By Mike Bodeen · 26 February 2018
A question that comes up periodically from home-buyers of every era I’ve been in residential real estate – yea, like since 1976, is “What about buying or building a new home? Is that a good way to go?” It’s a great question that potentially all buyers should consider. As with most everything in life, there are pros and cons with each option.
There are two very different ways to buy a new home: Build it from scratch or buy from a builder’s new home community. The latter is what we predominantly see in the Phoenix Metro area. When you buy in a community of new homes, the process is simple, but not necessarily easy. One option is not the best way to go for all. Our topic today will focus on buying in a new home community. Next week we’ll look at the benefits and challenges of building from scratch. The following week we’ll compare the costs of all three.
BUYING IN A NEW HOME COMMUNITY:
Before considering new home community, just as with buying an existing resale home, it’s important to know your budget, and what you’re qualified for. Seek first a good mortgage broker to get pre-approved to compare rates/costs. Almost all large builders have a lender they’re affiliated with. They will offer you thousands in additional upgrades and or lower closing costs if you use the builder’s preferred lender, but this gets a little dicey because when the lender finally discloses their APR (Annual Percentage Rate) you will probably be paying a higher rate than an outside competitive mortgage broker. I’ll also mention that for our clients who opted to use the builder’s lender, the service was, shall we kindly say, less than stellar.
As mentioned, this is a much-simplified process of buying a new home. You visit a new home community, walk through the builder’s models, gain information about the community and builder, select a floor plan and lot, and voila, within 6-9 months, you’re moving in. And if that was all there was to it, that would be awesome, but alas, it’s not. It’s not because of choices. After finding the right community, lot and builder, you still need to select your style and upgrades which will mean a number of trips to your builder’s showroom to select styles, colors, and quality of everything in the home. From plumbing and electrical/lighting fixtures, floor coverings, wall colors, kitchen accessories, and we haven’t begun to talk about landscaping or pools and patios. What we’re really saying is that the price quoted for the floor plan/model you want to have built is the “base price,” often far from final reality.
When you walk through the builder’s models, you’re usually viewing a home with most of the upgrades, which will be more $$$ than the base price. Some new home reps may even tell you right off the bat (if you ask) what the average amount of upgrades selected has been. In one such community I recently previewed, the rep said those totaled $35,000 not including the lot upgrade. Though we often see $75,000 and more in builder upgrades. Oh yea, most builders charge lot premiums based on location, views etc. as well!
New Home Buyer Caveat: Make sure your personal Realtor goes with you the first time you view a new home community, because the builder’s agent only represents the builder, not the buyer, so the buyer has no agent representation! It does not cost you a penny more to have representation from your hand chosen realtor! On top of that, builders won’t pay your agent a commission unless he/she was the first one to show you the community. Also, some buyers wrongfully assume the builder will lower the price of the home if you don’t use an outside agent. Not true. It may however, cost you if your agent doesn’t represent you, as you’ll be missing out having another set of eyes and ears seeing and hearing on your behalf.
“THE BUILDER’S AGENT ONLY REPRESENTS THE BUILDER, NOT THE BUYER, SO THE BUYER HAS NO AGENT REPRESENTATION IT DOES NOT COST YOU A PENNY MORE TO HAVE REPRESENTATION FROM YOUR HAND CHOSEN REALTOR!”