Let’s chat the ins and outs of new construction. Here’s this week’s plan:
Monday: Guide to New Construction, Part 1
Tuesday: Guide to New Construction, Part 2
Wednesday: New Construction Hurdles
Thursday: Learning About the 3 Types of Builders
MONDAY’S OBJECTIVE: Guide to New Construction (part 1)
It’s no secret that our Valley is suffering from a lack of inventory. It has become increasingly difficult to find the right home for many of our buyers and as a result building has become a necessity for many of our clients. Learning this process and making sure we represent our clients is a top priority.
Understand the key differences between a buyer’s agent’s duties when dealing with re-sales vs. new-construction transactions.
There will always be some difficult deals that require extra steps on the agent’s behalf, but for the most part, a buyer agent’s primary responsibilities on a re-sale transaction typically revolve around the same five general functions:
- Structuring the offer terms competitively to compete against other offers, and lining up any contingent sales that must occur concurrently.
- Researching price by analyzing comparable sales to maximize the chances the home will sufficiently appraise, and ensuring that the buyer isn’t over-paying.
- Negotiating price, post-inspection repairs, and concessions.
- Managing deadlines such as loan application, earnest money delivery, appraisal scheduling, title review, review of HOA documents, binding homeowner’s insurance, contingent sales, and closing.
- Protecting the buyer’s earnest money, by recognizing any inability (or unwillingness) of the buyer to comply with a date outlined in the contract, and working to either extend that deadline or terminate the offer in time.
By comparison, an agent’s primary role in a new-construction transaction is a little different, and can generally be summarized by the following seven functions:
Interpreting the buyer’s rights outlined in the builder contracts, and noting any crucial deadlines relating to the buyer’s ability to terminate without forfeiture of the deposit money.
Negotiating the price, incentives, and inclusions. Just like a car dealership, new home salespeople can often offer extra inclusions, or discounts to secure a contract.
Solidifying the price the home will come to after lot premiums, design center options, structural upgrades, low voltage options, appliances, landscaping, and builder incentives have all been factored in. The builder’s advertised “base price” is generally tens of thousands of dollars below the final completed price, once these factors are added together.
Advising the buyer on making the best use of the budget. Choices like which lot, what structural upgrades, or which design center options, can all make-or-break a buyer’s budget. Some cosmetic options can be done more affordably after closing, while some structural items cannot easily be done at all after the house is completed. Most builders will also require additional deposit money, once a buyer’s design center choices exceed a set amount. This can be up to 50 percent of the cost of the upgrades, once the cost of the options goes past a predetermined dollar amount.
Questioning the builder’s sales rep about all the inclusions, contingency terms, financing and incentives that a buyer might not think of on their own until it’s too late. The model homes are packed with every imaginable upgrade, so it’s extremely crucial to ask which features are included with the basic home, and which items are upgrades. Even basic things like lawn grass, sprinklers and fences in the back yard, are often not included. Refrigerators, garage door openers, window blinds, and central air conditioners aren’t always included either.
Accompanying the buyer on the walk-throughs the foreman will conduct at the various stages of construction. Pre-drywall, electrical, low voltage, and the final pre-closing walkthrough for identifying touch-ups. It’s the agent’s job to help hold the builder’s foreman accountable for completing any repairs or necessary corrections discovered at these walk-throughs.
Protecting the buyer’s earnest money remains a common thread. There aren’t as many crucial deadlines, but there are still a few like the loan application deadline and the contingent sale deadline. It’s your job to make sure the buyer understands them. Also, some builder contracts have verbiage that entitles them to keep a percentage of the deposit, even if the buyer backs out for a legitimate reason defined in their contract. Make sure you and your buyer are clear on this point, so there are no unpleasant surprises.
Take time to explain some of the pros and cons of buying existing. Is it better to build new or be patient and wait for the right property?
- Watch New Construction vs. Existing Homes: Click Here