Oh sometimes buying a bright shiny new home is just so tempting… and in today’s market, when there is so little inventory, it might be your best bet. Production built homes (think: Toll Brothers, Pulte, Centex, NVR, Ryan, NV Homes, Ryland, Richmond American, Brookfield, K Hovnanian and others) put them up quickly and sell “turn key” (when they are done), and you can have them built to your specs (by choosing from a menu of options).
[Please note: We are NOT talking about building a CUSTOM HOME in this post. We talk about that in this post. Just click the link!]
But what should you know before walking into a new home sales office?
- Builders want you to come to them without an agent…. because they don’t want anyone educating YOU on your choices outside of their project.
- Builders almost always pay 100% of the buyer’s agent commission… and if you do not have an agent, you do not get that money in incentives. If they tell you that they will give it to you, well… I have never seen that be true. I suspect they are just re-labelling another incentive they were already planning to offer you.
- Yes, some builders, sometimes, negotiate their price and terms. A buyer’s agent with lots of resources can likely tap into resources to give you a better idea of what they may be willing to negotiate.
- Builders want you to use THEIR title company and THEIR lender(s). That’s because they usually have affiliated business arrangements with them so they make money from what you pay those companies, too. So when they give you $10,000 for using those companies, and then those companies charge you $5,000 more than any other company you might use, the builder is really only giving you a $5,000 incentive… We call this “Smoke and Mirrors”. They also have a legitimate business reason for having you use their “partners” – these companies are working FOR the builder. They are not working for you. Sure, they will provide you the services you’re being overcharged for…. but they will be reporting to the builder if you are going to be able to get the loan, etc. If you choose your own lender, you have the right to privacy and confidentiality. The advantage goes to the builder if you use their partners.
- Deposits are usually MUCH higher than any other type of sale… and the deposit checks are usually written to the builder, not to an escrow company, making it much more difficult for you to get your deposit back even if you’re entitled to it.
There are also common contract clauses you should look for, and understand:
- Financing – Most builders offer a financing contingency of something like 30 days, but you might be contracting a year before you expect to get your home. What happens if you lose your job after 30 days? Well, the risk is yours to take.
- Appraisal – Many builders do not offer an appraisal contingency at all. What happens if the appraisal is $50,000 below your sales price? You may have to bring $50,000 more to the settlement table in cash.
- HOA/COA Document Review – Most builders will hand you these documents, often on a disk, for your review. You have 3 days to review them when they have done this. What’s interesting is often they are incomplete or not yet finalized… and yet, most attorneys agree that you are not entitled to receive an update even if the information is updated and available during your contract period.
- Inspections – Most builders will allow inspections, and generally, I don’t have much problem in this area, but they insist that you do it on on their deadline, and they are under no obligation to complete any repairs you request. Usually they will complete reasonable repairs… but there is not a requirement, and they may not do the repairs until after you close. And under their contract, you are not “permitted” to delay closing to require them to complete the repairs to your satisfaction.
- Survey – Most contracts require you pay for the surveys the builder already was required to do. Having a survey done is usually optional for the buyer.
- Closing Costs – Many builders will also have the buyers paying Grantor’s Taxes or other closing costs which are generally billed to the seller. This again eats up part of that “incentive” they offer.
- Delivery – Most builders have a rule in their contract that says they have up to TWO YEARS after they have promised you your home to actually have it ready for your occupancy. They will tell you that is so if there are unforeseen circumstances beyond their control they are not at risk, however, the contract rarely has such language. The contract usually just states that delivery can be delayed for “any reason” and this can include their very own failure to plan for foreseeable delays… like Christmas coming and the county not doing inspections for the last week of the year.
Follow this link to learn about other Types of Sales we’re seeing in the 2014 Real Estate Market in Northern Virginia and “Typical Contract Terms“.
Psst… you might also want to check out this earlier post about buying from a production builder.
Looking to Purchase a Home in the Dulles Area?
Fieldstone Real Estate