5 biggest surprises when buying new construction
Many homebuyers think that purchasing a newly constructed home is smarter than purchasing a "used" one. On top of that, to combat the low levels of inventory buyers are turning to new construction in droves this year.
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 are 5 things you should look out for to make sure you're spending your money wisely and don't incur any unpleasant surprises.
1. Latent Defects
A brand-new home can contain several hidden, or "latent," defects that could require expensive repairs post close. Items like electrical wiring could be done incorrectly. Heavy rains can reveal inadequate waterproofing or grading that leads to leaks or flooding.
Whether you’re buying a spec home, or building a custom home be sure to research a builder before buying. Find out who their subcontractors are, and research them as well.
Then find a builder who offers a builder warranty. Most builders will offer 1-2 years warranty. Be sure to find out what the warranty covers before you purchase. Different aspects of the home may be covered for different lengths of time so make sure you're aware of those limitation
Lastly, do your own inspection! Hire a third party inspector to come and inspect the property before you close.
2. Missing Necessities
Newly built homes often come in a standard or basic form and may not include everything you need or want. It is quite common for these properties to lack interior essentials such as:
Appliances - Including: Refrigerators, Washer/Dryers
Window coverings
Exterior features such as decks, fencing,
Landscaping
Hardware - specifically cabinet & bathroom hardware
Each of these missing items can be an added expense. Before you make an offer, ask what is included in the price of the home, note what is missing, and do some research to figure out how much these items will cost. Make sure to factor these purchases into your budget. If you can't afford to pay for them out of pocket, getting the builder to pay your closing costs might free up the cash you need for blinds, sod, and a washer and dryer.
If that proves too expensive or time-consuming, look for a new home that comes with all the essentials, or consider a property that is almost brand new and is just lived-in enough that the previous owner has installed all the missing necessities.
3. Upgrades are pricey!
You’ll likely tour the model you will tour will typically have all the available upgrades the builder offers, from hardwood flooring and granite counter-tops to bay windows and oversize bathrooms. Seeing what you could have can lure you into spending significantly more than the base price that originally attracted you to the property and the community. The price difference between the base model and the model with all the bells and whistles can be many tens of thousands of dollars.
Also, if you buy the upgrades through the builder, you might pay an up-charge and have a more limited selection compared to doing the upgrades by yourself. You also have to consider the future resale value. Make choices that will appeal to a wide variety of buyers and won't result in your home being over- or under-improved for the area.
Some builders do include upscale features in the standard model and factor them into the base price. Just make sure you know what you're looking at before you tour a home and fall in love with something you cannot afford—or feel ripped off because the standard model seems to fall short of the deluxe one.
4. Uncertain Future
In a new community, you may not really know what you are buying into in the long-run. You should consider things like:
What will your future neighbors be like?
What will be built on the vacant land next door?
How reliable will the services be (such as snow plowing or utilities)
How will these unknowns affect your quality of life and your home's resale value?
Conditions can change in established neighborhoods, too, but at least those areas have a history and reputation that could give you a better idea of what life will be like in your new home, compared to a brand new development. Everyone should weigh these options for themselves.
5. Lack of Representation
The builder's sales agent represents the builder—and not you. When buying new construction you can and should bring your own agent to represent you!
This also applies to financing, the builder may have arranged financing but this may not be the best or lowest cost available financing. Do your research and familiarize yourself with the different mortgage types available and the interest rates available for lenders in your area. Then get your own lender to make sure you get the best price on the home and the lowest interest rate and fees on your mortgage.
The Bottom Line
Don't make any assumptions about what you'll be getting if you buy a new home. Buying a newly constructed home requires almost as much attention to detail as buying a previously owned one. However, if you prepare, you'll know how to watch out for your best interests.