Complete Guide to Buying a New Construction Home
Complete Guide to Buying a New Construction Home
Courtesy of The Provost Team
In Washington, the housing deficits and the task of finding an available home to buy are daunting. This deficit has caused a surge in the design and building of new homes. But, buying a newly constructed home from a builder can be a disadvantage to a buyer, versus an available resale home in the MLS. Builder’s contracts are complicated and designed to give the builder a greater advantage. While you are contemplating shopping for a brand-new home, it is ideal to seek a real estate agent’s service, especially one who’s knowledgeable enough to simplify the builder’s contract for you. When finding a new neighborhood, the Builder’s salesperson is present to show you around, and persuade you to purchase. The salesperson represents the interests of the Builder by helping to maximize profits at your detriment. For this reason, cautious and savvy buyers employ real estate agents to protect their interests too, typically at zero cost to the buyer.
WHAT YOU MUST KNOW PRIOR TO SHOPPING FOR A NEW CONSTRUCTION HOME
- Filling in the Builder’s Registration Form
- Buyer’s Agent Representation
- The Builder’s Contract
- Price Bargaining, Inclusions, and Incentives
- Builders Policies and Contingencies
- Having a Home to Sell
- Base Price vs. Completed Price
- Maximizing a Limited Budget
- Construction Process, Quality & Defects
- New Construction & Deposit Money
- Important Dates During Construction and Repercussions
- Hiring an Experienced Real Estate Agent
CRITICAL QUESTIONS YOU MUST ASK BEFORE SIGNING A BUILDER’S CONTRACT
- Lot Selection
- Structural Upgrade
- Flooring Material
- Builder Incentives/Mortgage Lending
- Property Taxes/Metro Districts
- Contracts & Deadlines
- Warranty Coverage
- Earnest Money Deposit
Let us know if you need a list of local builders!
FILLING OUT THE BUILDERS REGISTRATION FORM
Convincingly, the builder’s salesperson will want everyone to fill out a registration form as you step foot in the sales office or even online when you set an appointment. On this form is your personal information, including how you got to know about their development. Typically, the builder’s sales- person would like to avoid paying fees to an agent; and this registration card will help them on their strategy to meet a home buyer without an agent. Whether you walk into the sales office with or without an agent, it is wise to check the box on the registration card/form that an agent rep- resents you. However, you can choose not to fill a form if you choose.
THE BUILDER’S CONTRACT
Resale contracts in Washington are very buyer-friendly, as they generally allow full protection to buyers. However, the builders have a degree of liberty to change terms in the contract and are very much in favor of the Builder, not the buyer. The builder’s contract is usually designed by the builder’s attorney, which allows a greater advantage to the builder. The contract document is crafted and made to convince the buyer to forfeit their deposit if a deal fails to close.
An agent well-versed will carefully explain the rights of the Buyer as well as crucial deadlines and help the buyer terminate without forfeiting their deposit. Builders typically promise to complete the home in a few short months, though usually the contract allows the builder to delay completion beyond two years without penalty. For these details, a buyer needs an agent well-versed who can simplify all the legalese in the builder’s contract. Due to the contract documents’ bulky nature, experienced agents usually ask for contract documents in advance, which help them understand all terms, take note of important dates to give a better explanation to buyers, and allow a smooth signing process. Usually, agents keep files of builders in their offices to arm them with information and get them prepared to always protect the buyer interest.
PRICE BARGAINING, INCLUSIONS AND INCENTIVES
Negotiating prices, incentives and inclusions can be more difficult than a buyer would expect. Often, builders make emphasis on the non-negotiability of prices. However, the non-negotiability of prices can yet be negotiable. A smart agent will always combine several factors to get a better deal for a buyer. Factors like neighborhood, lot selection, landscaping, incentives, quick move-in homes in the builder’s inventory, and more.
BUILDER’S POLICIES AND CONTINGENCIES
In Washington, builders scarcely welcome a contingent offer and the few that do, have a time limit for the sale or a non-refundable earnest money deposit. The policies on contingencies are frustrating and hardly ever clear. If you could not afford your home within this time frame, the builder holds the right to terminate your contract and sell the home to an available buyer. The builder uses this often as a reason to hold back your earnest money deposit. Some builders that allow contingent offer give such allowance within a few short months and it’s crucial to know their exact policy on contingent offers. Should the contingency not work as planned, the buyer is then compromised.
They find themself seeking temporary housing for months and having to move multiple times. Buyers need an agent that is experienced in managing new-construction time frames. The agent will plan the current home sale such that, it coincides well with the completion of the new home. This negotiation is dicey, given the need to manage, sign contracts, marketing time, and possession date.
