In the 1986 movie The Money Pit, a couple buys a beautiful mansion in the country, close to their work in Manhattan. It’s a deal of a lifetime, or so they think. Poor wiring, rotting wood, no hot water, and a collapsing staircase plague the unhappy homeowners.
Navigating the obstacle course of buying and building a new house is always challenging. We’ve covered when to buy a new home, and how to negotiate with builders. In this one, we’ll delve into what you need to know before you start shopping for your new home so you don’t make common mistakes that land you with a money pit.
Don’t Buy a Home Alone
Unless you’re a real estate agent, a lawyer, a home inspector, an architect, and a construction worker, hire professionals to guide you through this process.
People You Need on Your Team
A local real estate agent
A real estate lawyer
A home inspector
Hire an agent who specializes in new home construction to represent you. Yes, the builder has an agent, but remember, that agent works for the builder, not you. Hire a lawyer to go over all the final paperwork to ensure your interests are represented.
Finally, do not skip the home inspection! Angie Hicks, founder of AngiesList.com, agrees. “Newer homes can have just as many problems as older homes, and it’s always better to know what you don’t know before the last piece of paper is signed.” Builders make mistakes; a home inspector should spot any problems before you move in.
Shop Around for a Home Loan
Builders usually have a preferred lender, but that doesn’t necessarily mean that you’ll get the best possible loan terms from them. You should always shop around for the best deal and the best service. The same goes for closing agents. Know what your options are so you can make a good decision.
Kerron Stokes, a real estate agent with The Resource Group at RE/MAX Leaders in Colorado, recommends doing the math. “If a builder’s lender says, ‘We’ll give you $15,000 in incentives if you choose us,’ but an outside lender charges a quarter of a percentage point less in the interest rate over the life of the loan, that $15,000 incentive may wind up being more expensive in the long run.” Ask your agent and friends for lender recommendations, and get this process started early in the buying process so you don’t encounter any unexpected delays when you find the right property.
Research the Builder and the Community
Some builders have a track record, and some do not. Even if the builder is relatively new to the market and isn’t yet known for the quality of their work, there are still ways to check them out. Read online reviews, check with state licensing boards, and seek out any local court records to see if there have been any problems or complaints. If the builder has worked in another neighborhood, knock on doors and talk to previous customers. Similarly, if the community has already completed a phase or two of construction, you can speak with current residents to get a feel for the neighborhood.
Size and Location Over Upgrades
Upgrades are tempting and builders often throw them in to sweeten the deal, but consider this: most upgrades can be done at any time. Location, on the other hand, can’t be changed. “Location, location, location!” exclaims Kyle Hiscock, of the Hiscock Sold Team at RE/MAX Realty Group in Rochester, NY. “If you’ve bought or sold a home in the past, I’m sure you’ve heard this statement. Location plays a huge factor with home values and the desirability of a home.” Expansions are possible, but cost much more than just getting that extra bedroom now. You’ll definitely get more bang for your buck by prioritizing size and location over upgrades.
No House is Perfect
Of course, we all have ideas about that perfect house, but the fact is, no house is perfect. Once you’ve lived in a house for a while, you will notice “issues” – some big, some small – that make the home imperfect. Some of these things will be charming, some will be annoying, and some will be real problems. It’s important to approach the whole buying process with realistic expectations, while also planning for possible problems that emerge over time. One way to counter potential problems is to have your lawyer include a clause in the contract requiring the builder to fix unidentified problems that may emerge.
Always do the final walk-through and make sure everything looks great and functions properly before taking full ownership of the house.
Get Everything in Writing
Verbal agreements are non-binding, meaning that the builder could promise you the moon, despite the fact that you have no recourse if they don’t deliver on that promise. Until everything has been agreed upon and written into the contract, don’t sign it! If the home is not complete, the contract should spell out how it will be finished, what will happen if construction isn’t completed on time, and all deadlines for decisions.