New construction: secrets your buyers should know
Purchasing a new-construction home is different from buying a resale home. Here are some tips and items to keep in mind if you have a client interested in purchasing new construction.
Most builder prices are influenced by the following:
Location
Cost of the land
Size of the home
Cost of the building materials
Labor costs
Real estate market conditions
Builder impact fees
Purchasing new construction is usually more complicated and intimidating than buying a resale home. It is important with a new-home purchase that a buyer hire a real estate agent to represent them in this process. This agent should be a local expert and have experience with newly constructed homes. Builder contracts and the building process is different from what most real estate agents deal with on a daily basis, so having new construction experience is important.
As a real estate agent who specializes in an area with a lot of new construction, buyers ask me all the time if they can use a real estate agent when they are purchasing new construction. The answer is yes.
In general, builders’ model homes are staffed by agents who work directly for and represent the builder. A buyer also needs to have a real estate agent who represents them and looks after their best interests.
Home construction loans explained
Financing the construction of a home requires a different kind of mortgage than when you buy a new or older home. Here’s what you need to know about getting a construction loan.
What is a construction loan?
How do construction loans work?
Types of construction loans
Factors to consider about construction loans
How to get a home construction loan
How to find a home construction loan lender
What is a construction loan?
A home construction loan is a short-term, higher-interest loan that provides the funds required to build a residential property
A construction loan can be used to cover the cost of the land, contractor labor, building materials, permits and more. It’s important to discuss these items with your lender, specifically what will be included in your loan-to-value calculation,
How do construction loans work?
Construction loans usually have variable rates that move up and down with the prime rate, according. Construction loan rates are typically higher than traditional mortgage loan rates. With a traditional mortgage, your home acts as collateral — and if you default on your payments, the lender can seize your home. With a home construction loan, the lender doesn’t have that option, so they tend to view these loans as bigger risks.
Because construction loans are on such a short timetable and they’re dependent on the completion of the project, you need to provide the lender with a construction timeline, detailed plans and a realistic budget.
Things To Do If Your Contractor Doesn’t Finish The Job
Remember having a detailed contract (even just an itemized bill for smaller jobs) with a payment schedule that reflects milestones (work actually completed), doing a background check, and checking references can help protect you during a renovation but what if you do everything right and still get left high and dry by your contractor with an incomplete or unsatisfactory job?
The number one way to deal with a bad situation is to discuss the issues with your contractor. Having an open and honest discussion based on mutual respect goes a long way and depending on the scope of the project you should be having weekly updates either in person or via email (I always encourage to have a paper trail). Most importantly, understand the reasons for the delays, etc. and find an amicable solution.
Make sure you have documented all your attempts to reach your contractor with phone calls, texts, and emails.
If the job is incomplete and a solution cannot be found, you could stop paying the contractor, fire your contractor and/or hire another contractor to complete the job (remember to keep a paper trail of work completed and costs).
Do a name and company search on your contractor with the BBB (Better Business Bureau, Chamber of Commerce and city for information on the contractor). The Better Business Bureau can offer arbitration services for disputes between consumers and businesses for low or no fees
Hidden Costs of New Homes That Can Burn Buyers
Many homebuyers think that purchasing a newly constructed home is smarter than purchasing a “used” one. A brand-new home’s maintenance and repair costs should be minimal; its construction materials, systems, and appliances should be up to the latest code and energy efficient; the floor plan and amenities should meet the needs of contemporary living, and the place should be move-in ready. A brand new property also has an emotional appeal for buyers: No wear-and-tear, and no dealing with someone else’s taste or mistakes—or so the reasoning goes
What many buyers don’t realize is that new homes still often have numerous hidden costs. If you’re purchasing new construction from a builder or real estate developer, here’s what you should look out for to make sure you’re spending your money wisely and don’t incur any unpleasant surprises.
KEY TAKEAWAYS
Buying a newly constructed home requires almost as much attention to detail as buying a previously owned one. Inspect a new home carefully, as it can have hidden defects.
When viewing model homes, understand what’s standard and what constitutes an upgraded feature, which of course will cost you more.
You should have your own real estate agent and research your own mortgage—don’t assume the builder’s terms are the best.
Hidden Defects
Just like an older home, a brand-new home can contain several hidden, or “latent,” defects that could require expensive repairs. A weak slab could crack. Siding could fall off. The wood floors could warp. Your toilet could overflow. Electrical wiring could be done incorrectly. Heavy rains can reveal inadequate waterproofing or grading that leads to leaks or flooding. Any problem that you might be afraid to find in an existing home can also appear in a brand-new one.
To protect yourself, research the builder’s reputation along with the subcontractors used before you commit to a purchase. And always pay for a thorough inspection by an independent home inspector who is not affiliated with the builder.
How To Choose The Best Builder For Your Dream Home
Not sure how to make that very important final decision?
For many, building a new home may only happen once, so it is vital to select the right building company to bring your dream home to life.
Specialist.
Start by finding a building company who has extensive experience and specialist expertise in the type of construction work you’re after. Whether that is; a custom-built new home, an extensive renovation, multi-residential development, mixed-residential development, commercial fit-out or refurbishment. You want a specialist team who knows exactly what to expect in any situation.
Trustworthy.
The first step in your journey to a successful build is to meet with the building team. It is important to find a builder that you like and trust with your dream home build. The way the builder treats you throughout this initial process is how you will be treated during the build. Ask yourself, were they prompt in returning phone calls and emails? Did they make themselves available to meet in person? Did they offer feedback and advice regarding the building process? A reputable builder will offer guidance regarding specifications and suggest ways to reduce building costs without compromising the standard of the build
Professional.
So how can you be sure that the builder is going to be professional throughout the building process? When interviewing builders, ask about their proven build process. If the builder mentions they use an online project management system, you can feel confident that they are among the most professional in the industry.
Comprehensive.
When receiving a quote from a builder, you would expect the quote to be accurate and detailed. If it is not, then be prepared for extra costs to occur during the build. When quoting a home build there are many things to factor into the final price. A briefing meeting with the builder and client should be set up to determine what needs to be included in the home. These meetings can take a couple of hours but are a vital part of ensuring that what you envisage to be included in your new home quote actually is.