Whats up everyone

New construction can be a great option, especially in a market with low inventory, but there are things you need to be aware of before buying new construction.  We have some really nice neighborhoods being built here in Montgomery County, Md which I’m going to showcase in the coming weeks.  But this video is not only about Maryland. Today, we’ll go through the most urgent points of buying new construction regardless of where you live and stay tuned until the end because I’m going to share with you how you can save money without impacting the builder. 

Lets dive right in

1- Representation – if you want your own representation, make sure you don’t contact the builder directly without them. This is a real problem, at least here in Maryland. If you make first contact without your realtor, the builder may deny your representation. Or to be clear, they won’t pay them. So your’e left without representation, or YOU would have to come up with your own money to pay your realtor , while Joe and Sally down the street had the builder pay their realtor.

It’s that simple, always, always use a realtor for the first introduction if you want the builder to cooperate with them which means pay them. Why wouldn’t you want an advocate that has your best interests at heart. The salesperson works for the builder. If it’s no more money out of pocket for you, it can only benefit you by having representation. I can tell you from my own experience, I have advised my clients on everything from design choices – which would be more important for resale for example,  to saving them money which we will get to later. 

2- Be aware of incentives that may come with restrictions. For example, many builders will offer an incentive if you use their lender and title company. If the lender and title company that the builder works with have competitive rates with the other lenders and title companies, and you’ve heard of them, then it may be fine to accept that incentive. 

I had a client recently that had the choice of a big bank for the preferred lender. In this case it was Wells Fargo and their rates were competitive so it was totally fine. If it’s a smaller builder and you have never heard of the lender or title company, you may want to choose your own and relinquish the incentive to protect yourself.

Because lets face it, if the builder is offering 10k towards your closing costs if you use their title and lender but the lender is charging  points that exceed the 10k or the title company’s fees are so much higher than other companies, it may in the end, not really be an incentive at all. So, do your research. Compare rates apples to apples (with points or without for example) and look up the title company. 

3- Base price vs actual price. Be aware of what comes with the base price- esp when it comes to options. The model house will traditionally be tricked out with all of the upgrades to entice you to buy. But these upgrades cost money- sometimes way more than you are prepared to spend. 

For example, a lot of times a finished basement isn’t included which can bring the price up significantly. Also, the base price materials are something you would never pick so you will definitely “upgrade” which takes you down the rabbit hole of upcharges.

 I had clients recently that paid 200k over the base price once they were done designing the house they wanted. And they didn’t do anything crazy. They finished the basement, chose to finish the upper level and picked pretty normal stuff for a luxury home at the design center. It just all adds up. So, be aware before you get sold on the base price and find you’re not really getting the house you thought you were, aka the “model”. 

4- New Construction contracts- they are way different than resale contracts. Builders construct them to be very builder friendly.  Here in MD, for example, for resale contracts, traditionally the buyer and seller split the transfer and recordation taxes 50/50. For new construction, the buyer pays all which can be a lot of money. 

So if you are used to buying an existing home, you will be surprised by the increase in your closing costs with new construction. This comes back to having your own representation. There may not be a lot of wiggle room in the builder’s contract, but at least you will have a set of eyes on it to ask the questions you may not know to ask. 

5- Look up the builder – especially if you are doing a custom home. Here in Md, go on the Maryland Judiciary Case Search, put the builders name in and see if they have any law suits against them. If they do have a lot of cases listed, click on some of them to see when they were filed and what was the problem. You’re trusting them with the biggest purchase of your life- shouldn’t you vet them before handing over your money for your new home?

Also, ask the builder for references from people who live in their houses. Speak to them. Ask them about the process. How responsive was the builder? Were there any problems and if so, how did they resolve them. If the builder is legit, they should have no problem providing references. If the builder won’t give you any references, it may be a red flag.

6- Inspection- You should always consider bringing an independent inspector to inspect the house once it’s finished but before you give them your money. I get it, some buyers prefer to save the money and use the builders inspector since they realize they will have a second chance to give the builder a punch list of issues to fix at 6 months or a year after living in the house. 

I would say with my clients it’s 50/50. Some bring an independent inspector and some don’t. It usually depends on how its gone throughout the building process, the reputation of the builder and if other people who have lived in their homes have had problems. It does not, however, depend on the size of the builder. 

I have a friend, not a client because the house is in Delaware where I’m not licensed, who had a house build by a big national builder. She chose to forgo her own independent inspection and has had serious roof issues since she moved in. At this point they are remediating for mold caused by the faulty roof. Lawyers are involved and it’s a hassle and a mess. This is the last thing you need after spending so much money to move into your new home. So, consider bringing your own inspector. 

7- Make sure everything is in writing!! Do not assume that because you agreed to something verbally that it will happen. They may forget and end up charging more later if it involves a substantial change. Put everything in writing and make sure it’s signed off on!

8- Builder’s warranty. Get a copy of the builders warranty and make sure you understand it. What is included, and what’s not. 

9- Title insurance- ask the builder for a copy of their title insurance. If they give it to you, you can save a lot of money by getting the reissue rate. They won’t offer it unless you ask. I had 2 closings last week with big builders. One of them gave us a copy and my buyers saved thousands of dollars. The other one said they don’t do that for their Maryland homes so my buyers couldn’t get the reissue rate. You won’t know unless you ask.