6 Tips for New Home Buyers

Written by
Kara Johnson Read Time: 7 minutes

Buying a brand-new home can be a wonderful thing. You get a home built to your specifications, with a modern design and features, and the expectation of minimal repairs and maintenance for the foreseeable future. New homes are also more energy-efficient and, let's face it, they simply look great.

The process of buying a brand-new home is significantly different from buying an existing one, however. And while buying a new home eliminates some of the worries that come with an existing one, it also brings its own set of concerns, such as ensuring that the work is up to standard and completed as promised.

Here are six tips to keep in mind when buying or ordering a newly built home:

1 - Check into the builder

Choosing a builder may be the most important decision you make when buying or ordering a new home. Good builders do good work; shoddy builders do shoddy work. The difference may not be readily apparent when the home is new, but over time can show up in sagging roofs, moisture problems, misaligned doors, flaking plaster and the like.

One of the best ways to evaluate a builder is to look at their previous work. Go look at some of the homes a builder has done, the older the better. How are they holding up after 10-15 years? Cheap materials and poor construction have a way of showing themselves over time. Talk with people who've had experience with that builder; if there aren't any in your own circles, try knocking on a few doors. How are the homes holding up? And what was the builder like to work with - cooperative and helpful, or difficult?

2 - Get your own representatives

New home developments will typically have a salesperson who acts as a real estate agent for the properties there. While such agents are useful in providing information about the development and answering any questions you might have, you don't want to rely on them entirely. They work for the builder, not for you.

It's a good idea to bring in your own real estate agent who is unaffiliated with the builder to represent your interests, just like you would get a "buyers agent" when shopping for an existing home. This agent should have expertise in buying new homes, however. They can assist you in raising questions you should ask, identifying potential issues to be aware of and guiding you through the overall process to ensure you're not overlooking anything.

Similarly, you'll want a real estate attorney to look over the sales agreement and other documents to help explain just the agreement entails, to alert you to any pitfalls and advise you of changes to the agreement that you may wish to negotiate.

3 - Negotiating the price

Unfortunately, home builders usually aren't very flexible when it comes to price negotiations. They know the market, they know what it cost them to build a home and they know what they expect. They're not going to start work on a home unless they're assured of a good profit - though you may be able to do some haggling on condominiums in developments where they're under pressure to sell them.

A better option for price negotiation may be in the area of upgrades, such as better cabinets, hardwood flooring, countertops and plumbing fixtures, and the like. These can add up in a hurry above the base price for a certain model home, often to the buyer's surprise. But they're also items on which builders make a pretty good profit, so it gives them room to negotiate.

Home sales prices are also public information, so a builder may prefer to throw in a few upgrades rather than agree to a reduced price that would undercut the prices he's trying to get from other buyers.

One rule of thumb is that the best prices are given to the first and last buyers in a development. If you're one of the first to buy in a new development, you're in a largely empty neighborhood and can look forward to several years of construction traffic and dust as it fills in around you. Toward the end, the builder is trying to fill in the last few lots in order to move on to another project.

You can also get a good deal by buying the model home once the development has been built out. While it won't be to your specifications, models tend to be built with lots of upgrades in order to look their best. They may be lightly used from years of prospective buyer tours but this is usually minimal and the savings can be significant.

4 - Financing

You have several options when financing a new home. Often, a builder will work with a preferred lender to arrange its own financing for buyers, or you can arrange for financing through a lender of your own choosing. Don't assume that builder financing will be the most costly deal - often, a builder will offer attractive rates in an effort to sell homes (and in order to maintain a higher sales price).

Builder-arranged financing also may be simpler and more streamlined than independent financing. But don't take the builder's word for it - always check with several unaffiliated lenders and brokers to see if you could arrange better terms on your own.

When you're contracting to build a home yourself, the loan you obtain will be different than the mortgage you get to buy an existing home. Generally, you'll get a two-part loan; first, an interest-only loan to cover construction, and then when the home is finished, that loan is converted to a conventional amortizing mortgage, either fixed- or adjustable rate.

5 - Inspections

Just because you're buying a new home doesn't mean that it doesn't have to be inspected. It's critical in a new home to ensure the work has been done properly and to your specifications.

In fact, a new home should be inspected several times during the process of construction. This is because it's easier to spot problems before the walls have been finished and the floors laid and because it's easier to fix those things early in the process as well.

6 - Warranties and arbitration clauses

These are your tools for ensuring the work is done properly and you get the home you paid for. New home warranties typically run one to five years and entitle you to repairs of problems that crop up during that time. You want to be sure the warranty covers any defects in workmanship or materials without providing any loopholes - and you want to verify this before signing the construction contract. Some may include stringent maintenance requirements for certain items that may be nearly impossible to fulfill, while others may exclude major items - such as mold damage or certain systems. Different warranty terms and lengths may apply to different elements of the home, and different parties may be responsible for repairs in the event of a claim - the warranty doesn't always fall upon the builder.

Arbitration plays a similar role and is the process for how you'll settle disputes with the builder. This may involve a warranty claim, but could also involve an objection to how the work was completed - such as if the wrong hardwood flooring was installed or you're dissatisfied with the masonry around the fireplace. Ideally, the builder will simply correct such issues to your satisfaction but may balk if the correction is expensive or difficult, particularly if the home has otherwise been completed.

If you can't agree on a resolution, the issue will have to go through the arbitration process specified in the agreement. Both this and the warranty are items you'll want to have reviewed by your real estate attorney before signing the construction contract.