Eight things you need to know before buying new construction in 2020
With heated real estate markets throughout so many areas of the country, new construction is no exception. This sector of the market has been fast moving as the pandemic has motivated people to seek spaces that truly optimize the ability to live, work and play in one place.
As a result, builder spec homes have been getting snatched up left and right, and they can’t build houses fast enough to keep up with buyer demand. Lots reservations are going fast and furious, and price increases are happening in the blink of an eye.
Buying new construction is typically much more involved than purchasing a resale, and there are often a lot of moving parts. Here are eight things your buyers should know about buying a new home in 2020:
1. Working with an agent who’s well-versed in new construction is invaluableIt has been said many times before, but it bears repeating: Builders represent themselves and look out of their best interests. That’s it. Why would you put your single largest investment in the hands of someone who won’t tell you what you don’t want to hear, but need to? Who won’t show you options that are not publicly advertised because they want to sell what’s in front of them? And lastly, who won’t help you play the game to get the best possible deal?
An agent represents the buyer and isn’t just to try to make a sale like the builders will. An agent who is experienced with new construction and familiar with all the builders in the local market knows how to weave through the maze of the process that is new construction and guide buyers every step of the way.
2. Not all builders are the sameAs a buyer, it can be easy to be enamored by the eye candy you see in model homes, however, that tells you nothing about that builder’s reputation or quality of the product. An agent in the know is well-versed enough to give you the scoop on how the builders in your marketplace rank and what you should look for as well as watch out for.
Although no builder is perfect, there is definitely a difference as to how they do business from the initial sale to closing. In some cases, the site agent simply writes the contract and hands you off to a construction manager with little to no involvement after that.
In other cases, the site agent is very involved in the process from start to finish, providing regular updates, and is in frequent communication with buyers as well as their agent. Other builders don’t involve the buyer’s agent in much of the process, and the agents have to chase information down.
Buyers should do their own research to see what homeowners are saying in the new construction neighborhoods they are considering. Although there will always be armchair criticism at varying levels, if buyers consistently see the same issues being brought up by homeowners, they shouldn’t expect their experience to be drastically different.
3. Inventory is uber-tightAs a result of the pandemic and the “V” shaped recovery that is taking place in real estate, available builder inventory has been selling fast. People have quickly realized that their existing space doesn’t work as well when everyone has to be at home working and going to virtual school as well as living.
In addition, many have decided to make an elective move with flexibility to work remotely vastly becoming a viable option like never before. Add super low interest rates to the mix, and you have the perfect storm to create a run up on available supply.
Don’t be surprised if there are less choices that are available than your buyers might have hoped. You might have to build from scratch or go with a builder spec that has not been permitted as of yet. Finding the ideal lot might take some work, and it might involve some waiting, watching and aggressive follow-up by the buyer’s agent if buyers are waiting on a new section of lots to be released.
4. There will likely be price increasesUnfortunately or fortunately, a byproduct of a fast moving market means builders are quick to increase prices based on the pace of sales. What this means is what buyers might have looked into a month ago might either not be available or could be significantly more in price for a spec home or a lot and base price of building from scratch.
If buyers lock in on something now, it might be possible that they have made a substantial amount of money before they’ve even closed, or if building, before the foundation has been poured.
The price increase game can be frustrating for buyers and agents alike, and often, it can price buyers out of a neighborhood while they were contemplating what to do. Builders keep price increases close to the chest, and the site agents are often unaware when it happens, but based on sales, they often have a good idea of if one might be coming.
5. Builders aren’t giving much wiggle roomLet’s make a deal? In the current climate? Maybe. Builders might be offering some incentives to use either off the price or toward options and upgrades as well as closing costs with use of one of their preferred lenders. Outside of those incentives, don’t expect there to be much wiggle room.
They are holding the line based on demand and aren’t inclined to do much because they know they will sell what they have, one way or another. Although you can always try to negotiate, the builders set limits on what they are willing to do, and they tend to be consistent for purposes of keeping values in check.
They aren’t going to offer one buyer a better deal than another. Keep in mind that the more buyers ask the builder to do as far as including things like window treatments, fencing or appliances, such as a refrigerator or washer and dryer, the less the builder is willing to negotiate.
Where there might be a deal is on spec home that is sitting because it’s on a less desirable lot or perhaps a home that was built for a buyer who did not close but had some taste-specific design choices that don’t have universal appeal.
But also consider the resalabilty of that kind of home versus others in the neighborhood that are on better lots or have more conforming finishes. It might not be worth the deal. It might be better to buy something that has more saleability and pay more for it.
6. The process will vary depending on the builderSome builders are flexible, generally accommodating and easy to deal with, and others seem like everything is an ordeal. Buyers don’t want to find out after they’ve signed a contract what they may or may not be dealing with. Having a good agent will help buyers understand what to expect and how to manage those expectations.
For example, there are some builders who are still old school and will not utilize electronic signature technology to sign contracts. This could make things quite cumbersome, especially if buyers are not local.
Some builders are more flexible with respect to site visits to your home than others. When it comes to having the home checked out by a buyer’s third-party inspector, some builders impose a lot of restrictions and requirements on purpose, making it nearly impossible to find an inspector that meets their criteria, or only allow an inspection by inspectors on their “preferred list.”
These are issues buyers should troubleshoot upfront through the buyer’s agent agent. Never assume that the way it was done on the last home is the way it works now.
Some builders are more easy-going when it comes to fixing things identified from an inspection report or addressing issues with workmanship versus others, and these are things you want to know when deciding what to do.
The warranty process for builders can vary widely across the board. Some want you to send an email to a generic email address, and others assign you to a specific contact on their warranty team. Each one has various processes and nuances specific to their company that typically cannot be negotiated or changed.
7. Expect delaysIf you are building from scratch, expect some delays due to COVID-19. Building materials and interior finishes like cabinets or flooring might take longer to arrive. Crews could potentially be challenged if someone gets sick. The process might not go exactly according to the initial projected plan. Allow yourself some float in case that happens, and plan accordingly with interim accommodations.
8. Sales contingencies can be problematicOne of the biggest challenges with buying new construction is having a home to sell. Builders’ willingness to accept a contingency has largely depended on their pace of sales and state of the market. Given the current climate, most builders will only work with a home sale contingency if the buyer’s current home is under contract.
If you are planning to build from scratch, a builder might be a bit more flexible in doing a contingent contract for a limited amount of time, such as 60 days to find a buyer for the buyers’ property. The bottom line is, if you have to sell to buy, you really should have your home actively listed with a real estate agent before going under contract on new construction.
Building can be a complicated puzzle. In a hot market, it can seem like the choices are less, yet the costs are high and the decision-making has to be fast. Although buyers might not be able to get everything they want, understanding how to deal with builders in the current climate can at least set the tone for what to expect, should they decide to buy new construction.