HAVING A HOUSE TO SELL
If you have a house to sell, most builders will try to make you list it with one of their partner agents, and most of those agencies will be out to work for the Builder’s interest, not the buyer’s. The Builder and its partner agents have a pre-negotiated agreement with the agent. Usually, these agents are former Builder’s salespersons who get a license to operate as agents. Their loyalty always lies with their former employer (Builders). It would be advantageous if you had a trusted, reliable agent who will protect your interests, not the Builder’s.
Base prices are often not as they appear or seem. They advertise at lower prices to call your attractions, but final prices are much higher after inclusions such as: upgrades, voltage options, landscaping, design center options, appliances, and lot premiums. The price you see advertised online or on a sign is usually never the actual purchase price. The model homes have lots of features that may not be present within the “real” home. It is necessary to ask what should and shouldn’t be present or is or isn’t included, even the basics such as lighting.
MAXIMIZING A LIMITED BUDGET
It is required to be strategic when maximizing your budget when dealing with a builder. A simple modification can be carried out more cost-effectively after closing on the house. Lot location, design center options, and structural upgrades break much of the buyer’s budget. The builder sometimes may require more for a deposit if a buyer’s choice goes beyond a limit. On your behalf, a real estate agent questions the builder about financing, contingency terms, inclusions and incentives, and will offer proper advice on how to maximize your budget.
CONSTRUCTION PROCESS, QUALITY AND DEFECTS
Often, defects and quality issues can arise during the construction process. The process of building a home is tough, and pointing out a fault in the process takes experience and expertise, as well as a good eye for detail. Your real estate agent can help you identify faults at all stages and persuade the builder to fix them as identified. The buyer will need to pay closer attention to the verbiage in their contracts that concern defects that may be identified. It is worthy to note, builders will usually opt to ix defects rather than terminate a deal before delivering the home.
NEW CONSTRUCTION AND EARNEST/DEPOSIT MONEY
The need to be protected from your deposit money in a new-construction contract is of a big concern. Builders often require bigger deposits than usual. As earlier stated, they may request for additional design deposits before closing on a home. The contract clauses are centered often
about “if the buyer fails to close on the home”. The clause affords the builder the right to keep the deposit if the deal fails. Also, the contract contains very few clauses to protect the buyer. Your real estate agent works with you closely to avoid unnecessary surprises.
INTEREST RATES DURING CONSTRUCTION & REPERCUSSIONS
There can be serious repercussions when interest rates hike during the home construction. Borrowers usually wouldn’t lock-in interest rates beyond 90 days in anticipation of closing. Dealing with new-construction, an interest rate lock may not be completed within that time frame, posing a great risk. Buyers need to how to manage their risks.
HIRING AN EXPERIENCED REAL ESTATE AGENT
According to the 90/10 rule, 90% of homes in the housing market are sold by just 10% of the top agents (i.e. for every 10 agents, only one will sell homes). Finding real estate agents that are well versed in real estate, specifically new-construction is very rare.
CRITICAL QUESTIONS YOU MUST ASK BEFORE SIGNING A BUILDERS CONTRACT
- Request the reports of soil surveys and tests for the Lot
- Price for the lot premium?
- Is there a plan for a basement on the lot?
- What options are available for the lot floor plans, elevations and exterior paints?
- Is the lot in the main entrance of the street or an exit of the subdivision?
- Will the lot have a house behind it or next to it?
- What is the orientation of the home and lot?
- How close to a train track or oil well is the lot?
- What will the position of the proposed home be?
- What is the lot location in the subdivision?
- What is the topography of the lot and proposed drainage system?
- Is the lot close to any body of water?
- If the lot is on a golf course, is there a human-made pond and how close? Also, what is the position of the tee box concerning the lot?
- What phase of construction is the builder in and how long will there be construction in the area?
- Is there a metro tax district and/or HOA? Do these fees provide any maintenance or utilities to the homeowner?
- What options or features may not be included in the base home version versus the model?
- What elevation is included in the base price, and what is the cost difference for a premium elevation?
- Find out what elevation can still be built on the Lot of your interest?
- What option of material is the base home to be sided with?
- Synthetic EIFS Stucco
- Concrete Lap Siding
- Vinyl Siding
- Aluminum Siding
- Masonite Lap Siding
- Quarter Round Log Sliding
- Concrete Fiber Sheet Siding
- What option of roofing materials does the builder use?
- Spanish Tiles
- Steel Pro-Panel
- Composition Shingles
- What is the warranty coverage on composition roof shingles?
- Premium Laminate (50 years and above)
- 3-Tab Composition (20-30 year warranty)
- Laminate/Dimensional shingles (30-50 year warranty)
- If solar system panels are included, are they sold from the onset with the home, or leased to you? If leased to you:
- Are they flat rate every month, or charged kilowatt per hour of utilized energy?
