5 things you should know about brand-new homes

Seeking a new-construction house? Check out these tips before buying.

By MSN Real Estate partner Oct 24, 2013 8:38AM

Editor's note: Data on September's new-home sales, originally set for release today, will now be released in early December, according to the Census Bureau.

 

© CorbisBy Brendan DiSimone, Zillow

 

It’s not new news that the real estate market has picked up in many parts of the country. although lots of buyers are out shopping, inventory is still low.

 

Nobody can predict when that situation will improve, of course. But large national home-builders, as well as small local ones, are buying up land, drawing plans and starting construction on new homes.

 

But is a new-construction home the right path for you? Here are five things you should keep in mind.

 
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1. New homes may not be listed in your local multiple-listing service

Unlike a regular seller who lists a home with a local real estate agent, homebuilders often have their own employees working for them on-site. They do this to have more control and to cut costs.

 

What does this mean for you, a buyer? Mostly, it may mean the homebuilder isn’t a member of the local MLS. As a result, the homes may not show up in your agent’s MLS search. The builder may be more apt to advertise online, in the newspaper or with billboards. So if you’re interested in newly built homes, work with your agent to make sure you’ve identified all the possibilities.

2. New homes are often sold before they’re built

Builders will generally get financing lined up and map out a construction and a sales process. This means they’ll try to sell as many homes as possible, before the homes are even built. To accomplish this, they’ll build out model homes and allow buyers to go in and review floor plans, fixtures and finishes while the homes are under construction. Depending on the state, builders need to get through some of the approvals process before they can actually start signing contracts.

 

For the most part, you can get a sense of what your new home would look and feel like and where it will be located in the community. Ready to move forward? You’ll likely have to put down a deposit, from a few thousand dollars to 10 percent of the purchase price.

Be aware that even if there are 100 homes in the community, they won’t all be available at once. Homebuilders tend to release the homes in phases. If the first 10 homes sell quickly at the asking price, and the market continues to do well, the builder can raise the prices on the second or third phase. Also, the sales cycle for a new community can take years. The last phase could end up being priced 10 percent or more than phase No. 1, simply because the real estate market has appreciated.

 

3. The first buyers may get the best discounts

A homebuilder, especially early in the sales process, wants to get a few homes under contract quickly. If builders can announce they have 10 homes under contract in a few weeks, the project can seem more desirable to future buyers.

 

Also, builders like to go back to their lenders with positive news about the project and their investment. To do this, they need early buyers to sign contracts.

For buyers, this means there could be room to negotiate the price down early in the sales process. But with the reward, there is potential risk. By being an early buyer, you’re committed to the project. If for some reason sales don’t manifest or you don’t want to move ahead before the home is built, you risk losing your down payment. For example, right after the housing downtown, some buyers were stuck under contract on new homes where sales had stalled.

 

4. Builders don’t have a personal or emotional attachment to the house

Typical sellers have lived in the home for many years, raised their family there or built memories there. So when it’s time to sell, the seller may experience all kinds of issues, questions and uncertainties, which can come out in the negotiation and purchase process.

 

As a consequence, sellers may unconsciously price the home too high because they’re not ready to emotionally detach from it. They may want to know more about you or what your plans are for the property. If given a choice between two buyers, the seller may pick one over the other for nonfinancial reasons.

With a homebuilder, it’s just a numbers game. Builders are focused more on spreadsheets than sentiment. They want to make sure you’re qualified and can get a loan. They set the prices based on their inventory, though there may be a little room for negotiations.

 

5. Discounts may be available as upgrades

Is the project you’re interested in nearing the end of its sales cycle, with many homes already sold? If so, the builder may be a little more willing to negotiate with you, not so much on price but on upgrades. If the builder reduces the price on your home and the sale closes, then that sale price becomes public record. But if the builder offered you an upgrade package -- such as hardwood floors instead of carpet or higher-end appliances -- there isn’t any way to track that. What could amount to thousands of dollars in upgrades could end up being a better deal than simply getting a price reduction.

