What you should consider before buying a newly constructed house?

I sold my first newly constructed house in 1994 and it was the easiest home sale I ever did. However, in 26 years, I’ve learned A LOT and things have changed A LOT. What I’ve seen the most is how savvy home builders have become. They have merged, sold thousands of homes and stacked the deck in their favor. The phrase has never been so true- Buyer Beware.

So What’s Changed?

What’s changed is how the system works today – it’s very lop-sided in favor of the builder. There are ways to protect yourself more and you should. That’s what I’m going to write about today.

Also read Curb Appeal Guide: How To Increase the Value of Your Home with Exterior Upgrades.

 

Also read: Curb Appeal Guide: How To Increase the Value of Your Home with Exterior Upgrades

Seller/Builder Representation

Always remember that the sales tract agent works for the builder and only the builder- not you. Don’t get fooled into thinking that they’re being nice because they want to help you. They want you to buy THEIR home. The program nowadays is for Realtors to take our clients to the tract on their first visit to receive a “finder’s fee.” We asked to be quiet, let the tract agent take over and collect a paycheck when the home is completed. Know that there are some Realtors that will do everything they can to protect you and your investment and will not shut-up and stay away.

Buyer Representation

You can have free Buyer Representation from a Realtor IF you go with them on the first visit to the tract AND IF you haven’t given them your name online. If you deviate from this, ask if you can look and bring your Realtor later. They’ll say yes, or no. We suggest you don’t look without a Realtor and do not give them your name or sign anything.

Price

You are not allowed to make an offer and you cannot negotiate the price. The price is black and white. A builder will pay for you to have a Realtor represent you if you have followed their unpublished rules- if you haven’t given them your name online. You will pay the same thing with or without a Realtor, so get the best- they can be free!

New Construction Contracts

With builders becoming aware of loopholes and wanting to make things go in their favor, contracts have been created by their lawyers, in their favor. Some builders have BAD clauses where they keep earnest money regardless of what happens- no contingencies. Others charge you for things that are not standard in Nevada but making you think they are. There are also “in-house lenders” possibly tied to incentives. Know that there is a lot of money in loans.

Example of a BAD Clause: There is a Las Vegas builder whose contracts say that if you don’t complete the purchase for any reason they’ll keep all earnest and upgrade monies paid. This means: If you added a bathroom for $30,000, you will pay all or part of that upfront. You’ll walk away from every penny if you can’t get your loan next week, next month or upon completion. Scenario: COVID-19 gives you no income for a month and you no longer qualify for that loan amount and cannot buy the house. “Too Bad, So Sad” is their policy. What if your spouse dies? 4 months to build is a long time with many variables. We’ve seen people put over $50,000 cash into upgrades before closing… We do not recommend that builder.

New Construction Building Changes

Building Codes have changed for the better- to protect the consumer more. Responsibility for construction damage has changed meaning they charge sub-contractors when their workers damage materials- if they know about it. What concerns me most is the technology of building products. If you are not up on current building materials, you’ll need to read about them, hire a new-construction inspector and/or hire a Realtor who protects you- paid by the builder or not. Read our blog about New Construction Inspections.

Framing Walk-Thru

A framing walk-thru is for buyers to see in the walls before drywall is put on. This is when you need to verify that EVERY pre-drywall option is there- like wiring, plumbing, and structural options. Different builders do this differently. Some just say “Here it is.” Others go through everything with you. My partner, husband Realtor, Ex Building Engineer (P.E., C.E.) who does a framing walk for you and/or with you. During the walk, he’ll verify every option for our clients, look for bad framing connections, checks trusses for cuts or breaks, and looks at vent locations for squareness. After the walk, if mistakes are found, most builders will not change things, even if a plug you wanted isn’t there- they’ll credit you.

Final Walk-Thru

The final walk-thru and buyer’s orientation- What’s new is that an orientation is needed! There are complicated products in houses nowadays. This walk should not be about seeing how pretty things are or finding places to touch up paint but often is. This is when the builder explains the systems and features of your home. What’s changed is technology, which is a big factor throughout the property. Most people don’t know if things are installed correctly. How do you know if there’s an inside-out window pane? Are you going to look in the attic for broken trusses and to verify that insulation is 100% there? How about looking for missing roof flashing or broken roof tiles? Do you take their word that everything is okay- the house looks so nice!

Certificate of Occupancy

A Certificate of Occupancy is the paper provided by the building department saying the builder has done their job, their check-list is complete and the buyer can move in. What’s changed is that the inspectors don’t reinspect the house. Once an item is checked off, they don’t look again. Various sub-contractors can damage other sub-contractors’ work and not tell anyone. Insulation is checked off by the certificate the insulation company provided. No one looks. These are both common problems.

Warranties

A home will generally come with a complete house warranty for a year. Sending in cards for additional coverage and recalls is your job. A builder may or may not give a structural warranty. An average structural warranty claim is over $40,000. What’s changed is the length of time the warranty is for and the coverage or just the commission of even giving one.

New Construction- What To Do To Protect Yourself

You want someone on your team who is knowledgable enough to protect you. A Realtor costs you nothing so why not get the best Realtor for free? All you have to do is take one with you on your first visit to a housing tract. You want a Realtor who does more than driving you to different housing tracts and sits quietly through your contract writing. There are thousands of Realtors out there and they do not function equally. Do you want a highly paid Realtor-Chauffeur or a Realtor who knows enough to go to your home site each week to check on your investment? See our blog about New Construction Monitoring.

What We Suggest Is:

Find a Realtor with building experience. Ex-contractors, Ex-engineers, inspectors, etc. are the best. If you can’t find one in your city call us. We may be able to find one for you or we may know one depending on where you are.
Find an experienced New Construction Realtor who knows the different builders. Contract protection is very important. Keep Your Eyes Wide Open- know what you’re signing.
Don’t assume that just because you call a “New Construction Real Estate Team” that you’ll get the kind of experience that protects you. One person can be a good online marketer and the person who shows you homes may be newer or a “showing agent.” Interview and don’t settle for less- you’re making a huge investment.
Always have a New Construction Home Inspection! Shop for the best inspector. Resale Home Inspectors are not the same as a New Construction Inspector. This is so important that we gift every client an inspection by the best inspector in town. Find the best Realtor and use their recommendation.
You cannot do anything about warranties or building inspectors. You just need to be aware. Reversed window panes cost you thousands in heating and cooling bills. Know that when you sell your home that the buyer will have an inspector. If things are found beyond the warranty period you get to foot the bill and it will cost a LOT more than an inspection would have.