Before Buying New Construction

Buying New ConstructionThe thought of a new home with your choice of upgraded finishes, designing floor plans and be the first to live in your home lures buyers into builders and developers model homes every day. According to industry sources over seventy percent of home buyers want a new home. Be prepared to ask the right questions and see red flags before signing on the line.


  • Bring your own agent. Thinking you will get a better deal or just not knowing any better; Buyers visit a Development and just sign up with any agent at the site. New construction buyers should have their own agent to represent their interests only - not the Developers interest - which is what the Realtors do at every Development. Most states require written acceptance of dual-agency by both parties. All homebuyers should be represented by an agent who has a fiduciary relationship only loyalty to them. Do not forget that ALL developers require that your agent must accompany you the first time you visit a sales center.
  • Ask how much this home is as YOU see it. Models can be filled with every upgrade the developer offers as an example for buyers. Buyers should ask freely how much the model costs as I see it. Typically this cost will vary dramatically from advertised starting prices for a development.
  • Pick the right developer. Do your own investigation of the developers previous projects, length in business and complaints filed with business bureaus. Your Realtor can guide you on this.
  • Consider resale value. The low cost, buying emotionally and wanting to be the first to live in a home can make you consider a less desirable location or poor workmanship. You are better off purchasing a resale home in a better location than buying new construction.
  • Question Percent of project sold. Inquire how much of the percent sold are reservations versus actual contracts. Some reservations do not go to contract because of a change of mind, money issues or required occupancy dates.
  • Investigate property taxes. Property taxes can be a financial surprise with the purchase of a home. Because tax assessors have not valued a home, developers can underestimate how much the taxes will be. Call the local taxing authority to find out your worst-case scenario so you can plan for it.
  • Perform a professional home inspection. Never skip the right to an inspection. New construction is not free from defects and poor workmanship. Your Realtor will be sure to inform you of an inspection at least seven days prior to closing.
  • Inquire about investor owned units. In the post real estate bubble world many developers restricted the number of homes that can be purchased by investors. Look for clauses in contracts that require purchasers of homes to be owner occupied within the first twelve months after closing. Ask what the percentage of owner occupancy is allotted for the development.
  • Get a certificate of occupancy. Local municipalities issue a Certificate of Occupancy after a unit has passed all building code inspections. Most mortgage lenders require this certificate before you can close on a loan. If you are paying cash, check prior to closing that the developer will give you the certificate.
  • Understand why developers need you to pay for upgrades in advance. Experience has taught developers that some buyers will not purchase the unit where the floors, countertops and cabinets have been installed by the developer. They want to choose their own final details, but if they pull out of the contract, the developer is now stuck with choices another buyer may not want. Plan on paying upfront for all upgrades, and if you decide to pull out once you have paid for upgrades, you may not get your money back.
  • Require your deposits to go into an escrow account. Require all of your deposits go into an escrow account, not the developers business account. Research state brokerage laws to discover what regulations developers must follow with buyers funds. If disputes arise it is easier to receive refunds from a neutral third party or escrow agent than from a developer.
  • Request copies of blueprints, floor plans and surveys. In the future when you want to make changes or sell, having the Blueprints, floor plans and surveys of your home will save you expense and time. Make sure the developer provides you with an updated survey, showing you your precise parcel. Verify that your new home also has its own parcel identification number issued by taxing authorities. Investigate warranties on structure, finishes and appliances. Developers usually offer five to ten year warranties on the homes structural elements and then rely on their manufacturers warranties for appliances, furnaces, windows and garage doors. Always Beware of one year warranties on hard structural elements.


  • Forget to ask for holdbacks on unfinished work. Weather or lack of supplies can stop completion of a home. If some items are not necessary for living, the developer may want to close on your home, so he can get his money and move on. Make sure any substantial items or features that are not completed in your new home have designated funds set aside for their completion. Request these funds deposited in an escrow account at closing.
  • Omit final written check lists. You should have a final walk through at least three to five days before closing. Create a list of all items needing to be completed. Both parties should sign that they agree to the final list. Builders should complete these lists before closing.
  • Just Accept the Assessment Amount you are told. Builders can use low homeowner fees in new construction. Plan on about twenty five percent increase in assessments the first year after the association is given to the homeowners.
  • Overlook costs between standard and upgraded features. There can be a huge difference in quality and life spans between builder grade and upgrades. It could be worth the additional expense to install higher quality carpet, cabinets and hardware. Check builder prices at your local home center.
  • Be Fooled by Builders Incentives. Free monthly paid assessments, bronzed appliances and LCD TVs are given to induce buyers to Act Now. What many buyers think FREE and encourage them to act now are really signs that a development is slow to sell.
  • Be surprised when developer will not lower prices. Developers of popular subdivisions do not usually negotiate on home prices. However, sometimes a developer will upgrade your appliances or give you hardwood floors. When a developer does not lower prices it is because they have a certain profit to make, generally their cost plus twenty five percent.

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