New Home Buying Guide by Realtor specializing in Homes for Physicians

Buying A New Build Construction Home - A Guide

Buying "new construction" is a bit different from buying a previously-owned home. For one, because there is no previous homeowner, you don't have to deal with a seller's emotional tie to the property, which typically influences the negotiating process. Whether you're designing and building a custom home or buying a home that's built on spec in a new subdivision, you'll only have to work with the builder.

As with buying a previously-owned home, you have to figure out your budget and secure financing before you even begin house hunting. Get pre-approved by a bank or mortgage lender. Decide how much money you want to invest in a new home. And don't overlook the extras like property taxes, insurance, furniture, window treatments, landscaping costs and maintenance that can drain your bank account.

Buying a home is one of the largest financial transactions of one’s life and it can be intimidating for anyone. It’s important for buyers to educate themselves to protect their equity. In our market here in Dallas metro area, including cities like Frisco, Coppell, Plano, Prosper, Celina, Irving, Flower Mound, new construction homes are popular due in large part to our growth rate of over 200 new people per day.

Buying a new construction home is an entirely different dynamic than buying a home someone has lived in. You will be buying directly from a builder who has built the home with the sole purpose of selling it at a profit. This builder needs to move the new home so he can move on to his next project. In order to understand the best strategies for buying new construction you need to be able to put yourself in the shoes of the builder.

So without further ado, here is a guide to follow when buying new construction! By the end of this guide you will learn:

How to buy a new construction home
Questions to ask your builder
Things to know when buying a new construction home
Do I need a Real Estate Agent to buy a new home?
How to make an offer on a new construction home
New construction home buying process
How to identify a good builder for new construction
What to look for in New Construction and New Community future plans

Weigh the Pros and Cons

Nothing beats the feeling of being the first person to live in a newly-built home. Everything is shiny and untouched.

You can buy a brand-new home in one of three ways:

Buying a house already built on spec (also called an inventory home)

Having a semi-custom home built as part of a development (you can choose from a set palette of finishes and upgrades

Having a purely custom home designed and built to your specifications.

But before you get caught up in the sparkling new paint and granite countertops, evaluate your situation and see if new construction fits your lifestyle. Here are some questions to ask yourself, particularly if you fall within the first two methods of new-home buying:

New homes are typically far from the city center; will you mind the commute? Or they are relatively more expensive if they are in more desirable neighborhoods.
Are you willing to coax a new lawn into existence, and can you wait 20 years for sapling trees to mature?
Will the cookie-cutter nature of new subdivisions drive you crazy?
New houses tend to be built right on top of each other. Do you mind the closeness and potential lack of privacy?

Educate Yourself on the New Home Buying Process

Like so many things, it pays large dividends to begin with an education.

This guide is to help educate consumers on how to buy new construction homes from builders. Not having a strategy, the right team, and the right education could cost you tens of thousands of dollars in the purchase process.

Understanding neighborhood details and future plans will help you determine which community is right for you. This list is in no specific order as it really matters what your own priorities are.

Equally important as the new community details is the research you do on the developer or builder.

The most important part of buying a new home is the education, and you should start there. Once you educate yourself, it’s time to find money.

Team up with a Lender on a Mortgage

Any time we talk to someone who is going to buy a home, or even considering buying a home the first thing we recommend to them, after education, is to go shopping for money. Literally.

A fraction or two of a percentage point can save you thousands and thousands of dollars per year.

The most important part of the home buying process is to find the right team to work with and the first teammate you should find should be a mortgage lender.

A lot of our clients ask us ‘What do I need to know about mortgages when buying a home?’ With so many different options out there, what one makes the most sense for me?

There’s a lot that goes into choosing the right mortgage and the right lender, that’s why it’s important to shop for money early on.

With the start of any home purchase, the first thing a buyer needs to do is shop for a lender. We recommend buyers ask at least 3 lenders for their rates and options. Even the slightest difference over the course of 30 years could save you upwards of $20,000 total.

You Will Want a Realtor When Buying New Construction!

Let's start this section off by making one thing clear:

Builders pay the Agent's commission!

That's right, the builder will pay your Agent to represent you and to negotiate a better deal for you. Why wouldn't you want an Agent to represent you and ensure you receive the best deal possible?

Finding a top local Realtor® who is experienced in negotiating with builders is going to be one of the most important things you do in the home buying process. You must make sure that your Realtor is someone who is going to work well with you. Don’t be afraid of Realtors® who are transparent. You should embrace these Realtors® because they’re going to tell you the truth whether it’s pretty, or ugly.

