Buying a New Home vs. a Resale
A lot of my business is representing new build transactions. I have listed new construction for a builder, and I’ve represented several buyers looking at new builds as well.
Here I’m going to talk about some of the main differences, and probably point out a few myths along the way.
Let’s start with the most obvious: a resale property will likely need some kind of work, and in some cases a lot of work! But new builds won’t, right? Actually, you very likely will need to do some work on a new build. First, most home builders that I know who build detached single family homes (aka houses) don’t landscape the backyard - they leave it as dirt. However, they do require that you have it landscaped within six months. This can be a major cost. I know people who have put down sod for a few thousand dollars, but I also have clients who have gone big and spent up to $13K on backyard landscaping.
And, of course, maybe there were some features that you weren’t thrilled about. Sometimes people end up changing paint or some tile rather quickly after the purchase.
Now let’s talk about defects. Everything in a new house is going to be perfect, right? It’ll work for years without a problem! Wrong.
First, this is still a house built of concrete, wood, nails, and a lot of other material, then it’s filled with wires, pipes, appliances, and mechanics to heat and cool the home. Things like trim can be a little uneven in some points. Things can expand and contract and settle over the first few years exposing nail pops and sometimes a drywall crack. Usually the builder will come and fix these things for the first year of ownership.
A question that buyers often have is “do I need to get an inspection?” Yes! I know the city or county has inspected all the major factors like structure, electrical, plumbing, HVAC, etc., but these are imperfect. I always recommend a general inspection. If there is a 12-month workmanship warranty on the home, I have had buyers wait 10-11 months before doing their inspection, then submitting any items found just before the 12-month period is up. I’ve had clients do them before closing and after the 10 months as well. Either way, I recommend getting the inspection by a professional and certified inspector, same as any purchase.
Don’t forget to budget for upgrades. Even the most disciplined and frugal buyer can easily add $10k or more to their purchase price when selecting finishes like cabinets, carpets, counter tops, tile, and electrical upgrades. Thinking of finishing the basement? That may add tens of thousands of dollars to your bottom line.
Taxes can be a lot higher on new builds, especially if it’s a new community. They have to pay off mill levies for developing a new area.
You might find a builder with inventory that’s ready to close in the next month or two, but if you want to build from the ground up and pick everything from your kitchen cabinets to your shower grout color, you’re probably looking at a minimum of 6 months. However, it will likely take 8 months or more to finish. Building a custom home can take years!
Be sure you review the contract! This is where it helps to have an attorney look it over, although it is unlikely the builder will ever allow even a small change. The regular buy/sell contract for Colorado protects the buyer and seller, but it does protect the buyer and earnest money quite a bit. The Builder contract protects one person or entity, and that’s the builder. Most times the build goes smoothly and builders really are focused on customer satisfaction, but I have seen projects get delayed by a few days to over six months, and buyers typically don’t have much recourse for such delays.
Are loans any different for new builds? No. There is one exception: often builders have a preferred lender. You don’t have to use their preferred lender, but if you do there are often incentives like money towards closing costs or a credit at the design center. Because it’s a longer close you’ll also need to consider when to lock your rate as they do go up and down over time.
Please don’t take this as a negative for new builds. Like I said, they’re a big part of my business, but you should be aware of the different risks of going the new build path vs. a resale. As always, talk to an agent you trust to get the scoop. If you don’t have someone, call me at 303-912-5394 and we can walk through the ups and downs together!