DON'T make these mistakes when Building a New Home

Buying a new construction home comes with its own set of obstacles that most potential home buyers are oblivious to. The hacks and information below will not only save you money, but it will prepare you for entering a builder’s showroom floor. These are mere observations made from the Texas market but can mostly be applied to any builder around the world. 

Incentives

The first thing you should watch out for is builder incentives, which are promotions created to encourage you to buy their product. An example of this is when a builder says, “Hey, if you use our lender then we can give you $5,000-$15,000 toward your loan fees.” Most incentives involve using a certain lender because in most cases the builder has a mutual relationship them. The upside to this is that you don’t have to shop around for lenders if you don’t want to, but most people like to compare their options. If you decide to use a conventional or VA loan the loan fees will be very similar, so it would be wise to compare that to what the builder will offer you. In the end, it really comes down to how much you're going to pay for that house, on a fixed note, for a certain amount of time.    

Short Inventory

There’re almost no new builds in Texas and if there are then it’s very slim pickings. Some new builders have a wait list where you choose your preferred floor plan and have your name added to a list of potential buyers. The builder will then call you when, or if, they have said floor plan available for you to buy. 

In other instances, they have a lottery system where they have a drawing on which family gets a house in a certain subdivision. They may even create bidding wars because of the shortage of inventory. A builder might put a house on the market and give it a week to see how many families will overbid in that community. This has become a reality for many people because of the rise of COVID-19 and the way it has affected both the housing market and the shortage of materials to build homes. This is something you should be aware of and speak to your local real estate agent about.  

Contracts

The contracts are the meat and potatoes of buying a new construction home, and we’re seeing a lot of changes with them in Texas. Anywhere between San Antonio to Austin we are seeing a lot of one-sided contract agreements—what does this mean? The builder, who usually creates all the contracts, and their team of attorneys are writing up contracts to protect themselves. So, it’s either you use their forms, or you don’t get the house, which is pretty messed up. You can overcome this by having representation with you so they can go over every line and section of the contract to ensure you know exactly what you are signing. 

On the other hand, some builders try to get out of contracts because they agreed on a price six months ago (or however long ago) and there’s now more equity in the house. There are so many “ands” in a new build that could contribute to how much it can increase in cost that can negatively impact the builder. Now, the builder wants to get you out of the contract so they can put it on the market for a quick sale. Builders are always looking for ways to make more money, so those builder contracts are something you need to know.

You want to make sure that all conditions have been met and if there’s a certain deadline to get financing and inspections done. All these things will be outlined in the agreement, including the incentives (see the first step), in the contracts. 

There is something in a builder contract called an Escalation Clause that means if the price to build the house increases to a certain amount, then so does the price of your home. The cost to build the home can fluctuate depending on the price of lumber, sheetrock, copper, etc. You want to be aware if there’s such a clause in your contract, so you can know how much more the price of your house can increase.   

Price Holding   

What if you’re shopping for a new home and they tell you, “We have this house that’s being built,” but they’re not giving you a price for it? What builders are doing is not disclosing prices to keep you interested while they ride the appreciation wave. We are seeing such an increase in home prices that the builder is going to lock you in an agreement that is pending the price of lumber, roof shingles, and other material used to build the home to get more money. I honestly think that they’re waiting for material to go up in value so they can charge you more money to recoup the costs that they’ve already incurred. 

If a consumer were to lock in the price early, then there would not be an increase in cost since the builder would pay for material as it’s being built. In the interest of the builder, it would behoove them to give you the price later in the process (the earliest would be at the framing stage) so they know how much their profit margins are. 

Lock in your Price and Get in Early 

How do you beat the system and get the most bang for your buck? Lock in your price as soon as you can! Once you lock in the price then they can’t escalate it, even if there’s a lumber shortage or less inventory, unless there’s an Escalation Clause (wink, wink). The main hack is getting in early and that is even more important for developments with no amenity center. Those are even better to get into because subdivisions with amenity centers will jack up the price a little bit. People are going to be baited in by the slides, water parks, pools, and other cool things you can do that will get them to buy a house in that subdivision. If you get in before that then you have a better chance of riding the appreciation wave, rather than the builder. 

How to Swoop it Up!!

Let’s just say somebody is trying to get a house built, they lock in a price, and something happens where they are unable to purchase the house. You then can swoop up that house before it goes on the market. To make this possible you must have a relationship with the sales representatives so you can ask if there are any homes that could potentially go back on the market. These are the things that your agent, or you, should really follow up on to get the very best deal for you and your family.