Educate Yourself on the New Home Buying Process

The first  steps are the same in the new construction home buying process as an existing home. Like so many things, it pays large dividends, to begin with, 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.  Equally important as the new community details are the research you do on the developer or builder. The most important part of buying a new home is education, and you should start there. Once you educate yourself, it’s time to find the 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. If you’re new to buying a home we recommend you check out 

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.

At the start of any home purchase, the first thing a buyer needs to do is shop for a lender. STLhomeguide recommends 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. Remember, you will NOT get penalized for shopping rates. We find that most buyers are under the impression that each lender will make a hit on their credit. The short answer is; that is not true and by law you have the right to shop for your loan without harm to your credit score.

You 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 including working with real estate agent's guide. 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 have’s. 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're buying a home that hasn't been built, what's the most important next step?

Research the Builder when Buying New Construction Homes!

 

Raleigh's 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.

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 St. Louis / St. Charles' or 'top new communities in the area'. The time and effort your 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). One good question to ask is ‘what are the future plans for the new development?’

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. 

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 when you’re making an offer on new construction homes. Oftentimes 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 won't 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. 

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.

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 a 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.

Do I need a home inspection on a new construction home?

Yes. People make mistakes and it’s possible a mistake was made in building your new construction home. Inspectors can find many things the builder may have forgotten to do or even potential problems that could be caused down the road. A home inspection is someone who is coming in to review the work done on your home, you’ll want to make sure they give you feedback. You did just make a large financial purchase after all. 

What's Covered In A New Construction Home Warranty?

So you’re almost ready to pull the trigger on a new home and you’re wondering what’s covered in the 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 into 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.

FAQ on New Construction

Can you Negotiate on New Construction Homes?

Yes, you can negotiate on new construction homes - you're far better off negotiating for 'things' than for money off the purchase price. Even negotiating closing costs is easier than negotiating the purchase price because builders want the final price as high as possible for future appraisals in the neighborhood. If you're the first or second buyer to the neighborhood you may strike a great deal. Homes will be priced higher after the first few sell.

Is New Construction a Good Investment?

New Construction is often a better investment than resale homes thanks to the age of the property. New Construction homes with only one owner will oftentimes appreciate faster than an older home that has transferred ownership many times. People want newer homes.

How Much Money do I Put Down on a New Construction Home?

There is a builder deposit that you will put down on your new construction home. Oftentimes this builder's deposit will be 3% of the total selling price. There are some builders who will go as low as $3,000 in terms of builder deposits. A lot of great builders will negotiate the money down so feel free to ask and see if they have any flexibility, you never know!

Final Thoughts on New Construction Homebuying:

 

Buying a home is a complicated process, and buying new construction is both similar and different to existing homes. Some of the similarities regard the purchase process, while the differences can be found largely in negotiations, research on the builder, and looking towards the future for the new community neighborhood plans.

​

If you’re thinking of buying a new home make sure you cover all of your bases so you have a successful real estate transaction!