- If there is excess energy production, who takes possession of sold average (homeowner or the leasing company)?
- What is the period of lease?
- If you decide to sell the home, what are the requirements to transfer the lease to the new owner?
- Who will be responsible for the renewal and re-installments of the solar panels?
- Does the roof need repair?
- To what degree will the interior of the garage be furnished?
- Will the garage have an access door?
- Will the kitchen come with a freestanding stove or a gourmet kitchen with a wall oven and cooktop?
- What kind of basement will the home come with?
- Standard with a full basement
- ¾ basement
- ½ basement
- Does the home come with a full basement? If no;
- What is the builder’s up charge for excavating a ¾ basement?
- What is the builder’s up charge for a full basement?
- How deep will the basement be?
- Standard 8ft ceilings
- Taller 9ft-12ft ceilings
- If the standard basement is only 8ft, what is the Builder’s up charge to excavate the basement deeper?
- What type of basement will the home be built with?
- Garden level basement
- A walk-out basement
- What material are the window wells of the basement?
- Corrugated steel
- Does the Builder finish the basement or leave it unfinished?
- If the basement is left unfinished, does the Builder provide any necessary infrastructure to be finished in the future (rough ins for bathrooms, duct work, egress windows)?
- Will the HVAC ducting be enough to finish the basement, or will it need to be extended to comply with the building code?
- What material will be used in constructing the basement floor?
- Elevated wooden sub-floor and crawlspace
- Concrete slab
- Structural floor
- What is the warranty coverage on the concrete basement floor, garage floor?
- Will the builder automatically install a sump-pump, into the sump pit?
- Will the builder automatically install a radon mitigation system?
- Will the bedrooms come with wiring for a ceiling fixture and a wall switch or is it an option?
- Will the bedrooms include a switched outlet for easy switching off-nightstand lamps, and other appliances?
- Will the laundry room be fitted with a 30amp, 220V outlet to power an electric dryer?
- Will the garage be fitted with a 220V outlet for operating large tools?
- Will the home have the ideal 220V outlet exterior wiring for a central A/C compressor?
- On the model home light display, which are standard and optional on a base home?
- Will the kitchen be fitted with 50Amp, 220V outlets for an electric stove? Is set-up for a gas stove with a 120V? What is the up charge to run a gas line for the stove?
- Will the builder pre-wire the home for internet access, in all sections where you will place a router, or have a computer plugged directly to a wired signal?
- Is this a “smart home”? If so, what is included?
- Will the builder wire the home for landline telephone in sections you may want a landline?
- Will the builder it the home with a coaxial cable for cable TV services and satellite in sections you would prefer them to be?
- Will the builder automatically install sound systems in the home?
- Will the local home security providers require pre-wiring for their current security system?
- What type of flooring material will be used?
- Wood flooring
- ¾ inch solid hardwood flooring
- Engineered wood flooring
- Synthetic laminate flooring product
- Are the Builder’s advertised incentives contingent on using their lender or title company?
- If the Builder’s lenders cannot get you approved, will the builder allow the incentive of another lender of your choosing if approved?
- When interest rates increase to where you may not be qualified any longer, does
the builder contract define this as a situation where you would forfeit your deposit, or does this situation qualify as a critical reason to have the builder refund your deposit money?
1. What is the tax-rate that property taxes will be calculated with once the county re- evaluates the property taxes to include the actual home structure?
1. What dates are all of the contractual deadlines outlining your opportunities to seal a purchase without forfeiting your deposit money?
- What is the time limit the entire home will be covered with a fully comprehensive warranty of all mechanical, structural, electrical, low-voltage, and exterior components?
- What is the time limit of coverage of the home structural warranty covering against settling or heaving in the foundation?
- When a component such as a water heater, or other appliances go bad, does the builder replace them or do they expect you to purchase the manufacturer’s warranty?
- Does the Builder’s contract provide an initial rescission period, allowing the buyer to cancel the contract without penalty or forfeiting deposit money?
- If there is no rescission period, what situation does the contract outline for you to cancel without loss of deposit?
The following are some reasons for a buyer to terminate a contract without forfeiture of deposit; however, this may vary with different builders:
- The lender couldn’t get you approved for financing
- The home is destroyed by natural disasters or ire, before the time of delivery
- The builder couldn’t finish home in the contractual time frame (typically two years)
Buyer acknowledges and understands that there are unique legal issues regarding the construction and purchase of a newly built home. Buyer acknowledges that Buyer has been advised by Broker that any new construction Contract has important legal consequences.
HAVE THE CONTRACT EXAMINED BY A LAWYER OF BUYER’S CHOOSING BEFORE SIGNING ANY CONTRACT.
If you have any additional questions or if you would like to discuss purchasing a new home feel free to give us a call (509) 200-2215.