New Construction Buyers Guide
Hello, my name is Joe Bjorklund. I am a Realtor specializing in new construction homes in Clark County, WA. I am also the creator and owner of ClarkCountyHomeBuilders.com. Every day of the week I talk with home buyers looking to buy a new construction home. Some buyers are buying their first home and some are downsizing into their last home. Some are buying completed homes and some are having a custom home built. In all cases, they have lots of questions about the new home buying process. With that in mind, I decided to write this new construction buyers guide. I hope you find the information to be valuable to you as you begin this process.
Should you hire a Realtor for new construction?
The simple answer is an enthusiastic YES. I will start with the most obvious reason to have a buyers agent – Having a buyer’s agent represent you in a real estate transaction if FREE to you. In day to day real estate transactions, the Realtor is the interface between their clients (you) and the Realtor representing the builder. The Realtor searches for homes and arranges appointments to see homes that the buyer is interested in. At the time that the buyer wants to proceed with an offer on a home, the Realtor consults the buyer on the terms of the offer to be made and generates the necessary paperwork and reviews it with the buyer. Once you are 100% comfortable with the offer and items requested, your Realtor presents that to the builders representative. The Realtor is YOUR representation in this often complex negotiation. With new construction, there are even more decisions to be made and taking on that task without a Realtor is just not a wise decision.
Myth: You can get a price reduction from the builder by not having a Realtor
This is the most common misconception in the new home buying process. Buyers assume that if they walk into the builder’s “sales office” that they are buying directly from the builder and getting a better deal. The simple truth is that the builder has his costs to build the home. Just as the roof, foundation or plumbing is part of his costs, so is the buyer’s agent commission. It is built into the published price of the new home. In most cases, the “sales rep” in the model home is a Realtor that represents the seller. When you enter an agreement to purchase a new home via the on site Realtor, you are entering into what the real estate industry calls a dual agency relationship. Dual agency means that the Realtor you are working with is paid both the sellers and buyers commission and represents both parties. Now think about this for a second. If you run into some challenges (and you will) as your home is being built, do you want the person between you and the builder to be someone that makes the bulk of their income from that builder. How in the world can you expect them to be an advocate for you with this relationship in place?
To add to that point, most builders actually prefer that the buyer is represented by a Realtor. There is a lot of paperwork and decisions to be made before and during the build. The builder is in the business of managing sub-contractors and working with municipalities to get homes built. They are not very well equipped to deal with directly with buyers throughout the build. When the buyer is represented by a Realtor (especially one that specializes in new construction) the builder has someone to help them manage the questions and concerns that the buyer will have. Again, they have this buyer’s agent commission built into the price of every home and it is no cost to the home buyer so GET A REALTOR THAT KNOWS NEW CONSTRUCTION involved in your home search.
Pre Approval by Lender
The process of reaching out to a lender and getting pre-approved for your new mortgage is actually one of the most important steps in the home buying process. A pre-approval letter from a reputable mortgage company is one of the most important tools you can have in the search for your new home. In a good real estate market like the one we have in Clark County, there are hundreds of new construction home buyers actively looking at homes. Many of the homes are the same ones that you are interested in.
Let me give you a scenario: It is a nice sunny weekend and you have been looking at several new home communities. You stop into one of your favorites and learn that the lot you have your eye on is now available to build on. You and two other interested parties inform the builder of your desire to purchase the lot and build your dream home. All of the offers look the same however one of them includes a copy of the buyer’s pre-approval letter. It is an easy decision for the builder. He will take the offer that he knows in advance can qualify for the loan on the home. Many builders have their own in-house or preferred lenders as well. They often offer incentives like reduced closing costs or upgrades to the home at no charge for buyers using their in-house lending partners. Whether you use the builder’s in-house lender or you plan to use a different mortgage option, the moral of the story it; GET PRE-APPROVED!
This section is not necessarily related to new construction and is pretty much common sense but I wouldn’t be doing my job if I didn’t at least mention a few points. I always tell my clients that are looking at a new home community to focus on the things they do not like. It is easy to find all of the things you LOVE about a new home so trying to find the negatives allows you to make a better decision.
Location: This is a feature of the home that you can never change. Do you like the area? Is it near the stores that you shop at? Is there freeway noise?
