Things to Know Before Closing on a New Construction Home

Buying a new construction home brings a unique set of challenges and rewards. Whether you're a first-time homebuyer or looking to upgrade to a brand-new property, understanding the nuances of buying new construction homes is essential. From choosing the right builder to knowing the building process, our West & Woodall Real Estate agents provide comprehensive insights and new construction home buying tips in our "Things to Know Before Closing on a New Construction Home" guide, helping you make a well-informed decision.

Understanding New Construction Homes

A new construction home is a completely new building, typically built on a vacant lot. There are three primary types of new construction homes.

Spec home

Spec homes are usually built by builders or developers who have a specific floor plan and design in mind, and they build multiple homes with the same specifications. These homes are often built in a planned community or subdivision, and the builder will sell the homes to buyers once they're completed. West & Woodall REALTOR ^® Matt Lawing explains, "A spec home is a house that's built and then sold. In other words, the client doesn't really have the opportunity to customize things. It's literally that there's a recently built house, and you're the first person to live in it."

Spec homes are often a more affordable option for those who want a new home without the hassle of building from scratch. In addition, they can be a good choice for people who want a newly constructed home quickly because they're typically move-in ready once they are completed.

Semi-Custom home

Semi-custom homes are a great option for those who want to be involved in the design process but also want the convenience of a pre-planned home. With a semi-custom home, you can choose from a selection of floorplans and then customize certain features to fit your needs and style preferences. According to Matt, "The buyer gets involved early on in the process and has some control over colors, cabinet layout, finishes, things like that." Limited layout changes may also be an option to better suit your needs.

This level of customization allows for a more personalized home that reflects your individual taste and lifestyle. It also provides the opportunity to have some control over the design process without the hassle of building a home from scratch. Of course, in exchange for the buyer getting to have some say in the building process, semi-custom homes often come with a higher price tag and longer construction timeline.

Both semi-custom and spec houses often come with shared amenities like parks, pools, and clubhouses.

Custom home

In contrast to a spec or semi-custom home, a custom home is built solely under the homeowner's direction. REALTOR ^® Debra Mangum explains, "It's when someone buys land and then hires a builder to build their house." Matt adds that "from the very beginning, the builder is working directly for the homeowner."

The design of the home is usually custom-made to the buyer's specifications and preferences. This can involve choosing the layout, size, materials, and any special features such as a porch or a deck. Because homeowners are involved in the entire home construction process from start to finish, custom homes require more time and decision-making on their part. This can include selecting a builder, working with an architect, making decisions about interior design and finishes, and overseeing the construction process.

The benefit of a custom home is that it can be tailored to match the homeowner's lifestyle, preferences, and needs. This, of course, means that it is usually more expensive and time-consuming than purchasing a pre-existing home.

The Role of a REALTOR ® in a New Construction Home

When buying a new construction home, having a REALTOR ^® as your advocate from the beginning of the process is crucial. This is true whether you're buying in a new home community or building from scratch on your own land.

According to Debra, "If you want to build on your own land, a REALTOR ^® can help you find the land first. Then, they can help put you in touch with a custom home builder or general contractor if that's something that you need. If you want to live in a new home community, the REALTOR ^® will already know of different communities in the area."

Both Matt and Debra emphasize that new home communities are where it's especially important to have your own REALTOR ^®. That's because the agent working at the new home community represents the builder, not you. Matt explains further. "The builder's agent is not going to have your best interests at heart. That's not to say that they're bad people; they're just working for the builder, and they're supposed to do what the builder is telling them to do. So, they're not going to advocate for you like your own agent would."

Because of this, your REALTOR^® should accompany you on your first visit to a new community, whether you’re planning to see a model home or not, and any subsequent visits as well. If you don’t do this, you run the risk that the new home community may not recognize your REALTOR ^® as representing your interests in the transaction.

Things to Consider When Buying New Construction

No matter what type of new construction home you're considering, it's important to keep several factors in mind. Debra walks through some of these.

