What Home Buyers Need to Know About New Construction

new construction

If you’re a home buyer, you’re likely to come across new construction homes for sale. The sellers can be either large national builders or smaller local developers. Some homes are for sale as a part of a subdivision, while others are one-off homes. But is a brand new home right for you? Here’s what home buyers need to know about new construction.

1. New Homes May Not Be in Your MLS

Homebuilders often have their own sales employees working for them on site, in order to have more control and to cut costs. This may mean that the homebuilder isn’t a member of the local MLS. As a result, the homes may not show up in your agent’s MLS search.

The builder may be more likely to advertise online, in the paper or with billboards. So if you’re interested in newly built homes, work with your agent to make sure you’ve identified all the possibilities.

2. New Homes are Often Sold Before They’re Built

A builder will generally get financing lined up and map out both a construction and a sales process. They try to sell as many homes as possible before they’re even built.

To accomplish this, they’ll build model homes and allow buyers to go in and review floor plans, fixtures and finishes while the homes are under construction. Depending on the state, builders need to get through some of the approvals process before they can actually start signing contracts.

For the most part, you can get a sense of what your new home would look and feel like, and where it will be located in the community. Ready to move forward? You’ll probably have to make a deposit, from a few thousand dollars to 10 percent of the purchase price.

Be aware that even if there are 100 homes in the community, they won’t all be available at once. Home builders tend to release the homes in phases. If the first five homes sell quickly at the asking price, and the market continues to do well, the builder can raise the prices on the second or third phase.

Also, the sales cycle for a new community can take years. The last phase could end up being priced 10 percent or more than the first, simply because the real estate market has appreciated.

3. Early Buyers Can Get the Best Deals

A home builder, especially early in the sales process, wants to get a few homes under contract right away. If the builder can announce they have 10 homes under contract in a few months, the project can seem more desirable to future buyers.

Also, builders like to go back to their lenders with positive news about the project and their investment. To do this, they need early buyers to sign contracts.

Buyers might be able to negotiate the price down early in the sales process. But with this reward there is potential risk. By being an early buyer, you’re committed to the project. If for some reason sales don’t manifest, or you don’t want to move ahead before the home is built, you risk losing your down payment.

4. Builders Focs on Spreadsheets, Not Sentiment

A typical seller has lived in their home for many years and built memories there. When it’s time to sell, the seller may unconsciously price the home too high because they’re not ready to emotionally detach from it. They may want to know more about you, or what your plans are for the property. If given a choice between two buyers, the seller may pick one over the other for non-financial reasons.

By comparison, home builders are focused more on spreadsheets than sentiment. They want to make sure you’re qualified and can get a loan. They set the prices based on their inventory, though there may be some room for negotiations.

5. Discounts May Be Offered as Upgrades

Is the project you’re interested in nearing the end of its sales cycle, with many homes already sold? If so, the builder may be more willing to negotiate not so much on price, but on upgrades. If they reduce the price on your home and the sale closes, then that sale price becomes public record. But if they offered you an upgrade package (hardwood floors instead of carpet, or higher-end appliances), there isn’t any way to track that.

What could amount to thousands of dollars in upgrades could end up being a better deal than simply getting a price reduction.

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