Schools: This is the biggest decision point in my real estate career. 9 out of 10 buyers are looking at the schools that service the community and making a decision with that data in hand.
Surrounding Neighborhood: Many of the new home communities are what we refer to in the business as “in-fill” communities. This means that a parcel of land exists in between existing communities and a developer turns that into a new home subdivision. Your new home and the homes in the community are beautiful but what does the area look like once you leave your neighborhood? Something to think about.
Commute: This may seem like an obvious one but you would be surprised how often this gets looked past when making the decision on where to buy. That hour long commute doesn’t seem so bad when you are looking at brand new granite countertops, 10 foot ceilings and a soaking tub. Trust me when I tell you this; the new home romance will wear off pretty quickly when you are trying to get home for dinner and you are stuck in traffic for 3 hours. Please give this one some extra thought.
Builder: These are the people that are making every decision about the quality of your home. They hire the subcontractors and pretty much determine what the end product will be. Do your research here, it is very important. If you are buying in Clark County, WA you can call me and I can help you through this step. See my “Good Bad and Ugly” post on ClarkCountyHomeBuilders.com. If you are out of the area you can use resources like the BBB and Yelp. If they build a bad home or miss deadlines, you will find out pretty quickly with just a web search. Most of the builders are very good but there are still some bad apples out there. Caveat Emptor – Buyer Beware: The term is actually part of a longer statement: Caveat emptor, quia ignorare non debuit quod jus alienum emit (“Let a purchaser beware, for he ought not to be ignorant of the nature of the property which he is buying from another party.”) The assumption is that buyers will inspect and otherwise ensure that they are confident with the integrity of the product (or land, to which it often refers) before completing a transaction.
The driving factor for most new construction home buyers are the features of the home. Everything is brand new, shiny and under warranty. While the features of the home are the biggest driver in the decision, they are often the the cause of an unpleasant and disappointing buying decision. In some cases, the choices are very simple. Some builders have a preset bundle of features and finishes. For example, package A may be their basic package with carpet, vinyl flooring and tile countertops where package B may be hardwood floors and granite counters. The challenge with buying a new construction home is gaining a complete understanding of what you are getting and at what price. Remember that the home you are standing in when you are talking to the sales agent is their model home. In most cases it has every available feature and the home that you are buying may not. So when you begin your research of home builders and features that you want in your new house, carefully read the standard features list and if there are any of the items that you don’t understand, ask lots of questions until you do. Trust me when I tell you that this will make your purchase much more enjoyable.
Premiums and Upgrades
This can be a tricky area. As a new home buyer, you will see hundreds of home features that you like. As I mentioned earlier, the model homes that you have toured are loaded with premium features that will add to the purchase price. Your challenge as the buyer is to determine which of these features you must have and which you can live without. One of the largest upgrades in the real estate industry is a “lot premium”. A lot premium is an additional charge for a superior lot location in the community. This is where my opinion comes in. In my opinion, the lot premium is the best money spent in the entire new construction home buying process. If you think about it for a minute, the location of your home is the only thing that can’t be changes down the road.
Let’s look at an example of a transaction that I managed in 2016. The buyers had a budget of around $425,000. We found them a new home community that they loved and it fit their budget and school locations very well. We toured the available building lots and discovered that the lots on the south side of the community were “greenbelt lots” which will never have homes built behind them. These lots however, came with a $9,000 lot premium. With the features in the home that they had chosen, this put them over their budget. I mentioned to them that the lot is a permanent choice and features like the central vacuum and security system could be added at any time. They ended up choosing the lot with the premium on it and did “rough-in” for the vacuum and alarm. The trade off was pretty much a financial wash and they proceeded with the build. A few months after they moved in, the builder started on phase 2 of the community. The new road to phase 2 ran right behind the lot that they had originally chosen with the upgraded home features. Needless to say, they are much happier with their private backyard and plan to add their security system and central vac next year. IF YOU CAN AFFORD THE LOT PREMIUM, DO IT.
