It pays to know what to expect when building a home, it is nothing like buying an existing home. Once that contract is signed, you the buyer, become a passenger on the construction bus. A paying passenger, but one that has very little control over the process. Building a home can be a great experience but if you’re unfamiliar with the process it can be combative and nerve wracking. It’s no secret that like everything else, preparation is vital. Understanding your role in the process, what to expect during the build and how to work with the builder as issues come up are key to success. This short post will enlighten you about what to expect before the shovels hit the dirt; the more you know, the better.
The Builder
No one works for free; builders operate to make a profit and they deserve to do that. They incur substantial risk, pay many expenses upfront and bet heavily on the return – the sale of their homes for the desired profit. The majority of builders are “production” builders; they offer variations of base models and provide mainly finishing levels as options. The point is to build the home on schedule, maximize use of labor and minimize time and material wasted. To do this, it is essential that they control the process, and they do that from the second you sign the purchase agreement.
The Agent in the Sales Center
Never, ever, misunderstand the role of the sales agent at a new home community. Their singular role is to seduce you into writing an offer; that constitutes success for them. To assist in that endeavor, many will work out of a “model home”; this is a playground for buyers. Models feature options designed to fuel the seduction, help you see yourself in that home and get your imagination rolling. Builders study what buyers want and feature those options in model homes. The agent is there to ensure that the fantasy sticks, that you see yourself in the home and that you’re motivated to write that offer right away. If you do not use your own agent, you will be subject to “dual agency” and that friendly sales agent is legally bound to represent the best interests of the builder, not you. And they will. Learn how to select a skilled real estate agent and treat this process like it is – one of the most expensive things you will ever do.
The New Construction Contract
Most every aspect of the typical build is tightly controlled by the builder. Designs, options, prices, upgrades, schedules and the contract itself are intended to maximize efficiency and profit.
Almost all builders use their own contracts; there is no changing it. Since many in the area are nationwide, they are often long and cumbersome since they are used in several states. The contract is not a neutral document; in fact it is heavily skewed toward the builder. It is routine that at signing, you provide an initial deposit. Within a set number of days, you are expected to “prequalify” with the builders preferred lender, make finishing selections, make additional deposits as required and meet with the actual builder to review the process. Note that there is no due diligence period, you are expected to have already researched prices, the area and anything that matters to you. There is rarely an appraisal contingency; builders don’t care what you add to the home as long as you pay for it – but they are not risking the deal on a low appraisal. The community agent should walk you through the contract and hit every milestone and everything expected from you. Pay very close attention.
The Negotiation Process
Builders do not typically cut price. The main reasons for that are to maintain “value” in the community, reduce appraisal issues and maintain reputation. Builders will consider adding “upgrades” as incentives if required; this allows them to appear to be making big concessions while limiting their actual cost because the spread between cost and price is so great. On occasion they will offer “incentives” on options; “20K in options for the next 14 days” which sounds wonderful until you realize it’s off ridiculously inflated prices and that 20K amounts to about 5K after market. Lot premiums are another often confusing variable. Often there is no tangible reason for a “premium” and these are nothing more than junk fees. They will however, remain. Speaking of junk fees, just about every builder has a “preferred lender”. Many national builders have their own mortgage companies and coincidentally, they are the preferred lender. These lenders often offer “seller contributions to closing” if you use them. No one gives money away and that give back is buried in the mortgage somewhere; always shop the mortgage options. There are ways to negotiate, they’re just outside of the box.
You Need a Buyer’s Agent
The role of an agent with new construction is different than that with existing homes. An experienced agent is a watchdog during the build and a mouthpiece when things go sideways – and they will. Always use an
agent,
experienced, knowledgeable agent.
A buyer’s agent is essential for new construction. You pay nothing for representation; that is paid by the builder. You will save nothing not using an agent; the broker representing the buyer is contractually obligated to pay the commission regardless if it’s shared with another broker. A quality buyer’s agent is your watchdog; from researching data ahead of writing a contract (remember no due diligence with new homes), helping along the way with design and options, suggesting options for lenders, monitoring and visiting the build to ensure plans are followed and acting as a hammer if and when needed. The site agent will be pleasant but they represent the builder, not you. When issues arise – and they will – they are legally required to represent the builder’s best interests, not yours. Builders know agents talk and an unhappy agent yapping about builder problems is bad for business. Builders depend on the agent community liking them, you should leverage that fact.
Wait, There’s More
This only scratches the surface of what to expect when building a home, the real dancing often starts as construction begins. At that time you’ll be faced with many fun experiences like assorted mistakes, miscommunication, shoddy work, incorrect finishing materials and things that range from annoying to downright problematic (like site issues). It’s easy for new home buyers to walk into trouble, the importance of getting educated and working with a professional buyer’s agent cannot be overemphasized. The next part of this series will be out soon!
The Hank Miller Team Advantage
We provide confidence to our clients buying and selling homes in the North Atlanta real estate market. Our unmatched sales and appraisal experience, relentless drive and ability to manage transactions allow our clients to make sound, decisive real estate decisions. We offer full time, full service, personal, hands-on attention and concierge level service every step of the way for perhaps the most important financial decision you’ll make.
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