It’s Fall of 2024, we have high inventory, subdued buyer demand, frequent price reductions and a bit of economic uncertainty. Why? Primarily, it is due to higher interest rates and affordability issues. As you know, home prices went up significantly during the pandemic when interest rates were artificially low, home prices were lower and everyone was moving to take advantage of that unique market. Post pandemic, we have the resultant higher home prices and interest rates went up from the 2% range all the way up to 8% at its peak. The good news is that rates have come down to an average of about 6.2% for a 30-year fixed rate loan. In various communities we are even seeing price reductions on listings, and yet homes aren’t selling. As a home buyer, you are looking for the best deal out there, and while interest rates have dropped, they aren’t yet low enough for you to get into your dream home.
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Solution? New construction homes. Simple fact, when the residential real estate market is slow, it is also slow for builders. But builders are more motivated to sell than your typical home seller is, as builders have sales goals, bigger bills to pay and as inventory sits around it reduces their profit margins. As such, they offer significant savings that you can take advantage of, not to mention the other benefits of buying a new home. In this podcast, I’m going to discuss four reasons why you should buy new construction.
The first reason is that there is less competition. Remember when just a couple of years ago almost every home on the market had multiple offers? And often those homes went to the highest bidder which meant $10,000, $20,000, $50,000 or even $100,000 over list price! With new construction homes there are no bidding wars. The purchase price is what they say it is and no one will outbid you. Be aware though, that if you find the right home for you and the purchase price and financing terms work for you, it is better to get it under contract sooner rather than later. I say this for a couple of reasons. One, another buyer could pick the house you want right after you leave the sales office. Secondly, the incentives offered by builders do expire, so make sure you pay attention to those deadlines so that you don’t miss out.
The second reason to buy new construction are those incentives that I referred to. Remember, in a slower market like we have now, builders are very motivated to sell. They sell off their inventory faster by offering incentives to you as a buyer. There are a few types of incentives that I’ll cover here.
The first is price reductions. Builders will do price cuts on their existing inventory, sometimes quite significantly. These aren’t always reflected in the Multiple Listing Service, which is where all of us licensed brokers list homes for sale, so it is key for you or your agent to check with the sales rep to see the latest price. I should also point out that some builders are willing to negotiate a price reduction if it means you’ll sign the contract.
Secondly, they offer incentives such as money toward closing costs and/or an interest rate reduction, if you use their preferred lender. Depending on your credit and financial information, some are providing an interest rate of 3.99%, significantly lower than the 6.2% average as of the making of this episode. This can result in significant savings for your monthly payment.
A third type of incentive they may offer, in addition to those I just mentioned, are move-in packages. These typically include blinds, a clothes washer and dryer set and a refrigerator, if it’s not already included. These incentive packages will save you thousands of dollars up front! Be aware that if this incentive package is not available, the cost of buying these essentials will be an up front cost for you. Also be aware, that if this incentive isn’t currently offered, they may be willing to throw it in to get the contract signed, so don’t be afraid to ask.
A third reason to buy new construction is yet another money saver. You will need to have homeowners’ insurance. As many can attest to, the cost of homeowner’s insurance has skyrocketed in many areas around the country due to natural disasters. A perk of buying a new construction home is that many insurers will give you a discounted policy because of the fact that it is a new home. Everything is new, including the roof and the plumbing. The risk of something going wrong in your home is less and therefore the policy is less expensive.
This leads to the fourth reason to buy a new home. It is just that, it is a new home. Everything is new and it even has that new house smell. There is no need to replace any major expensive items for many years. There is no updating to do or future projects you need to budget for. You can just move in and enjoy your new home. Just give it your personal touch in how you decorate it and you’re good to go. Further, most builders offer a 1 year warranty so if there are any touchups or repairs needed, they will typically be covered by the builder. To give you more peace of mind, get a thorough home inspection at about the 9th or 10th month of the 1 year warranty to make sure you didn’t miss anything. You can also get a home warranty that covers appliances and mechanicals (furnaces, boilers, air conditioners, etc.) that may go out beyond the manufacturers warranty, often only 1 year.
As you consider buying a new construction home, know that these incentives are given by the builder to push sales. They are willing to make it work if it means selling their inventory so don’t be afraid to ask for incentives not offered. Also know that once the market picks up, builders are less likely to offer incentives or none at all so take advantage of the market we’re in.
I hope this helps! I also want to remind you that it is good to have representation when buying a new construction home as the sales rep works for the builder, not for you. They use their own contract, not the real estate commission approved contract that allows you to terminate for multiple reasons. Once you sign that contract your earnest money is forfeit if you cancel in most cases. You will want someone to help you do all of the due diligence up front so that you can sign the builder contract with confidence. Need help, don’t hesitate to get in touch!
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