Unlike buying an existing resale home, there are several timing considerations when looking at new construction. In some cases you will be able to visit a community and they will have “spec” (short for speculative) homes to evaluate. These are homes that the builder has already chosen the features and finishes of the home and in most cases they buyer can not make any changes. From time to time you will find a community that has some spec homes in the early stages of construction and the builder may allow you to choose things like paint color, carpet and tile. Items like cabinets and granite or quartz countertops have to be decided on very early in the process and are often not available to change. When looking at spec homes, it is important that you understand the timing from when you make your offer to when the COO (Certificate of Occupancy issued by the County) is in place. Most builders have a strong understanding of their schedule and when each home will receive their COO. As a rule of thumb, if you see a home at the foundation or early framing stage, you can estimate about 100 days until complete. If you find one at the cabinet and paint stage, you are closer to 30 days out.
If a spec home is not what you are looking for, there is the option to build a “custom” home. The term custom often scares buyers because they think custom means expensive. Custom simply means that you work with the builder and pick almost every element of your new home before they start building. More on the custom process later in this article. We are simply talking about timing here. After working with almost every builder in Clark County and countless home buyers, I have a custom home timeline that has worked for me in most cases and builders.
Reserve lot, work with builder on features/finished and write offer 1 Week
Visit design centers to choose finishes and styles (lighting, floors etc.) 3 Weeks
Building permit process (out of your hands) 4 Weeks
Actual construction from foundation start to COO 16 Weeks
This adds up to around 6 months. I know that look like a nice round easy to pick number but that is actually how it breaks down This number can obviously vary for a lot of several reasons like weather, permit delays, size of home, etc but if you plan on a 6 – 7 month process from start to finish, you will be pretty close.
Real estate is an interesting industry. In most markets the seller lists their home at a price above what they really need to get. They assume that the buyer will make an offer below that and they will settle on a number close to the one they wanted in the first place. This back and forth process is not only commonplace but actually expected in most cases. The exception to that is in the new construction home buying world. Builders are almost like retail stores. Imagine walking to the checkout stand at Home Depot and telling the cashier that you would like to offer $479.00 for the table saw that sells for $649.00. They would look at you like you are crazy. There are several reasons for home builders to take this hard line on discounts but the main reasons are word of mouth and appraisals. Think about it. If a home buyer got a “deal” from a builder for some reason and the word got out, every buyer that paid retail in that community would be enraged and future buyers would want the same deal. The second reason and probably the more important of the two is the appraisal values of the homes going forward. OK, here is how that is a problem. If the buyer on lot 15 negotiated a $10,000.00 discount on the 2,200 square foot Hampton plan, then the appraisal on future sales in that community will reflect the lower pricing which will have an impact on the future appraisals. If appraisals come in low, banks will not loan to the higher amounts. If banks won’t loan, builders don’t sell. You get the point.
Now that I have burst your bubble on the potential of getting a better deal than full retail, there are some negotiating strategies that can save you money without asking the home builder to lower their price. Any Realtor that is familiar with new construction, as I am, can explain these strategies to you. This is where I enter one of my shameless plugs. If you want to know how to get a better deal from a builder, visit my website at www.ClarkCountyHomeBuilders.com.
When a buyer makes an offer on a home that they like, they typically use the forms provided by their Realtor. Theses forms provided by their local MLS and are the standard on most every transaction. In new home construction the home builders typically have their own purchase and sale documents. There are enough nuances in a new home construction sale versus a resale that over the years the builder community has created its own set of documents. The wording in their documents is there to protect them during the build process and sale. Now with that said, even though these documents are geared towards protecting the builder, they are not necessarily problematic to the buyer. Most builder documents are fair to all parties involved and are merely there because standard off the shelf forms don’t do a very good job of addressing the issues that come up during the home construction process. Since these documents are different from the forms used in day to day real estate, it is very important that you and your Realtor read them very thoroughly and make notes on anything that you do not understand. Due to the fact that most Realtors do very few transactions with home builders, it is a very good strategy to partner with a Realtor that understands these contracts and how to manage them.
New Home Warranty
Aside from all of the new beautiful features of the home, one of the great benefits to buying new is the fact that the home is under warranty. Depending on the state, most homes come with a standard 1 year warranty. This warranty protects the home buyer from defects that may have occurred during construction but make themselves visible after the home has been lived in. Items such as failed HVAC, plumbing problems, roof leaks, cracked drywall and electrical issues are covered under the home’s warranty. Defects caused by normal wear and tear as well as neglect are obviously not covered under the warranty.
