Purchasing new construction can be a wise and rewarding decision, but those who decide to go down this road must be aware of the potential risks involved. Seeking out professionals to help you get the most of your money is critical. Buying and selling personal real estate is an emotional process making it difficult to make decisions that are always in your best interests in the long run.
Some of the causes of wrong decision making come from assuming that you will be living in this new home ”forever” or, convincing yourself that you can afford the home. The average family in the Phoenix area statistically moves at least once every five years. Things unexpectedly come up in your life and/or it is common to change your mind or grow out of the location or certain qualities of the house. Many people find themselves five years down the road trying to sell their home, and they either can’t sell it or they have to drop the price considerably to make up for poor choices they made during the purchasing process. Thinking about resale value is one of the most important factors when buying new construction.
Going into the deal alone without representation causes you to be at the mercy of the builder. The customer service personnel, ie: the builder’s sales associate who sold you the home and the superintendent of the subdivision both work for the builder and ultimately look out for the builder’s best interests. Many ways exist to protect yourself against poor service and ultimately the quality of your home.
Hiring a realtor to assist you in the process is crucial for many reasons. First of all, most realtors will give you a significant discount on their real estate fees when they list your home if they can be involved in the purchase of your new home. Secondly and most importantly, everyone needs professional representation when purchasing a home. Realtors can give you valuable information regarding the loan process and the potential resale of your purchase, including floorplan and lot recommendations, coloring, options and more.
Your realtor can assist you in a pre-qualification process first. The pre-qualification process tells you how much you can afford and what you can expect to pay monthly. It helps narrow your buying choices. Most people can qualify for a lot more than they can afford. Looking at homes that are not in your price range is frustrating. If you fall in love with a house you can’t afford, your emotions may get involved and you will find a way to talk yourself into buying it. Later, you may put yourself into financial ruin or be “mortgage poor”. Secondly, if you don’t end up buying it, nothing in your price range will look good. Although you usually need to use the builder’s lender, it is best to talk to a lender you know and trust first to get a feel for what you need to look at, rather than doing the house shopping first, and then figuring out how to finance it. Furthermore, the new home sales associates will usually “find a way” to persuade you to buy the more expensive house and at the same time, tell you everything you want to hear. Once you have seen the “perfect” model and fall in love with it, you are hooked. One of the tactics the sales people use to persuade you to buy the more expensive home is through creative financing. With the many “crazy loan” programs currently available, it is best to get as many professional opinions as possible. Many factors exist in deciding which program is best for you. For example, if you are only planning on living in the home for five years or less, or your financial position may be changing in the near future, you might choose a different program than someone who is looking long-term. Loans are expensive and you want to do it right the first time. The lenders who work for the new home builders are generally pretty good. It is rare to get a great deal from them, however. The “discounts” and incentives the builder gives you on price and upgrades usually more than outweighs their higher loan costs. If the builder or the builder’s lender offers to pay your closing costs and/or loan costs, it usually puts you in the same category as if you went to an outside lender to buy a re-sale home since the builder’s lender typically charges more closing costs, junk fees and in some cases, makes the buyer pay for most of the builder’s escrow fee and title insurance. Always get a “Good Faith Estimate” (a written summary of your loan costs) from the lender before you commit yourself. This will give you leverage if anything changes. In summary, the more research you can do on the loan process before shopping for the home, the more you will stay disciplined throughout the process.
The future resale value of the home is one of the most important factors to consider. Your realtor can provide valuable information
on what is important to consider now in order to get the most for your home later. Lot locations are important in that it is usually best to stay inside the neighborhood as much as possible. If your lot backs a busy street or a potentially commercial lot, you may want to re-think it. These types of lots can end up causing you a $25,000+ drop in your list price to get the house sold. Secondly, the color scheme is important. Keeping your colors neutral is key. Multi-colored flooring and/or countertops can end up costing you considerably in the future as well. Floorplans are important as well. Making custom modifications to the home can hurt you in the future as well. For example, if the house is built as a 3 bedroom, but you want to make it 2 bedrooms and a den by taking out the closet, your house will be harder to sell in the future. Some upgrades are essential, however, and really need to be added when the house is built, such as a covered patio, bay windows and vaulted ceilings. Buyers are interested in solid surface countertops and hard flooring with very little carpet . As more folks move to Arizona from the mid-west, where basements are prevalent, three car garages are a must for most buyers. These examples are just a few of the many details to consider while at the design center or deciding on which spec home to purchase.
A realtor can also help keep you informed of price changes and good deals. Although builders do not normally negotiate prices and/or incentives, it is a good idea to stay on top of the current prices and incentives that the builder offers after you have written your contract. In the past years, buyers were always pleasantly surprised when they walked in the sales office every month to see how much their home had appreciated since the contract was written. Now it tends to be the opposite. Especially if your new home will not be completed for months down the road. We are not recommending that you haggle with the builder every other week to get equal treatment, but if it is nearing closing time and the sales price and incentives of your model are considerably different than what your contract states, then discussing an adjustment with the builder may get you a better deal. We have seen unbelievable price deductions at closing time in the buyer’s favor due to this volatile market. The builders need your house to close at any cost.
Other items that you and your realtor can discuss would be location of the neighborhood. The buyer needs to make sure that the public report is satisfactory to them. This report is where the builder discloses all known facts about the general area that might cause a buyer to not purchase the property. If you have school age children, research schools and test scores. Check out your drive to work in rush-hour traffic. Visit the neighborhood at night and on the weekends when your potential neighbors are home to make sure that the neighborhood meets your standards.
Your realtor can also help you hire a good home inspector. Many buyers are skeptical about paying the $300-$500 for a home inspection. More often than not, the home inspection will more than pay for itself. The home inspector will normally be scheduled for at least two separate inspections—the first being at framing, and the second a week prior to your walk-through. A list of items found in question will be dealt with by the superintendent prior to your walk-through. Although the builder claims this is an unnecessary procedure, we have yet to see a perfect home or even a close to perfect home. Having a home inspector who works for you is of dire importance. If a buyer purchases a new home through us, we ALWAYS pay for the home inspections.
In summary, its important to use an experienced realtor who works in your best interests throughout the transaction. Finding a home that is right for you is key. You as the buyer must feel 100% comfortable with the home. In addition, a good realtor will help you pick the best home to fit your future plans. Only a small percentage of realtors will take the time and energy to obtain the necessary skills to participate at the elite level.
Please take these common mistakes into consideration when looking to purchase a home. Your net return in the long run is the most important factor here. Finding a good Realtor to walk you through a home purchase is everything. If you have further questions regarding these issues, please call us at anytime!
