Written by Andrew Goodman
Question: What am I missing about buying a new construction home?
Purchasing a newly constructed home seems like a no-brainer. You receive a new home that no one has lived in, you get to choose your finishes, and you can add or subtract things from the home to fit your budget. But there are certainly some factors that you should be aware of prior to signing on the dotted line.
Price: The most important factor in most buyer’s minds when purchasing a home is its price. When you buy a newly constructed home, compare it to purchasing a car.
There is a base model, which is always the advertised price, and then there is the model with all of the bells and whistles, with a price tag that’s drastically higher. When you enter the model home of a new construction community, they share the base price with you and then give you a full list of what comes standard and what is additional. Once you price out your home, you will typically find that it’s tens of thousands of dollars above where you started.
Closing costs: Transfer and recordation taxes are imposed when purchasing or selling a home to convey title into the new owner’s name and out of the seller’s name(s).
If I’m going to stick with the car buying example, these are fees similar to the “taxes and tags” when you buy a car. In Montgomery County, the transfer tax is roughly 1.1 percent (depending on the property) of the sales price and the recordation tax is also roughly 1.1 percent (depending on the property) of the sales price. In Montgomery County, it’s customary to split the transfer and recordation taxes between the buyer and seller. With some new construction communities, the developer will not split these taxes with the buyer. So the buyer will have to pay for both sides of the transfer and recordation taxes.
Delivery time: There are too many uncontrollable elements that could affect the home’s completion time (weather, material delivery, permits, etc). Many new construction communities in our area have a six-month wait period before your home is complete. A developer rarely will give a specific date for delivery, due to the factors I mentioned, so planning your move is almost impossible.
Loans approval: At the time you sign a contract on a newly constructed home, you typically are pre-qualified with a lender — normally the communities preferred lender due to a special deal they are offering.
The problem is that if you are qualified today, who says you will be qualified six months from now when you have to settle on your home? Who knows if interest rates will change, if your employment changes, or something else happens? A lot could happen in six months that could alter your ability to qualify for your new home, which could ultimately damage your ability to purchase the home and put your deposit (often a rather large deposit) at risk.
Property settlement: After you move in to a property, a property needs time to settle-in. Believe it or not, a home needs to stretch. A developer normally recommends that you don’t paint your home for the first year because of this.
During this settlement period, you will tend to see cracks along seams of your home, grout in the tile coming up, and caulking that needs attention. This is all part of settlement and is usually just cosmetic. However, someone needs to fix it. Some developers do touch up your home for you after a specific period of time, but many do not.
Resale: Selling is a completely different ball game. My advice would be to hold off selling your home until the developer is 100 percent sold out.
You will never be able to compete with the deals, incentives, prices, and more of those offered by the developer. If you are going to buy in a new construction community, make sure you plan to be there for awhile. Obviously, the real estate market will be the most influential factor, but if the developer is still selling off properties, it will be tough to sell a resale when there are still new homes to be sold at a bargain in your community.