Are you considering purchasing a new construction home? As a first-time homebuyer, buying new construction can be an excellent option to get the most value for your investment. With a brand new home, you’ll enjoy a day-one warranty and potentially access to more competitive rates, upfront closing cost assistance, and even extra funds from the builder.
However, before you start visiting model homes, it’s essential to understand the top five tips for new construction home buying. As a broker and owner of Ready Front Real Estate in Austin, Texas, I’ve completed numerous new construction transactions, including building my own home from the ground up. Through my experience, I’ve learned crucial information that builders won’t tell you.
In this video, I’ll be sharing these valuable tips with you. So, whether you’re a first-time homebuyer or a seasoned investor, stay tuned to learn how to make the most out of your new construction home-buying experience. Let’s get started with tip number one.
Tip #1: Hire a real estate professional to represent you when buying new construction. When you go into a model home and the person greets you with a smile and a handshake, that person is a representative of the builder. They have no fiduciary duty to you. They are ringing you up at the register in hopes of getting the builder the best deal possible. Without representation, you are putting yourself at a disadvantage.
By working with a real estate agent or broker, you are putting someone in between you and the builder who has your best interests in mind. Look at it like this: working with new construction without a real estate agent or broker is equivalent to getting interrogated by the police without hiring a lawyer. I know that sounds out there, but it’s the same situation. The builder is there to sell a home and will only provide you with the minimum information you need to do so.
Tip #2: Get a third-party inspection. The builder will tell you that the home is getting inspected at all these different levels, giving you this warm and fuzzy feeling as if the inspection is being conducted with the buyer in mind. It is not; it is getting conducted with the code in mind. As long as the house meets code, the builder is on to the next.
By getting a third-party inspection, this inspector will go in with your best interest in mind and will point out every little thing that the builder may have glossed over, from workmanship to catching little nuances that right after closing, you would have to deal with. But if the builder would have done it right, it would have lasted you years down the road. Once you get an inspection and the inspector gives you an inspection report, you then want to present this to the builder.
Full disclosure, the builder is not obligated to fix anything on this inspection, but if they want to sell the house, they will definitely work their hardest to rectify anything that your third-party inspector finds. The last thing a builder wants to do is go take that home that’s so close to being off their books and put it back on the market. Now they have to find another buyer.
Now you’re adding more time on the books where the builder is paying on a monthly basis, and the time lost in the market where they have to possibly adjust the price of the home altogether. It’s just not worth it for them, but that’s not your problem. Get that third-party inspection and make them take care of anything that needs to be done prior to closing.
Tip #3: Negotiating with New Construction Builders New construction home buyers don’t realize that they can negotiate the prices that the Builder is selling the house for. When negotiating a new construction, you need to come up with facts and numbers that justify your negotiation standpoint. The best way of doing that is to reach out to your real estate professional representation and have them put together a comparative market analysis and community housing data from the Builder directly.
This is important because the Builder is not obligated to update any data source publicly, and they don’t have to put it on the MLS. By analyzing this data from a professional standpoint, you can present the Builder with a reasonable price to start negotiating at. When dealing with new construction, the price of the home is just one part of the overall deal, and there are so many things that you can do with the Builder aside from changing the price to keep money in your pocket.
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Tip #4 Build from the ground up or Buy Spec/Inventory Home – Spec homes, or inventory homes, are homes that the builder has already chosen the upgrades and finishes for, it’s already in the process of getting built, and are most likely for sale as is These are the homes the builder wants to get rid of ASAP. The builder would love for these homes to be under contract, and as soon as these homes are completed, they are closing.
The builder is rolling the dice when they are continuing to build inventory home spec homes on top of each other with no buyer because they are assuming the buyer will come by this home regardless of the finishes and even the price they are listed at. With all the data they have and the past clientele, they are pretty accurate when it comes to doing this. DR Horton is one of them; they will continue to build non-stop because buyers will buy just because they know their product. But not all cases are that easy; there are plenty of homes on the market right now at spec homes with no buyers; now it’s time to get a deal.
One of the main differences between building from the ground up versus a spec home is what the builder is willing to work with you on. When building from the ground up, you pick everything from your lot to your finishes, but the builder will be very reluctant to change the price point. And a lot of the time they will require you to come out of pocket once you hit the threshold of upgrades. For example, if the builder allots $10,000 for upgrades because they know the community, the home is going to cost a certain amount, and the lot is going to cost a certain amount, that means they will only have a window for x amount of dollars for upgrades to keep the house comparable with the others in the community. If you choose to go above that threshold, the builder will look at you like you’re a risk.
Their requirements for how much you have to put down % wise will vary once you reach, in this example the $10,000 threshold. As a first-time homebuyer, I will always recommend leaning toward the inventory homes. Stay in the home for 2 to 5 years, then move out; you’re going to get a good deal, keep more money in your pocket, and know that there will be other homes around you that are worth more in return, it’s bringing up your equity which you can use when purchasing your next home.
Tip #5 Don’t Sign off on Repair Too Early. When purchasing a new construction, you’re going to have a couple of different meetings with the builder. Typically, the first meeting is going to be your initial walkthrough. Your initial walkthrough is going to consist of the builder introducing you to your new home. They are going to go over everything you need to know so you can operate and maintain your home as soon as you get the keys.
This is also an opportunity for you to “smurf” the home, Smufing the home is where you place blue tape on all defects you can find. Don’t be shy during this process, it’s a good chance you will see all kinds of things, things that you will think the builder wouldn’t dare have in this condition prior to your walkthrough, but it happens. Additionally, this is a time when you want to go over the home inspection with the builder, ensuring that the things your inspector pointed out have been completed as well. Your inspector will not be at the walkthrough with you. But you will have your inspection report, at this point, the builder should have had the report a minimum of 1 week so the majority, if not all defects should have been addressed.
After the initial walkthrough and marking the house with blue and possibly green tape, the next step is to schedule a final walkthrough. During this walkthrough, your objective is to ensure that any issues previously identified have been repaired, replaced, or addressed to your satisfaction as the buyer. The final walkthrough should be brief, focusing only on verifying the completion of outstanding items before signing off on the list. After this point, the builder is not obligated to fix any issues discovered prior to closing. If any problems do arise, you will need to file a home warranty claim after closing.
However, there is a workaround to this process. You can have the builder agree in writing to address any outstanding items on the list, even after closing. This agreement will negate the need for a home warranty claim to address these issues. It’s important to note that any issues on the list are likely to be minor and cosmetic in nature, such as parts not yet delivered or contractor scheduling issues. Any major issues, such as leaks, would be dealt with prior to closing. We can work together to address any outstanding items on a case-by-case basis, but the key takeaway is to get everything in writing before signing off on the final list during the walkthrough.