Buying a new build? 5 costly mistakes to avoid

Home shoppers can’t help but feel the heat these days, with the the stock of existing housing has reached a historically low level at the end of 2021. This limited inventory, coupled with strong demand, has caused home prices to skyrocket. If you can’t find a suitable resale or just want to start from scratch, a new build can be an attractive option.

New homes offer improved energy efficiency, amenities and layouts more suited to modern lifestyles, and the ability to customize spaces that you don’t get with a resale. But if you’re not careful, costs and expectations can spiral out of control.

The good news is that following these new home buying tips can save you money and hassle. Here are five costly mistakes to avoid when buying a new home.

1. Don’t assume you can’t negotiate with the builder

The main myth that new home buyers tend to believe is that builders won’t negotiate with them on price. But that’s just not true, says Kerron Stokes, a real estate agent with the RE/MAX Leaders resource group in the Denver metro area.

“You can negotiate price, lot lines, loan fees and other things,” Stokes explains. “A manufacturer can first say no, but continue to insist. If you don’t ask, you don’t know the answer.

Hiring a real estate agent who specializes in new construction can give you extra confidence when negotiating with builders. Moreover, hiring an agent does not cost you anything as a buyer; builders typically pay the agent’s commission out of their marketing budgets, Stokes says.

2. Be sure to budget for items not included by the builder

New builds are blank slates. For example, many new homes do not come with landscaped courtyards; you get this important honor after moving in. And if you’re buying into a development that has a homeowners association, you might have a limited window to plant grass or plant trees, which can cost thousands of dollars.

Read your contract and HOA rules carefully, so you can anticipate and budget for these expenses as soon as possible. Nothing rains on a new owner’s parade like receiving a reprimanding letter from HOA pointing out something you didn’t do. Even if your home won’t be finished for months or more, get estimates for the items you’ll need to pay for and set aside money specifically for those projects.

Note that new homes are often not equipped with basics such as window coverings, toilet paper holders and towel racks or sometimes even light fixtures. Clarify what’s standard and what’s not standard with your new home so that there are no surprises once you move in.

3. Don’t choose a lender without shopping around first

Many large builders have in-house mortgage lenders or preferred companies that they work with. These may or may not offer competitive rates and terms. Unless you shop around for mortgage rates, you won’t have a basis for comparison.

Chyrise Harris is a prime example. She was pre-approved by an outside lender and was keen to stay with that company to buy a new home in the Stapleton neighborhood of Denver. But its builder’s preferred lender won its contract with a better customer experience.

“Knowledge is power, but if you don’t have anything to compare your experience to, you don’t know if you’re getting the best service,” Harris says.

When internal and external lenders compete for your business, you get more leverage to negotiate loan costs or interest rates, says Stokes, who was Harris’ real estate agent.

For example, Stokes advises to look carefully before accepting incentives offered by a builder’s lender — they don’t always save you money. “If a builder’s lender says, ‘We’ll give you $15,000 in incentives if you choose us,’ but an outside lender charges a quarter of a percentage point less in the interest rate over the term of the loan, this $15,000 incentive can be terminated. cost more in the long run,” he says. “You want to assess your loan throughout the construction process.”

4. Make sure you understand the manufacturer’s warranties and deadlines

When you buy a new house, there are two types of the manufacturer’s warranties you’ll hear about: implied and express.

Implied warranties cover potential manufacturing defects that impact the livability, livability and safety of a new home, based on local building codes and standards, says David Jaffe, vice president of the responsibility for construction and legal research at the National Association of Home Builders. Implied warranties tend to be vaguely worded and typically have a 10-year liability limitation period for builders, he adds.

Some builders offer an express warranty, which has more specific wording about what’s covered and timeframes for different parts of a new build. “An express warranty spells out the issues and remedies that a builder is responsible for, along with the length of the warranty and a mechanism for disputing issues,” says Jaffe. “Builders live and die on their reputation, so they don’t want to get into long, drawn-out legal battles; this type of warranty provides more defined terms.

Sometimes manufacturers ask buyers to waive their rights under an implied warranty when an express warranty is offered, so it’s important to read all warranties carefully. Hiring a real estate agent or attorney to review them, along with the purchase agreement, can help you avoid unscrupulous builders, Jaffe says.

Builder’s warranties are not a comprehensive warranty for all types of defects or issues with a new home. Here’s a list of items that Jaffe says builder warranties typically don’t cover:

  • Products covered by a manufacturer’s warranty (such as appliances)
  • Damage caused by normal wear and tear
  • Defects caused by lack of maintenance or negligence of the owner
  • Defects in items installed by owners or contractors other than the builder
  • Damage caused by natural disasters

Beyond reading the fine print of a builder’s warranty, be sure to also understand their timeline for the completion of your new home. Exact times will vary by builder, especially given the epic supply chain issues that have plagued the industry since the pandemic began. Make sure the builder sets out a detailed schedule for you, so you can follow and stick to it.

5. Avoid upgrades that won’t increase the value of the home

One final mistake to avoid: don’t get caught up in personalization. The options and add-ons can seem limitless when you walk into a builder’s showroom. But before you go on an upgrade spree, it’s wise to consider ones that will increase the value of the home rather than just make it look better, advises Stokes.

“There’s always a cost associated with upgrades, and some will help you realize more value than others,” Stokes says. For example, upgrading quartz countertops from laminate, or linoleum flooring to hardwood or tile, are sound investments. But if you opt for the highest tier of cabinetry that costs $10,000 more, you’re unlikely to recoup that resale value, he cautions.

Another thing to consider is the cost difference between a builder upgrade and hiring your own contractor to do the work later. Harris, the Denver buyer, had the option of including an air conditioner in his new home. She saved $1,000 by having the unit installed after she moved in rather than adding it to her build tab, she says.

At the end of the line

Buying a new home offers many advantages. But there are also many pitfalls, so buyers should pay close attention to each step of the process and seek expert help if necessary. Carefully consider all pros and cons of new construction before you sign on the dotted line for your shiny new home.

About Madeline J. Carter

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