranty claim is met with an automatic denial by their friendly warranty staff. If you threaten them with legal action, they might consider fixing the issue. I surveyed 30 home owners and 27 had issues with the builder. From simply things such as leaky faucets to rotting wood, unstable floor boards, this is as bad as it gets. The attention to detail is poor. I have dealt with homes from 8 different builders and Miller and Smith is by far the worst.

Sep 22, 2009 02:58 AM #47
Anonymous
Russ

Thanks Tory

I could have not put it better.......

Jan 02, 2010 02:48 PM #48
Anonymous
Russ

Thanks Troy

I could have not put it better.......

Jan 02, 2010 02:50 PM #49
Rainmaker
111,299
Steve Dalton
219-465-8352 - Valparaiso, IN
Northwest Indiana Home Builder

Gaby and James, stuffing comments in 3 year old posts with "home builder" links is a bit uncool.  Try growing into the new media market and producing your own content worthy of backlinks.

Feb 01, 2010 09:52 PM #50
Anonymous
bud conners

Anyone know anything about Georgia builders named Americas Homeplace or Trinity Custom Homes?We are planning On building our retirement home and dont want to get ripped off.

Oct 08, 2010 05:03 AM #51
Rainmaker
191,252
Christa Ross
RE/MAX Select Realty - REALTOR and Green Homes Specialist - Pittsburgh, PA
Helping you buy and sell Pittsburgh's Best Homes

Interesting perspective on working with builders. Thanks.

Dec 06, 2010 02:47 PM #52
Rainmaker
103,593
Jesse Madison
One Point Plus Real Estate - Laguna Niguel, CA
List For Less...Sell for More | 1% List Fee!

I'm Glad I stumbled upon your post. Great perspective!

Aug 15, 2011 03:01 PM #53
Anonymous
Enchante M.

I found a lot in a golf/lake community that we'd like to be built. Unfortunately, we don't get to meet with builder (currently building in this community) and his design team before signing the first contract which is after we pick the lot, choose an existing plan and earnest money. We can however talk to the sales office that act as liaison. Once we sign the contract, I will have multiple meetings with builder's team. We have 30 days from that contract date to back out if it does not work out. I am waiting for my buyer agent to provide a copy of the contract.  I agree the way new construction builder operates is so they have "total" control.  Since I don't get to meet with the builder team beforehand, my plan is to include a detailed list from removing a small wall to open up space between foyers and kitchen living space, to designing the bathrooms and kitchen.  I am going to go over the plan with my chosen architect and put the details in writing.  I will also talk to a real estate lawyer to see what else should be included in the initial contract.  The bottom line is I will not sign unless my list/requirements are agreed upon.  Per sales office, the builder, although not a custom builder, does consider some modifications such as closing a wall or adding windows.  Please offer additional helpful input in this process so I am not dragged into a process without a say.

 

. If they can do the list, we will pursue. Can you recommend real estate lawyer as I want to have buyer leverage. Thank you.

 

Apr 08, 2013 05:08 AM #54
Anonymous
New Home Buyer

this realtor is ignorant and not the type of realtor you would want to represent you. He does not seem to understand the definiation of market value.

noun: market value; plural noun: market values
the amount for which something can be sold on a given market.

If someone is willing to pay for it then that is the value of the item. To group all builders into money grubbing thieves that cut corners to save a buck is an alarmist view and is unfair. the majority of builders are extremely realtor friendly and build high quality products. there are many reasons why a builder has an inhouse lender/title company that are not profit related. I have seen many outside lender "preapproval letters" that aren't worth the paper they are printed on. A builder proceeds to invest $200K in building a house only to have to hold on to it and have to remarket the home when a buyer is not able to obtain financing. internal lenders have accountability to the buyer/builder when it comes to providing ontime closings.

Sep 08, 2015 02:14 AM #55
Ambassador
2,340,939
Fred Griffin presently on Leave of Absence
Fred Griffin Real Estate - Tallahassee, FL
Licensed Florida Real Estate Broker

We invite you back to ActiveRain in the year 2017!

Dec 29, 2016 08:58 PM #56
Rainer
141,376
Elizabeth Bouchard
Long & Foster Realtors - Arlington, VA
Associate Broker in Northern Virginia

I have also worked for homebuilders in Virginia and Maryland for many years.  While I find your post a little harsh, it does point out some things prospective buyers need to be aware of when considering a new home. especially one that is not yet built.  Thanks for sharing.

 

Nov 11, 2017 08:11 AM #57
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Brian Rayman

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