 

For many first-time buyers, new construction could be a great idea. If you’re used to renting and relying on the landlord for mechanical fixes and general maintenance, you can almost be assured that your first few years in a new home will be maintenance-free.

 

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17Comments
Dec 2, 2013 3:07AM
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When considering brand new construction, it is important to have Realtor representation. Many people walk into brand new construction filled with excitement and awe not realizing that the sales agent works for the builder, not you. If there are issues-which can/do happen then what is your recourse???  Always have representation! As a buyer you are not paying the agent for their services. Make sure to research your builders. Some buyers have experienced major setbacks- horror stories, to say the least.
Dec 2, 2013 12:15AM
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Let's not forget about the Mello Roos; one of the top points that should have been mentioned in the article. New homes often have high mellow roos, a tax that you will have to pay to help build the surrounding community and schools.

Dec 1, 2013 10:02PM
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Just sold a 32 year home, and after looking at new homes built this year, I can answer YES older homes are better built AS A RULE than new homes. Our old home was built with yellow pine 2 x 4 studs and every new home we looked at uses white pine or fir, not nearly as strong. Also our older home used 12/2 wire throughout and new homes usually have 14/2 which is minimally acceptable.
Dec 1, 2013 8:01PM
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I worked as an agent for several new home builders for over 20 years. The main thing to keep in mind that is that model homes are done to the ultimate luxury in an effort to get a buyer to realize the decorating potential. Always ask to see what a standard home looks like. Keep in mind that items such as granite counters are usually upgrades. Another issue is electrical outlets. Many builders will offer ceiling fan outlets and Christmas light outlets for an additional fee. If these things are important to you, do them if you get the opportunity. It is always a hassle to add these things later. Also, window coverings and backyard landscaping are rarely included, but can be negotiated into either the final sales price or as an option. You don't want to move into your new home and not be able to enjoy it because you don't have the money for window blinds. Not that the aluminum foil look isn't attractive.

And finally, once you have left a deposit you don't have to worry about a higher bid getting the home from you.

Dec 1, 2013 4:50PM
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Be sure to check out the builders reputation by talking to the people who have purchased homes from the builder. Is the county inspector in the builders pocket? A few years ago I was asking the inspectors office about some framing errors I knew were wrong. I asked about the bottom plate of the outside wall of a house being built on a slab. His comment was something to the effect of we are not worried about wind here in the upstate, we are more concerned about earthquake.
Dec 1, 2013 3:36PM
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#6...That monthly interest is a mill stone around your financial neck  and you will never really "own it" unless you stayed there 30 years and paid twice your original loan amount.  (ouch)
#7...There is not much upside left in housing with a median price of 200K.  
#8...Median incomes are stagnate at 48K per household putting downward pressure on housing with prices already more than 4x median income. 
Dec 1, 2013 2:40PM
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Usually get more house for less in a used home.  But it is used and perhaps worn.
Dec 1, 2013 1:37PM
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are new homes built as good as older homes?



Dec 1, 2013 1:36PM
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You should also have a commitment to paying far more then you should and also to living on the verge of bankruptcy for about 15 years.......
Dec 1, 2013 12:50PM
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yet another recycled article.  msn is recycling "news" articles more and more and more often, especially in the last 2 years or so.

MSN will say anything, print anything to keep attention off of the disaster happening in Washington DC, and their golden child in charge of it all.


pathetic

Nov 13, 2013 4:07PM
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Not only is everything brand new and never been used but the inspection for a NEW home is different than buying a previously owned property.  An inspection on previously owned property does not take into account any cosmetic flaws.  In a brand new home everything is on the table including any disfigured or cracked tiles.  Paint flaws etc.
Nov 13, 2013 3:50PM
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"you can almost be assured that your first few years in a new home will be maintenance-free."
I would say this is more true if the home is not a track built home.
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