Future developments

There are a few reasons why future developments are important to consider. First, they can impact the overall atmosphere and aesthetics of the neighborhood. If a new commercial building or sprawling apartment complex is built next to your home, it could affect the overall ambiance of the area. Additionally, new developments may bring increased traffic, noise, and congestion to the area, which could impact your quality of life.

Future developments can also impact the value of your home. If a new development brings amenities or attractions to the area, it could increase the value of your property. On the other hand, if a new development negatively impacts the neighborhood, it could potentially decrease the value of your home.

Finally, it's important to consider whether future developments could potentially obstruct your views or natural light. If a new building is built next to your home, it could block out natural light and impact your privacy.

School districts

If you have children or are planning to have children, you’re going to want to consider the local school district. Researching the school ratings, extracurricular activities, and the overall academic environment in the area can help you make an informed decision about where to buy or build your new home. Additionally, homes in good school districts often retain their value better, making it a wise investment for the future.

Potential Resale Home Value

The potential resale value of a new construction home is an important factor to consider when making a purchase. Even if you don't plan on selling the home in the near future, it's important to think about how the property will hold its value over time. Factors such as the location, amenities, and quality of construction can all impact the potential resale value of a new home.

Debra says "It's always a good idea to do thorough research and speak with your REALTOR ^® to get an understanding of the current market trends and how they may affect the resale value of a new construction home." By considering the potential resale value, you can make a more informed decision and ensure that your investment in a new home is a sound one.

Special Considerations for a New Home Community

In addition to the previously mentioned considerations, there are a couple of factors that are unique to new home communities that should be kept in mind.

Homeowners association (HOA)

Most new construction planned communities are governed by a homeowners association (HOA). Debra advises finding out from the beginning what the HOA dues are going to be and what they currently or will include. "You need to know what amenities you're going to get. Sometimes, you get a pool; sometimes, you get a dog park; sometimes, you get nothing but common area maintenance. You need to know what those things are, even if they're not built yet, and what it's going to cost to be part of that community."

Under Construction

When buying a newly built home in the beginning phases of a planned community, it's important to keep in mind that your surroundings are probably going to be under construction for a while, even once you move in. Debra forewarns that "you're going to have muddy roads; you're going to have hammering and construction sounds; and you're going to have nails and tacks laying around. So just be prepared to ride out that process until the community is built out."

Special Consideration for a Custom-Built New Construction Home

When considering buying land for a custom-built new construction home, Matt says that it's crucial to consider factors like zoning, infrastructure availability, or whether the property is in a floodplain. "You certainly want to know if the land can be built on at all, and if it can, what size of house the septic system can support."

He warns that one red flag should be if the land is really cheap. "The reason it's so inexpensive may be because there's a floodplain going all the way through it, or the soil isn't good for building a new home. It may also just be a weirdly shaped lot, and you can't build on it because it will be too close to the other houses or too close to the property lines. In addition, it may be too close to an easement for something like a power line."

Financing Options When Buying New Construction Homes

How you secure financing for a new construction home depends on whether it's a fully custom, spec, or semi-custom home. If you're buying a custom home, you may need to secure a construction loan. Matt explains, "These loans provide funds in stages as the builder completes certain milestones. After construction, the loan converts into a traditional mortgage."

If it's a semi-custom home, Debra notes that some builders, especially the larger national companies, will basically finance the cost of building the home. Once it's complete, you would either pay cash or get a loan to close the transaction.

For new home communities, standard home loans apply, just as they would if you were buying an existing home. In those cases, you won't need to secure financing until the house is complete.

Selecting the Right Builder

When buying or building a new construction home, selecting the right builder is critical. Here are some important considerations when selecting a builder to work with - whether it's for a new home community or building a custom home.

