Buying a brand-new home is not only an exciting prospect, but also a growing necessity in today’s housing market.
High-interest rates have led to historically low levels of pre-existing homes for sale, according to Realtor.com® data scientist Sabrina Speianu. This has forced many homebuyers to turn their attention toward new construction houses, which builders have doubled down on putting up in an attempt to fill the void.
“Buyers [can’t easily] turn to resale,” says Dan Hnatkovskyy, CEO and co-founder of NewHomesMate. “So they’re relying on developers to build the market back up again.”
1. Signing a deal without vetting the builder first
Not all builders hold themselves to the same standards. As such, buyers need to start their new-construction home search by researching the builder’s reputation and track record.
“Look for online reviews, speak with previous buyers if possible, and check if there have been any legal disputes or complaints against the builder,” says Christina McCollum, a Washington-based regional manager for Churchill Mortgage. “A reputable builder with a history of quality work is a safer choice for your investment.”
Here are some questions to ask a builder that can help you figure out whether it’s the right one for you.
2. Haggling over the wrong negotiation points
Haggling with a builder differs from haggling with a home seller in that builders typically won’t bend much on price. However, they are willing to help buyers save money in other ways, such as through builder incentives.
Different builders have different incentives to offer, including mortgage interest rate buy-downs and rate locks. With today’s interest rates still sky-high, these incentives can help lower monthly housing costs and end up being even more valuable to buyers than a lower-priced house.
“New-construction buyers should try not to get caught up in today’s mortgage rates, and instead remember to factor in all of a builder’s incentives,” says Stacey Rummage, Opendoor homebuilder partner manager. “Many homebuyers focus on the purchase price tag too often. But because of builder incentives, a home’s price could be significantly lower than what you expect.”
And luckily, a growing number of builders are offering these perks.
“We’ve recently seen 40% of builders increasing incentives again and expect this to climb,” says Hnatkovskyy. “This should entice more potential homebuyers onto the property ladder, restoring some confidence in the market.”
3. Not factoring in the timeline and potential delays
Before you enter into a contract for a new construction home, you need to consider how long it will take to build the home and make sure that timeline works for you.
“You must take the time to have a complete understanding of the timeline to complete your home, especially if you are in a lease that will expire or you are selling your current home,” says Don Turner, regional sales director of new homes at Realtor.com. “Then pad that timeline in case of delays.”
“Many buyers underestimate the new-construction process and the time, money, and effort it takes to alter your moving schedule,” Rummage adds, “if your new-build timeline does end up changing.”
Make sure you understand what can cause delays, such as bad weather, government permitting issues, and failed inspections—and have a backup plan.
4. Assuming you can call all the shots on what the home looks like
People sometimes think that new construction means custom design from the ground up, but “build from scratch” is a different type of project.
“Oftentimes, new-construction buyers think they’re going to be able to completely customize a new home, from the doorknobs to the flooring and layout,” says Rummage. “While that can be true, it’s important to understand what options a builder provides for customization.”
Most builders are going to offer some level of personalization, but that’s different from complete customization.
“It’s important to have an open dialogue with your builder and ask all of your customization and design questions at the outset,” says Rummage.
5. Thinking all changes and upgrades are free
When planning your new construction home, if it’s early in the process, you might have some opportunity to make upgrades. Yet similar to adding fun extras to a car, they’ll cost you.
“The excitement of planning your dream home can get the best of you, draining your budget before you make it through the door,” warns Sofia Vyshnevska, chief operating officer and co-founder of NewHomesMate. “Fancy features, such as outdoor kitchens and bathroom saunas, might catch your eye, but the costs can really add up.”
McCollum agrees that it’s important to be cautious and not let the allure of a fully upgraded home push you beyond your financial comfort zone.
“Stick to a budget that allows you to comfortably handle unexpected expenses and maintain your overall financial stability,” says McCollum.
6. Not inquiring about the community as a whole—and related fees
Buyers are often so focused on their own property that they forget to ask about the entire community being built around them.
“Typically, master-planned communities come with plans for plenty of additional infrastructure—schools, grocery stores, health care, and entertainment,” says Vyshnevska. “Knowing when these services will be available should be an important factor in your decision-making, so query builders on their infrastructure plans and completion times.”
It’s important to find out when the roads, landscaping, parks, and other amenities will also be completed. While all of these projected neighborhood features might seem fantastic, they won’t do you any good if they’re not finished until years after you move in. (Furthermore, you’ll likely be paying an additional homeowners association fee for them, which you should also ask the builder about before purchase.)
7. Signing the contract without fully reading it
When entering into a new construction purchase, you will be required to sign a purchase agreement contract. It usually includes a deposit and will outline other elements of the sale, such as baseline inclusions and the construction timeline. It’s very important to know exactly what you’re signing so your expectations and costs stay manageable.
“Most buyers aren’t experts in property law, yet contracts are rarely forgiving,” says Vyshnevska. “Read through the contract carefully, and if something is unclear, don’t sign and hope for the best.”
She suggests that most people should consider using a real estate agent experienced in new construction to help them through the process successfully.
8. Not bothering with a home inspection
Many new-construction buyers choose not to hire an independent home inspector. But just because a property is new doesn’t mean it’s perfect.
“Always hire a reputable home inspector, even for new-construction homes,” says McCollum. “They can identify potential issues that might not be visible to the untrained eye and can help you negotiate with the builder for necessary repairs.”
Also, while your lender might not require an inspection, Vyshnevska suggests you should get one anyway for peace of mind.
“Even if there’s not a single issue to report, wouldn’t you feel better knowing that you’re not moving into a ticking time bomb of construction defects?” she asks.
9. Having a home warranty without understanding what it covers
Many new construction builds come with a home warranty—a promise to fix anything that breaks within a set period of time (typically a year). While this is a nice perk, many homebuyers don’t make use of it since they simply don’t know what it covers, or for how long.
“Warranties are your safeguard against poor construction quality and unforeseen defects,” adds Vyshnevska. “Different builders will provide different warranties with different time frames, so make sure you’re comfortable with what’s on offer before you sign on the dotted line.”
“It is very important to have a full understanding of what the builder warranty covers, and what the warranties are for the appliances and the heating and cooling systems,” says Turner.
He suggests you check to see if the builder includes a quality control walk-through within the first year of ownership.
“This allows you to bring to their attention any ‘nail pops’ from the drywall and Sheetrock installation or issues with the flooring such as loose tiles—things you may have missed during the walk-through on closing day and other issues with the construction of your home that you find during your first year of living there,” says Turner.