New Homes - Buying New Construction from Builders


New home buyers don't want a used house when only new will do. They don't want to inherit somebody else's worn carpeting, personal taste in kitchen appliances or look at some kid's initials scrawled into once-wet cement that they didn't put there.

The home must be brand new, fresh, clean, and ready for the enjoyment of the new owner.


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Buying a new home can result in significant tax credits, lower monthly utility costs, lower long term maintenance costs and a higher resale value and often allows the Buyer to “customize” the home with their choice of features such as kitchen and bathroom countertops, surround sound and flooring. If you buy early enough in the process, you may even be able to choose the exterior design of your home from several selections provided by the builder.

Building codes have changed dramatically over the past two decades requiring builders to meet very demanding standards in materials and construction specifications. New homes are built with improved windows and insulation and have state of the art roofing materials. They also are designed to withstand the typical movement associated with earthquakes here in California.

If you have thought about buying the new home of your dreams, here are a few tips that can help you protect yourself and make the process a pleasant experience.

Hire Your Own “Buyer’s Agent”

  • The builder's sales agents are paid to represent the builder, regardless of what they may tell you. Many will use tactics to persuade you to sign the contract the first time you visit the community. Due to the high volume of new home sales, lots of builder's agents are paid less than a traditional commission; some earn a salary plus incentives, so turnover is important to their livelihood.

  • Hire a Buyer’s Agent to represent you. Most of the time, your agent will be paid by the seller, but sometimes the responsibility for the agent’s fee is open for discussion. Even if you have to directly pay your agent, you can probably add that fee to the sales price, and it would be worth it because a good negotiating buyer's agent can save you thousands more than the commission.

  • Your own agent will represent you. Your agent will be your fiduciary and is required to disclose the positives as well as the negatives about the transaction. Builder's agents don't discuss drawbacks.

  • If your contract contains a contingency to sell your existing home before buying, again, hire your own Seller’s Agent to list your home. Be aware that buying before selling is not always in your best interest because hard bargaining goes out the window when you've emotionally moved out of your home.

  • Get Pre-Approved before you leave a deposit or sign a Reservation Agreement or Purchase Agreement.

Don't Automatically Use the Builder's Lender

  • Builders often prefer their own lender because the builder will be kept fully informed of your personal progress; it's one-stop shopping for a builder. But a builder's lender might not offer you the best deal. Moreover, the builder may own the lending company. However, more often than not, using the Builder’s “preferred lender” can result in a less stressful loan process, will usually result in more financial concessions from the builder and your loan will likely find on-time.

  • Consider alternate sources to find a lender. Your own bank or credit union might offer you very attractive rates and terms, based on your banking history with that institution. Your agent may refer you to his or her private list of wholesale lenders.

  • Shop around and interview your lender. Find a banker or mortgage broker whom you can trust and with whom you feel comfortable doing business.

  • Ask to see a copy of your credit report and FICO scores. You can order your own free credit report before shopping for a new home.

  • Insist that your lender guarantees its Good Faith Estimate. If the lender balks or makes excuses, go elsewhere, because reputable lenders will honor that request, even though it's not required by law.

Obtain Professional Advice Before Buying a Brand New Home

  • Make sure your real estate agent is with you when visit any new home community and when you sign any paperwork, especially a Purchase Contract. Builder’s usually use their own purchase agreements which are designed to keep everybody out of court, but they don't necessarily contain language that protects you, the buyer.

  • Ask questions about removal of contingencies and your cancellation rights. Make sure you understand your liability and commitments.

  • Find out if the materials used by the builder contain chemicals that are hazardous to your health. If your contract contains a warning about health issues, it's probably because it's a valid concern and state law requires certain disclosures.

Verify Option and Upgrade Pricing

  • Determine which options and upgrades you want. Bear in mind that for many builders, the profit margin is highest in upgrades. Some builders can sell a home for almost bare construction cost because they make the bulk of their profit in the upgrades.

  • Find out whether your lender will lend on all the options / upgrades you have chosen. If your lender will not finance 100% of your selections, you will be required to pay for it in cash.

  • Ask about cancellations and whether you will be held liable for items the builder cannot return to a vendor.

  • Some contracts give the builder the right to choose your upgrades if you do not submit your request within a certain period of time.

  • To save money, consider which upgrades you could purchase and install after the escrow closes. However, realize that some upgrades such as CAT-V, DSS or security wiring inside the walls are easier to do before construction.

  • Builder’s will not allow you and any outside contractors to perform any work on the home before the home is recorded in your name.

Check Out the Builder's Reputation

  • If a buyer has a bad experience with a builder, the word spreads rapidly throughout a community. But you won't know if a bad rep is an isolated experience or if the builder repeatedly brings bad publicity to itself without checking and verifying the public records for lawsuits.

  • Talk to the neighbors and scrutinize the construction quality of surrounding homes. Is the builder consistently building identical or larger homes in the area or is construction lagging and homes shrinking in size?

  • Find out whether the builder sells to investors. Some builders require all their homes to be owner occupied. Others eagerly sell as much inventory to investors as profit margins will allow. If the market suddenly dips, investors are typically the first to bail and, besides, part of the reason you are buying in a new subdivision is to be surrounded by other buyers just like you, not tenants.

Hire a Home Inspector

  • Always, always, always get a home inspection when you buy. And hire a licensed and accredited individual to perform the inspection -- not your dad or your buddy contractor, get a real inspector. But, be aware that because the new home has undergone rigorous inspections by the city/county building inspectors, most Builder’s Purchase agreements prohibit inspections by outside contractors until after the close of escrow. Don’t be alarmed by this. All new homes are covered by the Builder’s warranty and you typically have thirty (30) days to submit a “Warranty Service Request” requesting repairs on deficiencies not identified during your pre-closing “walk-through inspection.”

    Be there for the inspection and ask questions because a new home can contain defects. The HVAC system might be too small or the hot/cold plumbing could be installed backwards. Construction workers make mistakes



© Copyright 2010 by Richard Merk. All rights reserved.