Reputation and Experience

Researching the builder when buying a new construction home is the first thing that you'll want to do. Look for one with a solid reputation and plenty of experience in the industry. Research their track record, customer reviews, and years of experience in constructing homes. Matt says, "If you repeatedly see negative reviews about a builder or a new home community that is still under construction, you probably don't want to live in one of that builder's homes."

Quality of Work

Visit some of the builder's completed homes and pay attention to the craftsmanship, attention to detail, and overall quality of construction. If energy efficiency is something that's important to you, make sure that the builder has experience in "green" construction. Local home builder, Accredited Master Builder and Master Certified Green Professional Chad Collins with Collins Design-Build believes that for new homes, it starts with design and carries through to incorporating energy-efficient elements throughout.

Matt reminds any potential new construction homebuyer that the price point of the house will dictate the quality of the materials used. "There are some builders that are trying to build an inexpensive product. That's because they want to sell to people who need a $200,000 house instead of a $500,000 house. So, sometimes that's by design. If they're using inexpensive materials, but it's still safe, and it still passed all inspections, there's not necessarily anything wrong with that. They may just be trying to hit a different target demographic than builders that use higher quality materials."

Communication

A good builder will prioritize clear and open communication with their clients. Make sure the builder is responsive and attentive to your questions and concerns.

Transparency and Documentation

The builder should provide written contracts, detailed estimates, and clear timelines for the construction process. Transparency in pricing and project details is crucial.

Warranty and Support

Inquire about the builder's warranty program and their commitment to providing support and maintenance after the home is completed.

Financial Stability

It's important to choose a builder who is financially stable and has a good standing with lenders, suppliers, and subcontractors.

Licensing and Insurance

Verify that the builder is licensed, bonded, and insured to protect yourself from liability and ensure compliance with local building codes and regulations.

References

Ask for references from past clients and take the time to speak with them about their experience working with the builder.

The New Construction Home Buying Timeline

The building process and timeline for new construction homes can vary greatly depending on the type of home and the builder. If it's a spec home, the house won't be sold until it's move-in ready, so the buyer isn't waiting on it to be completed. For those types of homes, it usually takes between four to six months for construction.

For semi-custom and custom homes, both Debra and Matt agree that the process will probably take six to nine months. Of course, Debra warns that any type of home construction can be affected by the weather, availability of materials, and other unexpected issues, so buyers of new construction homes may have to be flexible.

Home Inspection

Although your new home will be brand new, it's still essential to have a home inspection. Having a professional inspector evaluate your home can help identify any potential issues before you close the deal. Debra echoes this wholeheartedly. "I always recommend them. Many people think an inspection isn't necessary because it's a new home, but it never fails. There's always something. I've had hot and cold reversed on faucets, outlets not working, or an icemaker not working on the refrigerator that the builder included in the contract. There's so many things that you can find."

Debra advises using the inspection as the basis for your punch list that you'll give the builder before you close on the house. That way, you're on the record for anything that needs to be addressed. She says that if there's anything a builder can't take care of before closing, such as planting trees that should be planted in a different season, they will give you documentation for an "I owe you."

Matt explains that if you're buying a semi-custom new construction house, there are two types of inspections that you'll need to pay attention to. "One should be done before the sheetrock goes up so the bones of the house can be inspected, then there's one right before closing."

Despite all of that, some things may still slip through the cracks. If issues aren't caught before closing, most builders provide a home warranty that covers repairs and replacements within the first year.

Closing the Deal

The closing process for new construction homes is similar to existing homes. However, some builders may want you to use their preferred attorney. According to Debra, "Every buyer has the right to use their own attorney, but sometimes the builder may offer to pay closing costs for you if you use theirs. That's not because there's anything funky going on. It's usually just because their attorney may have already closed hundreds of homes for them and can make the process more efficient for everyone involved."

Final Thoughts on Buying a New Construction Home

Buying a new construction home can be a rewarding experience, however, it also requires careful planning, patience, and professional guidance. If this is something that you're interested in, reach out to info@westandwoodall.com and one of our agents will be happy to help you turn your dream home into a reality.