Seven things you need to know about buying new construction
A year ago I helped my clients sell their 4 acre home in Horseshoe Bend. It was a lovely property, but they found themselves missing home, and wanted to move back to California. I told them then, "I'll see you in a year." And wouldn't you know, almost exactly one year later, I helped them buy a new home here in Meridian.
For some time we have had several contending production builders in the Treasure Valley. Long before I was an agent, friends and family would talk about their experience and their opinion of the homes that they purchased. And in very recent years, there are more production builders coming into our area. Some are national builders. It has been an adjustment. Working with out of state buyers it is clear to me that real estate is not done the same way everywhere. There are tactics and strategies that are more common in other areas that in Idaho are rarely practiced, if at all. Today we will be focusing on the practices of production builders.
I will preface this with saying that there is a buyer for every home. There is a buyer for every price point. Production builders do a great service in the Valley by fulfilling an ever growing need. That said, here are the key takeaways of buying a production home.
#1 The agent in the model home is not your agent. Their job is to represent the best interest of the builder. It is not in the builder's best interest for their sales people to represent your best interest. Only a buyer agent that you hire (by signing a representation agreement) can truly serve you. In most cases, the agent will represent you as a "non agent" their only duty to you is to do what is needed to get you to closing. Whether or not you are paying the right price, could negotiate closing costs be paid by seller, or any other fees, inspection repairs, etc are not things that they are going to do for you.
#2 You should hire your own buyer agent, and one that is familiar with new construction. Familiarity is important. Builders will use their own contracts. For reference, when presenting an offer on a resale home both agents will use contracts provided by the Idaho Association of Realtors. These contracts are developed to protect the agents, the seller and the buyer. A builder's contract will not have as much protection for you. It is important that your agent can go through the contract with you and look for anything that will cause an issue for you. So an agent that is familiar with tht builder's contract is a very good thing.
#3 The builder can deny compensating your agent. This is a tough situation, but it happens quite often, especially with national builders. Perhaps you are driving around and visiting open houses and you decide to pop into a builder's model home. Upon entering you have a greeting with the agent on site. Maybe you get on their email list for upcoming floorplans and new phases. You may have given that builder procuring cause. A procuring cause in real estate transactions refers to the real estate agent or broker whose actions resulted in the sale. The agent that is deemed to have procuring cause is the one that will be compensated for the transaction. It is vital that if you want your own agent in your own corner that they be with you in every model home you visit. The worst case scenario is that you have a buyer's rep with your agent, the builder refuses to compensate them, and you have to pay your agent out of pocket. Just be careful and talk to your agent about any and all homes that you are interested in. Let them do all the leg work for you, that is what we are here for.
#4 Hire your own third party inspection. The builders themselves are not the painter, the plumber, the electrician, or floor guy. Subcontractors come in and do what they specifically are hired to do. And they have to do it on a mass scale and as quickly as possible to get through them. Mistakes will be made and mistakes will be missed. As your home is closer to completion you will want to have someone come through and notate every little thing they can find. The good news is that builder's will fix 99.9% of what you request. The home will have a warranty after all, might as well fix it now. Also, do not be surprised if that list is the length of your arm. The most items I ever wrote on an inspection contingency release was over thirty items. It was on a high end custom build. Don't worry, that's normal.
#6 Non Refundable earnest money (EM) and cancellation fees are common in builder contracts. While this is negotiable, when the market is hot for builders they are not as willing to compromise on these two things. Some have non refundable EM and some have both that and the cancellation fee, as they are not the same thing. Understandably, builders are buying supplies and hiring out labor during the course of your build and it makes sense for them to want security moving forward on the project. There are a couple things that frustrate me with this practice. First is when you are wanting to purchase a spec home (a new construction build that is nearly complete or completed at the time you go into contract) and they still want non refundable EM. Like, why? In my opinion, the risk is nill and we should move forward the same as a resale home. Now, there are custom builders that I have worked with where a standard purchase and sale agreement is acceptable when it is this finished. Those are the builders I like and keep bringing people to. The second is that these things are not going to necessarily be discussed up front with the buyer agent or the buyer. It is simply in the contract and you really do have to read through it to find it. I won't name names but I've seen nonrefundable earnest money put into a listing agent's builder contract without any discussion and I have heard of buyers having to pay out tens of thousands in cancellation fees that they were completely unaware of.
#7 Delays happen, and closing early is challenging. I've had quite a bit of experience with both of these situations. The delays were exorbitant during the pandemic when supplies were short. I've also had buyers have to pick out alternative finishes mid contract due to the inability to get what they originally contracted for. I think the worst I heard was someone canceling their contract because after ten months the build hadn't even started and they still had to pay the cancellation fee. It is brutal there! In most cases, a week or two delay is not uncommon. I only share the extreme because if your contract doesn't have protections in place the worst can absolutely happen. This last closing I had with the above mentioned clients had an extended timeline for closing. We wanted to allot enough time for them to close on their contingent property in California. It just so happened they were able to close a couple weeks earlier than expected. It took being a very squeaky wheel to move up our closing date. Even if everything is done, when you are working with a production builder, you are in line to close. They have everything on a schedule and cutting the line can cause delays for them on other properties. So they are resistant to moving the date. You want a persistent agent. Chris jokes that I am a dog with a bone when it comes to my client's needs. Needless to say we closed two weeks early.
I could go on and on with this one topic. But perhaps I will leave that to a future coffee or lunch meeting with you, if you decide that new is best and want the best representation. The key takeaway is that the right agent is worth their salt. It is so important to lean on someone with the right expertise. Buying brand new can feel so rewarding and amazing, but leave your deal in the wrong hands it can really spoil the experience.
We are really quite blessed to be with such an amazing brokerage. As agents of Better Homes and Gardens Real Estate 43 Degrees North, we have access to so many custom builders in the Valley. We are "in the know" regarding new neighborhoods. And we have many agents in our brokerage that are listing agents in our communities. We really do have a team minded atmosphere at our brokerage and we cherish the relationships that we have with our fellow agents. It truly is a benefit to our clients that we are able to work together so well.
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