In these days of record low inventory of existing homes for sale, it is probably no surprise that development is booming. Production builders, which we will focus on for this post, like Lennar (set to become the nation’s largest homebuilder with the acquisition of CalAtlantic this month), Richmond, Century Communities, Oakwood Homes, and many more are everywhere it seems. New home construction in Colorado Springs hit a 12-year high in 2017 as folks have been moving south from the Denver metro area seeking more affordable housing. This surge in development and the inventory-driven appreciation of existing home sales are making many buyers turn to new construction. After all, who wouldn’t like a shiny new house for the same price of a decades old fixer?! However, even with the apparent lack of options, buyers are astute and far more cautious since the recession. Our clients are often surprised to learn some of the differences between building a new home and buying an existing home. Here are a few key things you should know about new construction before you write that check to get started:
Pricing Builders usually advertise base prices when marketing their new homes for sale. What this means is that the price you see is not the total amount you will pay for the home. The price you see is also not what you would pay for a home like the model. For those who have not built a home before, this can come as quite a surprise. The base price sometimes does not include upgrades like hardwood flooring, granite countertops, fireplaces, or even all the electrical outlets you see in the model or the very lot it sits on. Lot premiums alone can range from an additional $5,000 to more than $30,000 for the large walk-out lots at the end of a cul-de-sac backing to open space. If this is already confusing, do not despair – it is our job to help you navigate through this process. A client of ours came to us after placing a sizable deposit with a builder to secure a lot and later found that many of the things they thought were included in the price were indeed not. Needless to say, they had to back out of the contract and were hard-pressed to get their deposit back. Which leads to our next point…
Sales Representatives The builder’s sales representatives are not your real estate agents. That’s right. They work for the builder. They are very friendly, and there is no “builder” to be seen when you show up at the sales office or model. But they are the builder. Their loyalty and obligation is to the builder to sell houses. Only the real estate broker with whom you have a signed agency agreement is legally obligated to you to promote your interests. You do not lose negotiating power by having your own agent, you gain it. But you do have to let the builder know you intend to have representation at the first or second visit to the community. So be sure to have a card on hand when you visit or call us (or your agent) in advance to set it up.
Contracts A major difference that many unrepresented buyers may never know, but which has greater impact than many of these considerations, is the contracts used with new construction. Builders do not use the standard Colorado state-approved Contract to Buy and Sell Real Estate that all real estate agents must use in existing home sales transactions. Each builder has its own purchase agreement with varying terms and conditions. Unlike the Colorado state-approved contract, these purchase agreements often do not have concise and user-friendly formatting and terms. Excluding those of us who are attorneys, raise your hand if you have read a 40-page contract in the last year… Well here is your chance. These contracts make having a real estate agent and/or attorney of paramount importance.
Time Frame More often than not, time frame is a major consideration for buyers in deciding whether to build a new home or buy and existing home. However, lately it is not that black and white. Most builders have quick move-in homes available which can cut down on the time you would have to wait for a new home substantially. Instead of waiting 6-12 months for your new home, you can sometimes find a home that is already complete or within weeks of completion. But you may not get to have your say in many or any of the finishes and the incentives offered may be different or nonexistent. Which brings us to…
Incentives Builders are always offering different incentives to buyers to get them to sweeten the deal. Incentives are things that the builder is throwing in for “free” that would ordinarily tack on thousands of dollars to the base price. Some incentives may include air conditioning, backyard landscaping, design center allowance, refrigerator, or basement finish. (Yes, to circle back, those things are generally not included in the base price of a home). One catch to consider is that in order to get these incentives, the buyer usually has to finance the home through the builder’s affiliated lender. This may sound fine to some, but by shopping around a bit you may find a better interest rate for your loan or less expensive closing costs which could be close to $10,000. That is in addition to the sales price of the home and is usually cash that must be paid just as with your down payment. This is something that is often overlooked by buyers until they are in the thick of it and eager to get in to their new home.
New construction is beautiful. There is nothing like moving into a brand new home, especially one you have had a hand in designing. But it is easy to get taken in by the excitement and forget to pay close attention to the dry details like contracts and financing. Hopefully, this has shed some light on the process and a few things to consider. We would love to hear your comments and questions and help you decide if new construction might be right for your next big move.
Happy House Hunting!