Newly Constructed Homes

New homes are great, but they may have some hidden costs.

If you have been in the market for buying a new home, there may be something very attractive about looking at newly constructed homes. Buying a house is never something to be taken lightly, and because of this, it always feels better to be able to do things like picking out the new appliances you want, as well as the type of hardwood that should be put in the dining room floor. In addition, new homes are sometimes priced lower than comparable pre-existing homes. If you are interested in buying a new house, you should think about visiting where you will be able to see the newly constructed homes in your area that are for sale.

However, with all the benefits of buying a new house, these newly constructed homes often come with drawbacks as well. For example, these homes often are marred by poor construction and workmanship problems. What follows are some ways that you may be able to avoid some of the pitfalls that come with new construction.

Find a seller before you find your home

Often times, at least with new construction projects, finding the right contractor and developer can make all the difference in the world. It is seen more and more regularly that many developers are just in it for the money. They will take your payments, throw together a house, give you the keys and disappear. These homes often have serious problems that cannot be addressed because the developer has vanished after the sale. This is why you should always take your time in finding the right developer to buy from. After that, you can then go about looking at the homes that the developer has contracted and finding the one that is right for you.

Here are some ways that you can find the right developer for you:

  • Get in touch with real estate agents that have worked in your chosen community for some time. These professionals are great resources and may be able to tell you a developer's reputation in the community. Although the real estate agent may not be able to handle the first sale of the home, they may have re-sold many of the homes that the developer in question had built, and may have hard-to-find knowledge.
  • Walk around the neighborhood that your developer has planned and built. Try to stop by some homes that are occupied and talk to the residents there about the developer. People that have bought and lived in homes that the developer contracted may have invaluable information for you. If, for example, the residents can show that the developer stands behind the homes he builds, this could show that this developer is the right one for you.
  • Visit or call the Better Business Bureau (BBB) that controls in the area that you are looking at. People that have become dissatisfied with their developers will often go to the BBB to make complaints.
  • Go to City Hall or the local county planning department and speak with the staff of their dealings with the land developer. Developers, because of the nature of their business, will often deal with these people on a professional basis. The better that these staffers speak of the developer, the more likely it may be that the developer is honest and trustworthy.
  • Visit websites such as Homeowners Against Deficient Dwellings to see if anyone has voiced complaints against your developer online.

New Home Inspection

Before committing to buying a new house, you will want to make sure that you have an experienced and reputable home contractor or inspector walk through the home and do a thorough inspection. This inspection can find flaws in a home that you, as a lay-person, may not be able to find by yourself. If you are looking at a house that is currently being constructed, it is also a good idea to have the inspector walk through the unfinished home at a few key points in its construction process to ensure that the build quality is good.

If you are able to have your inspector walk through the home during the construction process, you should ask the developer to allow your inspector to view the home at these key points:

  • Near the beginning, when the foundation is poured,
  • After the framing of the house is completed, and
  • After the home has been finished

At these points, the inspector should be able to view and inspect important portions of the home, like the electrical system, heating, plumbing, roofing, insulation, and the walls.

Avoid Extras and Add-ons Unless Necessary

Developers are great at getting you to view homes by setting low selling prices. However, you should be wary when viewing low priced houses, because during the visit commissioned sales people often tempt you with appealing add-ons that will increase the purchase price of the home. These extras include things like granite countertops, skylights, hardwood floors made from expensive woods and more. Although they may be tempting, keep in mind that too many add-ons can dramatically increase the price of a home.

However, this is not to say that you should flat-out refuse any add-ons. If you are smart and willing to negotiate, you can get some extras and add-ons that may get you closer to the home of your dreams. Here are some tips to keep in mind as you consider add-on to your home:

  • Essentials first, fun stuff later -- Just like ordering too much food at a restaurant, your eyes may get too big for your wallet when you start hearing about alluring add-ons like whirlpool baths and fiber optic light fixtures. However, there are some add-ons that may actually be essentials ,such as a fenced yard if you have a pet, or a stacked washer-dryer combo if the laundry room is cramped. Also, a wired network in the house is often helpful if you will be getting Internet service, and having multiple coaxial outlets is a good idea so you are not stuck with only one TV placement option in each room.
  • Check the prices -- Although it would be nice if each developer would charge the same amount for each extra, this is hardly ever the case. You should steer clear of developers when they are obviously overcharging for essential upgrades. In addition, be wary of developers who use cheap materials that will almost certainly have to be upgraded, which in turn adds to your cost.
  • Haggle -- Many people are afraid of haggling about add-on prices with their developer. Don't be. You have every right to try to get concessions or price reductions from your developer. Common examples of haggling over extras includes getting one free add-on for every two purchased add-ons, or asking for free add-ons if you can pay cash up front for the home. In addition, if you think that you cannot haggle a price down, ask for the right to purchase and install your own extras during the construction of the home.
  • Fine print -- Some home contracts contain fine print that allows the developer to put in add-ons that are not the same brand or quality as the displayed add-on, just the functional equivalent (like putting in an off-brand washer/dryer instead of the name brand washer that was in the display house). If you have any concerns, be sure to renegotiate your contract to include the terms that you are most worried about.
  • Put everything in writing -- Be sure to get everything that is promised in written form, especially when dealing with the commissioned salespeople,. Get all meaningful promises concerning your home in writing before signing the contract. If you have already signed the contract, put down everything you can remember in writing, and get both the developer and the salesperson to sign it. Never rely on an oral promise when buying a house.

New Home Warranties

There are stories of new homes that have started falling apart as soon as the new owners move in. From mold, mildew and termites to doors falling off of hinges, windows not opening and broken furnaces, there is always something that may go wrong when buying a new house. Depending upon the reliability of your developer, you may wish to purchase a new home warranty to protect yourself from the massive costs you may incur if your home turns out to be a lemon.

The best option when it comes to new home warranties is to purchase one from a third-party insurance company. Most standard home warranties generally cover craftsmanship items for one year, some built-in electrics for two years, and structural soundness for ten years.

However, if you trust your developer, you may wish to purchase a home warranty through the developer. In some states, home developers will offer an insured warranty to the new home buyer that will cover almost everything in the home for a length of time. If, on the other hand, you do not trust your developer to be around in ten years, you may want to find an outside option.

Try to Prevent Delays; Don't Close on a Home Too Early

When buying a new house, it is always wise not to close escrow on the home until the construction has been completed. If you close before the home is completed, you give the developer an opportunity to halt construction on your home.

However, there may be occasions where not closing on a home before it is completed is not an option. In hot housing markets, for example, you may risk losing the home of your dreams if you do not close before construction completes. In these situations, you will possibly face a very one-sided agreement, having to meet many deadlines that may prove to be difficult. Remember, however, that you are not powerless. Try to get clauses in the contract that will force the contractor to work diligently on your new home. In addition, get a clause in the contract that will give you the option of either cancelling the contract or collecting damages from the contractor if the contractor does not deliver the completed home by a certain time.

Finally, if you are being forced to close escrow on your new home before it is fully finished, you may insist that the money necessary to complete the work on your home be taken out of the money you have paid and set aside. This money will be released to the contractor once the necessary work has been completed to your satisfaction. If the work is not completed, you may be allowed to take the money and hire your own contractor to finish the work.

If you have closed on a home and the developer has not delivered it by the agreed upon date, you may be able to sue the developer to collect for any expenses that have resulted because of the delay. These costs could include hotel stays, rent, laundry, restaurant bills and more.

Next Steps

Contact a qualified real estate attorney to help guide you through the home buying process.

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