NEW construction

Do's and Don'ts When Purchasing New Construction Homes
 
The vision of a new home with the ability to upgrade finishes, alter floor plans and be the first to occupy a property lures buyers into builders and developers model homes every day. According to industry sources over 70% of home buyers want a new home. These new construction focused buyers might see a picket fence, but they should be prepared to ask the right questions and see red flags before signing on the line

Do's 

*    Have your own agent. Believing they might get a better deal or out of ignorance many buyers use the developers sales agent to represent them. All homebuyers should be represented by an agent who has a fiduciary responsibility to them. Buyers shouldn't forget that most developers require that your agent must accompany you the first time you visit a sales center.

*    Ask how much is this home as we see it. Models can be filled with every upgrade the builder offers as an example for buyers. Buyers should ask freely how much the model costs as they see it. Typically this cost will vary dramatically from advertised starting prices for a development.

*    Pick the right builder. Working with a builder is like a short-term marriage. Ask for references from the builders sales agents. Do your own investigation of the builders previous projects, length in business and complaints filed with business bureaus.

*    Consider resale characteristics. The allure of being the first to occupy a home sometimes clouds a secondary location or poor craftsmanship. Consider a resale home in a primary location before signing on the line just because it's new construction.

*    Question percent of project sold. Developers love to promote the sell-through of projects. Inquire how much of the percent sold are reservations (dating the project) versus contracts (engaged to the project). Some reservations don't go to contract because of a change of heart, financial concerns or occupancy timelines.

*    Have your Realtor review all contracts before signing. Builders contracts favor the developer and are different from standard local real estate board approved contracts. Be sure you read the contracts and more importantly, you use a Realtor that is familiar with the builders contracts and can explain them to you in detail. There is little wiggle-room once you sign a builders contract.

*    Investigate property taxes independently. Property taxes can be a financial surprise you weren't expecting with the purchase of a home. Because tax assessors haven't valued a home or project, developers can underestimate how much the property taxes will be. Complete your own due diligence and call the local taxing authority to find out the worst-case scenario.

*    Never skip or waive the right to a inspection, the benefits far out weigh the costs and could save you numerous headaches and expenses later. New construction is not immune from defects and lackluster workmanship.

*    Get a certificate of occupancy. Local municipalities issue a certificate of occupancy after a unit has passed all building code inspections. Most mortgage lenders require a certificate of occupancy before they will close on a loan. If you are paying cash, verify prior to closing that the developer will deliver you a certificate.

*    Understand why builders request upgrades paid for in advance. Experience has taught builders that some buyers will not purchase the unit which they have specified the floor-coverings, countertops and kitchen cabinets, that have been installed by the builder. Other buyers will want to select their own finishes and a unit that has preselected finishes by a terminated buyer is a marketing problem for the builder. Plan on paying upfront for all upgrades and changes you make to a unit, and if you decide to walk from the project once you have paid for upgrades, expect a fight from the developer if you want a refund on installed changes and upgrades.

*    Whenever possible request copies of blueprints, floor plans and surveys. It's easy to forget to get clean copies of blueprints and floor plans of your new home with all the activity and decisions during the construction process. In the future when you want to make changes or sell, having the footprint of your home will save you expense and time. NOTE: When purchasing a "spec home" do not expect the builder to hand over copies of the floorplans.

*    Research warranties on structure, finishes and appliances. Builders typically offer five or ten year warranties on structural elements of a home and rely on manufacturers warranties for appliances, furnaces, windows and overhead garage doors. Beware of one-year warranties on structural elements.

Don'ts

*    Forget to ask for holdbacks on unfinished work. Weather or material supply problems can interrupt completion of a home. If some items aren't necessary for occupancy the developer will want to close on your home. Make sure any substantial items or features that are not completed in your new home, have designated funds set aside for their installation or completion. Request these funds be held back and deposited in an escrow account at closing.

*    Omit final written punch lists. You should have a final walk-through at least three days before closing on your new home. Create a punch list of all uncompleted or unfinished items. Punch lists can also call attention to items that need to be repainted or need additional attention. Both the builder and the buyers should sign the final punch list in agreement. Builders should complete punch lists within 30 days of closing.

*    Tune out during construction process. Family, work or distance can shift your focus away from closely monitoring the construction and completion of your new home. Proactive buyers can catch design mistakes or irregular materials by visiting the job site on a regular basis. For insurance purposes some developers limit access to construction sites, but a good builder should appreciate you paying attension. NOTE: if issues arise or something is not built correctly, do not talk to the builders "subs" that are working on the job site.  The correct procedure is to alert your Reator and have him bring this to the listing agents attention.

*    Be fooled by low assessments. Developers can use artificially low monthly homeowner assessments in new construction marketing materials. Plan on at least a twenty-five percent increase in assessments the first year after the developer delivers the association to the homeowners.

*    Overlook costs between standard and upgraded features. There can be a large difference in quality and useful life spans between builder grade and upgraded finishes and fixtures. It could be worth the additional expense to install better carpet, cabinets and faucets. Cross-check builder prices for upgrades at your local home center.

*    Ignore builder incentives as a signal of slow sales. Free condominium assessments, stainless appliances and plasma TVs are thrown in to induce buyers to write contracts to purchase. What many buyers think are a freebie are actually signals that a builder is slow to sell from increased competition of a lack of buyers. Incentives are a band-aid for a languishing development.

*    Be surprised when builder holds firm on pricing. Builders of popular projects don't typically negotiate on unit prices. However sometimes a builder will throw in upgraded appliances or hardwood floors in place of standard carpet. When a builder doesn't move on prices it is because they have a investment formula for the project, which is typically costs plus twenty percent profit.

*    Disregard risks of buying pre-construction. Pre-construction pricing can attract value-driven buyers. There is some risk entering into a project before it has started. Verify that the developer has received a green light from local building authorities and has a proven track record of timely completion in the community.

*    Postpone discovering costs of construction loans. Variables beyond a builders control can prolong the completion of your home. Have contingency plans for cost overruns, temporary housing and bridge loans. Investigate rate-lock expiration dates on mortgages, construction or temporary loans.