You’re also going to want a Realtor® who is going to explain everything related to home buying process. Every Real Estate Agent is different, and it’s important that the Realtor® you’re working with one who can help you the most in the home buying process.

Once you’ve selected a Realtor®, it’s time to develop a plan. What criteria are you looking for in your next home? Your Real Estate Agent will be able to help you figure out your wants and your must haves. Now that you have your team together, it’s time to begin researching different builders in your area.

It's important to understand that looking at homes online versus in person is a completely different experience. For new construction, this article rings true because chances are the pictures you're looking at are of a home that hasn't even been built yet!

So if you are buying a home that hasn't been built, what's the most important next step?

Research the Builder when Buying New Construction Homes!

Dallas new construction is different than new construction in other parts of the country. The builders here cannot build fast enough to keep up with the consumer demand which poses a new set of challenges when negotiating the best deal with builders. That’s why it’s important for you to ensure you’re working with a top local real estate agent. They will make sure your new home is the best deal possible.

You want to find the very best builders BEFORE you go out shopping for custom homes. Researching the best new home builders and new home communities in the area is not the most fun. It's super important though. It's a lot easier than you think too. We recommend our clients start with a google search for 'best new construction builders in Dallas or 'top new communities in the Dallas area'. The time and effort you spend researching the best new construction homes will pay off in the end!

Look online for reviews, testimonials and any news you can find on each development you’re interested in. If you can connect with current residents online, through social media, you will have great informational resources to make an educated decision. Plus you want to learn about your potential neighbors as well!

Don’t be afraid to ask the builder a lot of questions (there’s a good chance he is going to have a lot for you as well).

Here are the most important questions you should answer about any builder before you let them build your home:

How long have they been in business?
How many homes have they sold?
What do their Homeowners think of them?
How many of the Homeowners would buy from the builder again?
What do other builders say about them?
What industry recognition have they received?
What does the Real Estate Professional community think of them?
What kind of warranties do they offer?
Do they have a department solely dedicated to warranty issues?
Do they have an energy-efficiency or green building program?

The best way to check out a builder is to ring some doorbells and knock on doors. Visit the neighborhoods where they build and ask Homeowners about their experiences. You should talk to at least three to five neighbors and get a consensus before you make one of the largest investments of your life.

You and your Realtor® will put a list together of the top new communities, and the top new homes that you want to see. Then it’s time to go hunting.

Learn Everything About the Neighborhood

When researching neighborhoods:

Look online for listings for new home construction.

Drive around the neighborhood and check out the amenities and the quality of the homes.

Walk the community. Ask homeowners about their experience.

Go to model open houses, keep a journal and take photographs. Don't try to cover every model house in the area in one day.

Check with the developer about potential homeowners' association (HOA) fees and rules; some are incredibly expensive -- and strict. They may not allow you to park cars on the street, certain paint colors or finish materials, solar panels or even vegetable gardens. Be sure to find out if the HOA can assess penalties for infractions.

Ask whether cable and Internet are readily available and from what companies; your new house will be wired for cable but that does not mean the cable company offers service to your neighborhood.

If the development is still under construction, you'll be dodging giant contractor trucks and facing jackhammering at 7 a.m. for a while.

Research the zoning laws for the neighborhood, as they can change quickly.

Visit the city planner's office to see what's in store for a particular location.

Ask your agent about plans for the area.

Whether you're buying a new home that's being built or building a new home from the ground up, you can choose the builder you work with.

Creative Negotiations When Buying New Construction

You want a Realtor® representing you during negotiations for your new construction home. You might think that by cutting out a Realtor® you’ll receive a better price, however builders are highly unlikely to budge on price. This is why you need an expert to work for you during negotiations. Someone who knows the ins and outs of securing you the best deal possible.

You want the best deal possible right?

Everyone wants the best deal possible and sometimes that doesn’t necessarily mean a lower price. This is especially true for when you’re making an offer on new construction homes. Often times buyers, will assume the best way to negotiate with a builder is to have them drop the price. This is not the case. The best way to negotiate with builders is upgrades!

Builders are reluctant to drop their prices because they need to maintain a certain value for their neighborhood, and future buyers. This doesn’t mean they will not drop the price because they often will, it just means that you will get more from negotiating upgrades. Giving upgrades to consumers is an easy way for them to maintain the value of the neighborhood while giving the customer a deal in a fashion that won’t upset the neighbors (who probably just purchased a home).

Make Sure Everything is in Writing

If you’re working with a respectable builder there is a good chance they will honor what they say, however they may truly forget the promises they made to you.

