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A Guide to the New Home Construction Process

So- you’re considering buying a new construction home in the Hall County/ Gainesville/ Flowery Branch area? Well, what do you need to know when considering buying a new construction home? Let’s talk about the 10 things I think you need to know before you buy that new construction home.

The first thing you need to know that prices aren’t negotiable. New construction home prices are set obviously by the builder, and while it’s very hard to negotiate the price of the home,  you do sometimes have the ability to negotiate other incentives, such as seller paid closing costs or extra upgrades in the house. You can negotiate things like blinds or upgraded flooring, or a refrigerator. Those are all things that you want to consider to see if you can have the ability to negotiate that but just know that the prices are pretty firm when it comes to new construction homes. The reason for this is that the builder wants to make sure that the home appraises, and they incrementally increase the price of the home every couple of weeks, and if they discount your home, it’s going to affect the value of the next home sale. This means that prices are pretty firm, however,  you can negotiate some other terms whenever you’re purchasing your new construction home. 

Since we’re talking about negotiating the price on a home and incentives, you need to know that that agent on site  represents the builder. They are fantastic, knowledgeable, and they’re going to give you a whole host of information about the neighborhood, floor plans, and the current incentives that are being offered by the builder. Yes, they can write a contract for you- but it’s really important that you know that that agent represents the builder which means they have a fiduciary obligation to the builder. They have the builder’s best interest in mind and at heart and at stake, not yours. So, what do you need to do to make sure that you are protected in the transaction? Well, you need to have your own agent and heck- why wouldn’t you? It is completely free to use your agent. That is right, the builder and the seller always pay the buyers commission on a transaction, so why would you not have someone that’s going to be there with you the entire time, walking you through the entire transaction, and making sure that your best interests are being looked out for? You need an agent representing you. It would just simply be foolish not to have one. The agent that you choose is going to be someone that is going to be knowledgeable about new construction, and they’re going to be able to give you all the ins and outs and things that you should look for, and they’re going to know what you can and can’t negotiate.

We talked earlier that most of the time prices aren’t that negotiable, and while that’s true, most of the time, the agent that you choose is going to have that specific knowledge to know whether or not in your particular case if that price can be negotiated, and what extra things that you should ask for in its place if price cannot be negotiated. 

I’d love to tell you a story about a new construction buyer that I was working with. We were working with a smaller builder and in the middle of the process, we decided to put a contract on a new construction home, and the home had not been completed yet. There were two homes next to this home that had already been completed and had a nice pretty regular concrete driveway installed. So, my client and I checked in on the progress of the build when we were about two months away from closing on the sale of this home. The client drove by and gave me a call and said, “Sarah- the driveway! What’s going on with it?” The builder chose to put in an asphalt driveway, whereas the neighboring driveways had concrete driveways, so you can see why my buyer was very upset. They didn’t understand why they were getting a black asphalt driveway, while their neighbors had a nice pretty concrete driveway. In this scenario, it was a perfect example of why it’s so  important to have an agent on your side looking out for you. We were able to talk with the builder and get my buyer out of that contract because the builder was not making the same, nice style of home that we had seen previously, and what we had made a good faith effort of putting a contract on, and then all of a sudden the builders changed things up. Now I can guarantee you that without having someone fighting and negotiating on my buyer’s behalf like I did that that builder’s agent would have made things very very difficult for that buyer to have gotten out of the contract. If they did not have their own agent and someone that was forceful and pushing back, negotiating on their behalf, it’s very important that you have an agent fighting for you.

The next thing that you need to know is that typically the builder is always going to offer incentives if you use their preferred lender. So what does that mean? Most all new construction communities have preferred lenders that they have developed relationships with, and if you use those preferred lenders, typically you’re going to see some sort of incentive for closing costs. For example, let’s just say $5,000. So of that $5k, typically half of that’s coming from the preferred lender, and half of that amount is coming from the builder itself. However, in order to qualify and get that incentive, you have to use their preferred lender. Now you might be asking yourself, “That sounds like a great idea, why wouldn’t you do that?” However,  you always want to make sure that you get a second opinion from an outside lender. Sometimes that preferred lender is rolling in those closing costs or incentives that they’re giving you, they’re hiding that fee somewhere else in the loan whether it be a higher interest rate or a higher loan origination charge. That’s something that you’ll  want to get an outside opinion and compare apples to apples before you commit to that. Sometimes what seems like a great benefit upfront may not be the best thing for you, and it’s really important that you have someone that’s guiding you through that process that’s going to help you navigate that and make that decision as to what’s the best financial incentive for you, whether that’s using that preferred lender or using an outside lender.

The next thing that you need to know is the difference between a spec home and a custom built home. A spec home is a home that the builder has built that they do not have a buyer for yet. They’re trying to find a buyer, so it’s all ready either in the process of being constructed, or it may even already be completed. On a spec home, you’re going to have to put down a builder’s deposit. A builder’s deposit locks in your contract, and is a set amount of money that’s going to hold that home for you and get the contract process started. A builder’s deposit on a spec home is a little bit different than a builder’s deposit on a brand new construction home that you choose the lot, the floor plan, and the colors for. Just know that the builder’s deposit that you put down is going to be a little bit different when it comes to a spec home versus a home where you are picking out the lot and starting from scratch. 

