In todays’ crazy real estate market, where low inventory has created bidding wars on almost every home that hits the market, every buyer should be considering whether a newly constructed home purchase might be right for them.
The Pros:
- No bidding wars!
If a builder has lots available, or even homes that have already been constructed, that no one has already purchased, buyers can get under contract right away! This will avoid the bidding war many buyers are experiencing and will lock in the price of that home right away. - Customization
When the home hasn’t been started yet, the buyer can have a significant level of control over how the new home will look, both inside and out, when completed. Buyer can often upgrade cabinets, flooring, counters, appliances, paint, etc. This is also the fastest way to a home filled with the latest in smart-home technology without having to lift a finger to install any of it! Depending on the price point, some home builders will let buyers help to design the floorplan to customize it to their individual needs. - Low Maintenance Costs
New Home comes with builder warranties that will cover anything from appliances to structural issues for varying period of time. These homes have been built with the latest safety regulations, building codes and energy-efficiency standards. In addition, a newly constructed home’s new appliances, water heater, furnace, air-conditioning unit, and the newest plumbing and electrical systems can leave the buyer worry-free for many years. - Home Builder Financing Incentives
Most builders have in-house financing or special relationships with 3rd party mortgage lenders and will offer significant incentives to buyers to use these lending options. Many builders will reduce the price of the home and kick in additional money to cover closing costs. This can help buyers start building equity before they have even moved into the home! - A Community with Amenities
Many new home neighborhoods are designed with places and activities that will enhance the lives of its residents and establish a real sense of community. A community pool, hotubs, recreation center, clubhouse, parks, playgrounds, tennis courts, and trails are just some of the amenities found in these new neighborhoods.
The Cons:
- The Builder Contract
Home builders are not regulated by the Colorado Division of Real Estate, so they are not required to use the state-approved purchase contracts that real estate agents use. These contracts have been drafted by the builders’ attorneys and, as such, are much more favorable to the builder than is the contract a buyer and seller use for the sale of an existing home. One of the biggest examples is earnest money. In purchase of an existing home, the buyer has several ways they can terminate the contract during the escrow period and still receive their earnest money back. However, in the purchase of a new home, once the contract is signed, the only way a buyer would ever receive their earnest money back is if they didn’t qualify for the loan. Even in this situation, most builder contracts will still be keeping a significant percentage of the earnest money. - Completion Timeline
If you are purchasing a home where none of the construction has actually begun, expect to wait for completion for up to 12-18 months. Even when construction has begun, builders will only be able to give estimated competition dates up to 4-6 weeks before closing. The pandemic left builders short on materials and labor and they are still trying to balance the ever-changing picture in both areas. - Higher Taxes
Many new construction neighborhoods have had to create the infrastructure necessary which necessitated loans for roads, electrical grids, schools, parks, playgrounds, etc. These loans will be paid down by the residents that move in. Many homes in new neighborhoods come with property taxes that are double those of homes in the surrounding area. - Landscaping requirements and immature landscaping
Most builders will install front yard landscaping, but the backyard will be the responsibility of the homeowners. The trees and bushes that the builder will plant will all be new and will take a decade or more to mature into their full size. This can leave the area feeling quite sparse compared to the surrounding neighborhoods. In addition, most builders will not build fences for the backyards. The neighborhood’s HOAs will require the backyard landscaping and fences to be completed in a relatively short time after closing. - HOA’s
If you don’t want an HOA, then you will want to avoid a new neighborhood. Almost every new neighborhood is being designed with a sense of uniformity in mind and the HOA will be there to implement rules and regulations designed to enforce that. The HOA is there to help to protect properties values but will definitely limit the freedom of homeowners to use their property the way they might want to otherwise.
Why use a Realtor®?
- Help with finding the homes
To buy a new home, you first must find that new home! That can be a difficult thing most of the time since most home builders do not place their inventory of available homes on the MLS. This means they will never appear on the places most home homebuyers start looking like Zillow or Realtor.com. A Realtor® will be able to provide you the most up-to-date information on the neighborhoods under construction in the areas you are most interested in living. - Experience working with the builders
Not all builders are created equal! Builder reputation, experience, reliability, customer satisfaction can vary greatly among home builders. A Realtor® has experience helping real buyers who have purchased from a wide variety of builders. That advice can prove invaluable as you start to sort through your available options. - Expert representation
Buyers who go under contract with a home builder without a Realtor® are doing so without any one there to represent their interests. As was stated above, each builder has its own contract, created by its own attorneys, with its interests in mind. In addition, that salesperson, you know…the one who was so incredible friendly while walking them through the options and getting them to sign the contract, fully represents the interest of the builder, not the buyer! Their job is to generate a sale, at the highest price possible, for their boss – the builder! When any dispute arises, those buyers are left to handle it themselves without any experience as to what the builders can or cannot do or what the builders might have done in similar situations to appease other buyers. With $10,000s of earnest money at stake, that is too large a gamble! - It’s easy to get overly excited when faced with seemingly limitless upgrades and pricey design choices. Buyers are usually dismayed to see the price of the home begin to skyrocket as they add in everything they are told they can’t live without! A Realtor® will be there to keep you within our budge and to provide expert advice as to which of those will line up with your immediate and/or future needs along with each upgrade’s future return when the home is eventually sold. A Realtor® will be there to help you compare every aspect of the possible neighborhoods and available homes to ensure your purchase matches all your goals and objectives. Finally, the one thing you can count on during any new home transaction is construction issues and mistakes. A Realtor® will be familiar with where problems are likely to arise and how to best handle them should they occur. A Realtor® will be with you at every meeting with the builder and each of the final walkthroughs. It will be the clear communication of your Realtor® with both you and the builder that will create the smoothest process possible.
- It costs you nothing!
Just as in the purchase of an existing home, the services of your Realtor® are paid by the seller (the builder). In addition, the builder has already factored this cost into the bottom line of every home they sell. Many buyers believe they might be able to save a few bucks by going directly to the builder without having a Realtor® present. They are, however, sadly incorrect. When a builder can sell a home directly to a buyer without a Realtor®, the builder is more than happy to just pocket the savings. So, obviously, its advantageous for the builder if you don’t use a Realtor® and they work hard to make sure you don’t. On any visit to a builder office, they will ask you to fill out a registration form. If you do not mark the name and brokerage of your Realtor® at that very moment, they will not pay your Realtor® even if you would like to retain the services of one later. What does that tell you?
Are ALL Realtors® a good choice for new construction?
Sadly, no. The average Realtor® does less than 4 deals a year and, therefore, it is unlikely they have much, if any, experience with new construction. This is just one other area where the agents at The New Door Group are completely different! The team leader of The New Door Group, Amy Ballain, started in real estate as a new home sales consultant, and eventually as the Sales Manager of the Denver Division, with a nationally acclaimed builder, John Laing Homes. New construction is her passion, and her knowledge is something she passes on to every agent who works for The New Door Group. This team does countless new home construction transactions each year and has all the experience you will need to ensure your new home purchase goes smoothly.
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