‘Words spoken fly through the air, words written are forever there’ - This is something my Grandma taught me from a young age, and it’s a pretty catchy phrase that has a high importance message! Anything that is verbal is not a guarantee, that’s why you must have everything in writing or it’s in no way shape or form binding.

Working with a builder without a Realtor® could cost you thousands of dollars because they know how to negotiate.

An experienced Realtor will ensure that everything is in writing and will make sure the documents are signed.

You're Buying a New House, not the Model Home

Typically the model home that builders have their prospects walk through are full of all the upgrades and amenities so it’s important to understand what your model comes with and what your model doesn’t. You can sometimes offer to buy the model home if that’s the one you’d like to purchase.

When you see a car on display it’s always the upgraded version, new construction homes are the same.

Ask the builder about amenities and upgrades. Amenities are features that benefit the entire community like a clubhouse, health and fitness center or a gated entrance. Upgrades refer to added features or items you pay extra for to enhance your home, like certain types of flooring or appliances.

Get a feature sheet on the line of homes you're interested in and read them very carefully, then compare feature to feature. Find out what comes with the base home price. You will be surprised most of the times!

If you don't understand exactly what the builder is offering, ask and take notes. There are no dumb questions. Not knowing can cost you real money. Some things to keep in mind:

If the stove is included, visit the showroom to see the model. If you're offered the basic stove and you're a gourmet cook, it makes sense to buy the upgrade.
Make decisions on upgrades early in the process -- every change costs money.
Have a good idea of what you need and want. They are two different things when it comes to upgrades.
Builders rake in the cash on upgrades because they can get parts and labor relatively cheaply. The markup is huge, so investigate each option you're considering to see whether it would be cheaper to bid it out after you move in. And you have to generally pay for upgrades in advance when you sign a contract for a new home.
Builders, in general, need to sell quickly to make a profit. If you're stuck haggling over price, get them to throw in the upgrades you want at a reduced cost or for free -- it's a way to get more value that's appealing to both sides

As the tip before this one said, and it’s something we can’t stress enough - Make sure it’s in writing! Our suggestion is to write everything down that you like about the model home, even the colors so that the builder is fully aware of what your interests are. A home that hasn’t been built yet can be customizable to a certain degree, however the builder is going to have limitations on what he or she can and can’t do. Ultimately, the cost will change as you begin to add things you want so be wary of price as you start asking the builder for features in your new home.

New Construction Home Guarantee

When you buy new construction real estate, you’re sometimes buying something that doesn’t exist yet. As mentioned above, and it deserves repeating, make sure everything is in writing and that your builder will give you a guarantee. Having a strong Realtor is important to make sure you’re covering all of your bases - you wouldn’t go to court without a lawyer, and buying new construction is no different.

An example of one thing you’ll want to have guaranteed by the builder is a completion date, especially since you may have to make living arrangement until the new home is built. A home warranty is another important question to ask which we will cover later on in this article.

Inspection and Home Warranty

Once you decide to buy a new home, make your sales contract contingent on a final home inspection by a professional you hire. Never assume that because a home is newly constructed, it isn't going to have defects. Municipal inspections for code violations are nowhere near as thorough as an independent professional inspection. If possible, have the home checked during each phase of building, when potential problems are easier to spot. If the builder objects to this, consider it a red flag.

Protect yourself with warranties. All new homes come with an implied warranty from the builder stipulating that any major defect of the structural integrity of the home must be repaired. Ask for a builder's warranty for a period of time following move-in (a year, for example) that covers any defects in craftsmanship. Preferably, this warranty should be backed by insurance.

Home warranties vary in length, what they cover and typically run from one to 10 years; the manufacturer covers appliance warranties. Make sure any warranty you receive explicitly states what is covered and what isn't, and what the limitations for damages are. For extra peace of mind, have your real estate attorney look over the warranty to make sure it's kosher.

What's Covered In A New Construction Home Warranty?

Typically builders will have a home warranty they can give you however it’s not uncommon for a builder to have a third party involved in a home warranty.

Coverage for new construction real estate varies from builder to builder. You’ll want to ensure you have a proper understanding of what is covered by the builder or other companies that were involved in the creation of your new home. Sometimes you can negotiate the warranty in to the deal or add provisions to cover things the warranty may not normally cover.

A final walk-through is necessary before you complete the purchase, so make sure it's something you plan for, prior to closing on your new home.

The Future of Your Neighborhood Is Important

One important step that a lot of people may forget is that you’re going to move into this home to live there. What does the future of the new community look like, how about the future of the city? Are there certain priorities you have in a neighborhood you’re going to live in amenities wise? There are a lot of neighborhood details you should consider when buying a home.