That leads me to my next point- if you are wanting to pick out your own lot and choose your own floor plan, that is essentially kind of a custom built home when you’re making all those decisions. We talked about how that builder’s deposit is going to be a little bit different. When you get the option to pick out your lot, you’re going to pay what they call a lot premium. All the builders are going to have lot premiums assigned to every lot in the neighborhood. Corner lots and lots on the back of a cul-de-sac are homes that are going to sell for more money than a lot that’s smack dab in the middle where you’ve got neighbors directly beside you and behind you, so be prepared to know that you are going to pay a premium whenever you get to pick out your own lot. 

Another thing that you need to know is that after you pick out your lot, you’re also going to get the option (most the time) to pick out some things  in the home such as cabinet color,  flooring choices and carpet, those sort of things. It’s a really fun process and it can be really great to have the option to pick out all those things, however, you need to know that you do have to put down a deposit on those things that you pick out because the builder is custom building this home to your exact specifications. They did not get to pick out the finishes and choices like they do in a spec home, therefore they want you to have a little bit of extra skin in the game whenever you are picking out those choices because if for whatever reason something were to happen and you are to back out of that contract, or heaven forbid the loan fell through, they’re stuck with that house that is designed to your specifications, so just be prepared that you’re going to have to put down a little bit more of a deposit on those options that you choose. 

The next thing that you need to know is that new construction home contracts have a shorter financing contingency period, so it’s super important that you pay attention to whenever that financing contingency period ends, and that is the time period that you have to get with the bank to make sure that they are going to be able to approve you for that loan. You need to be on the ball with getting your documents in and really communicating with that loan officer to make sure that you’re on top of it so that you’re protecting that deposit that you have put down, so make sure that you pay attention to what that financing contingency period is. 

When you’re purchasing a new construction home,  the next thing that you need to know is that you still need a home inspection. Far too often when talking with people that have already purchased new construction homes, I find out that they did not have a home inspection. They think that because it’s brand new, and because there’s codes, that the builder did everything perfectly. Well, I can assure you that having a home inspection is a very very smart investment in the purchase of your new construction home. Most home inspections only cost around $400, which is a wise investment when you’re spending hundreds of thousands of dollars on a brand new construction home. That home inspector is going to inspect the home from top to bottom and they’re going to give you a report of everything that is wrong with the home. Heck,  people make mistakes- including builders- and it’s the home inspector’s job to catch those mistakes up front rather than discovering a mistake one year, two years, or five years down the road. Sometimes those mistakes can be hugely impactful when it comes to the value of your home and how things operate, so you’d rather catch those up front and early rather than just trusting that the builder did everything perfectly. One of the great benefits of purchasing a new construction home is that most builders are going to offer a really great warranty. Most builders will offer a one-year warranty on their craftsmanship, so nail pops, caulking, things like that,  they’ll come back a year later and fix anything that might have shown up over your first year of ownership. Most builders are going to offer a two-year warranty when it comes to the systems and appliances in your home, and then they are also going to offer a 10-year structural warranty on the structure of the home. This is a really powerful thing that you can have and it gives you peace of mind, and is one of the great benefits of purchasing a new construction home. It’s not something that you will typically find in a resale home. Yes, there’s home warranties on resale homes that you can negotiate, however, it’s not going to give you that 10-year peace of mind that these new construction home warranties are going to give you. 

Another thing that you need to know about new construction home purchases is that most of these homes are going to be in a neighborhood with an HOA,  so if you are anti-HOA and you don’t want one, new construction homes most likely are not the right choice for you. Because of these homes being in an HOA neighborhood, that means you’re going to have an HOA fee that is due every single year. Some of these are going to include things like lawn maintenance and exterior maintenance. Unless you’re looking in a 55-plus community, it’s typically a smaller fee, usually five to six hundred dollars for the entire year and that’s going to cover things like sidewalks, street lamps, making sure the entrance looks really pretty every single season with flowers and landscaping, and it’ usually going to cover a neighborhood playground or a swimming pool. Some even have tennis courts that are available as well. You do need to know that some HOAs are going to also charge you an initiation fee to join that HOA. It’s a one-time thing that you have to pay up front, usually it’s equal to the amount of the yearly HOA dues so just know that that’s going to be a slight increase in the expense of your closing costs whenever you have to pay that initiation fee.

The last thing you need to know about buying a new construction home is that you do get a great benefit when it comes to your homeowners insurance. Typically your homeowner’s insurance is going to be much cheaper on a new construction home because everything is new, which is so great. Insurance companies don’t have to take on the additional added expense of worrying about old roofs, things like that, so the price of you homeowners insurance is typically cheaper than what it would be if you were to go find a resale home, which can be a great benefit on top of all the other great things that we’ve talked about. Whenever you’re buying a new construction home, it saves you money every single month and it goes directly into your pocketbook in terms of savings.

Source: https://keypointhomesbysarah.com/real-estate-blog/10-things-to-know-before-buying-a-new-construction-home-2021/

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