Along with the one year warranty that the the builder provides, many home buyers opt for an extended warranty. These extended warranties can be purchased by the homebuyer at the time of construction completion or in many cases this is a standard offering from the builder. One of the warranty programs that many of my clients are covered under is called a 2-10 warranty. The entire home is covered in the first two years including the systems of the house. Systems include, but are not limited to air conditioner, electrical, heating, and plumbing. The 10 in the 2-10 warranty is a 10 year coverage for structural items such as floor framing, columns, beams, footing and foundation, load bearing walls and roof framing systems. As a Realtor that specializes in new construction, I make sure that every one of my clients is covered under a comprehensive home warranty. GET A WARRANTY
This one is a coin toss and really comes down to personal preferences. In a traditional real estate resale transaction the buyer hires an inspection company to look at every aspect of the home being purchased. They inspect the entire home looking for any defects or anomalies that may be present. They check the roof, crawl under the home, inspect the attic, test every switch and plug and even run the dishwasher among many other tests. The goal is to give the homebuyer a complete “check up” of the home to decide if they need repairs to be done or even go through with the sale.
With new construction, the story is quite different. The home was built with all new materials and has never been lived in so there is no wear and tear. Every step of the build was also inspected and approved by the local city or county which guarantees that everything is up to code. The home also typically comes with a warranty which is also very comforting to a home buyer. Since the inspection is an out of pocket expense to the buyer, based on the points above I have had many new homebuyers forgo the inspection and save the money. As I said, it is a coin toss.
The Walk Through
The pre-move in walkthrough is also known as the “blue tape” walk. That term comes from the light blue painters tape that you find in any hardware store. This walk through typically happens after COO (Certificate of Occupancy) and before move in. During this meeting, the builder’s project manager and the homebuyer walk through the home looking for areas that need attention. Items such as nicks in wall paint, uneven cabinet doors and scratches to woodwork are quite common in this homeowner inspection. The builder’s representative will tag everything with a piece of blue tape which tells the subcontractor trades what needs to be repaired prior to move in. I have been through many of these walkthroughs and every one has been different. If I had a bit of advice to give here I would tell new construction homebuyers to approach this meeting with some patience and understanding of the building process. Even though the home is brand new, it is impossible to get your new home to be perfect. Work with the builder on the obvious imperfections and items that need attention but try and be reasonable about trying to make the home perfect.
As a National Association of Realtors GREEN Certified Realtor (yes, there is such a thing) I am constantly talking to buyers about “green” features and benefits. This is a huge topic but I will give you my thoughts. Green building can be broken down into three main categories. They are sustainability, energy efficiency and a healthy home. Of course in the perfect world we all would want to have these feature included in our new home. The challenge is that these beneficial and money saving features are expensive. Over the years, I have worked with hundreds of buyers that want a “green” home. They love the idea that they are helping the environment, saving money on their utility bills and raising their kids in a healthy home. Builders that specialize in green building use materials that are sustainable as well as building techniques that are energy efficient. Items like tankless hot water heaters and high efficiency windows are just a few of the components of an energy efficient build. With the goal of a healthy home, builders limit the amount of carpet, install radon reduction systems and use low VOC (volatile organic compounds) materials in their construction. New home buyers love the idea of green building and thankfully the cost of these types of features is coming down to the point of being much more of a trade of against the energy savings. This is a personal decision and one that will vary from buyer to buyer and builder to builder.
As a side note, for more information on green building, you can see some of my blog posts on the topic at ClarkCountyHomeBuilders.com
Thank you for taking the time to read this. Hopefully this gave you some insights into the process of purchasing new construction in Clark County. Although we touched on a lot of items, this guide by no means is 100% complete and we will continually add to it. Although nothing is a guarantee, the bulk of the new construction homebuyers that I have worked with love their new home. It was built to their preferences and most of the items in the home were hand picked by the buyer. Most of them tell me that they can not imagine buying anything but new construction in the future. That is a great indication that they enjoyed the process and the end result.
If you have any questions at all in regards to purchasing a new construction home in Clark County, you can find my contact information at ClarkCountyHomeBuilders.com.
Have a great day.