These buying new construction tips can save you frustration when purchasing a new home. Considering the importance of your decision it is a great idea to think carefully before you sign on the dotted line. This plain spoken guide will help you get a clear picture of situations, and alliances that would otherwise be hidden.
Buying New Construction Tips: Understanding Affiliations and Loyalties
Like the rest of the world, the real estate, home building and lending businesses have changed over the last thirty years. Thirty years ago, home builders were small local companies owned by someone in your town. The Realtor was your friend from the community, and your local bank would be on your side, when negotiating for a loan with a national lender. Today that is not always the case. In fact, over 70% of all new home buyers sign contracts with one of the top ten national building companies, who have offices in almost every major city in the US.
• Large home building companies get kickbacks and bonus money from certain lending institution to push their loans, which may have higher interest rates, and closing costs than other lenders.
• The larger home builders have made arrangements with appraisers to ‘recommend’ to you. Home appraisers are experts who determine what the house is worth. If the house is not determined to be worth the price, then the buyer cannot borrow the money for it, and generally the seller has to lower the price. If the appraiser works for the seller, it is unlikely that they will be impartial or protect you from buying an overpriced house.
• If a home builder lists their properties with a Realtor, then the Realtor is paid by them, not you. Even other licensed Realtors technically work for the seller, unless you hire your own disinterested Realtor. The Realtor officially works for the seller and that has always been the case. In past practice however, a buying client had a good bit of clout with a Realtor, even one officially working for the seller.
• Today large home builders have much more sway with Realtors, than individual sellers. Most Realtors try to be fair with the customer, but there are some who will throw good buyer clients under the bus for a company who lists large numbers of properties.
• If a home builder wants you to sign an arbitration contract, which you should never do, then there is a good chance that the arbitrator is likely to act as an agent of the building company, and never rule in your best interest.
Buying New Construction Tips: Finding your own Team of Experts
It is important to be aware of ulterior motives of the various people you will encounter on your home buying adventure. It’s so easy to find yourself being pushed into the home builder’s little club, where everyone represents his best interest, and no one is looking out for you. For this reason, the following suggestions are worth considering.
• You could avoid some of the politics by purchasing your home from a small, local building company. You may even consider buying a spec house built by an individual builder.
• You can refuse to use the lender pushed on you by the builder. It is common for home builders to offer incentives such as upgrades. It is possible though, if you are a good negotiator, to get the upgrade and still refuse to use their lenders. A higher interest rate, or extra closing costs, can amount to tens of thousands of dollars in cost to you, so hold firm on finding your own loan, if theirs is too high. It’s cheaper to rip out their cheap basic level carpet and replace it with top of the line materials than it is to take a higher interest rate.
• Hire your own independent appraiser. You are going to have to pay the appraiser anyway, so find one that isn’t partial to the builder.
• Never even consider signing an arbitration contract. Arbitration contracts forfeit your right to sue, if something goes wrong with the house. They are the stock and trade of bad home builders. If a builder wants you to sign an arbitration contract it is a sign that the home is a lemon, built by a disreputable home builder. If a home builder asks you to sign an arbitration contract, or has an arbitration clause in your contract, refuse to sign and walk out immediately. Forget the house, and pick another.
• Have an attorney look over the contract before you sign. Ignore any sort of pushing or encouragement to sign now, or the house could be sold out from under you. There will be other homes. Don’t sign anything until an attorney looks over the paperwork. If you have hired your own Realtor, they may be able to read the contract and advise you as well. Be sure to tell them that you do not want to sign an arbitration contract.
• Hire an inspector, or perhaps a friend who works in home construction to go with you to inspect the home. This person should be very knowledgeable about home building. Make sure they check the attic and crawls space or basement. It is important to insure that the home is structurally sound.
• Make sure that you have a warranty on your home.
Having your own team of experts who are loyal to you and paid by you is vital when dealing with large home building companies. They have their teams of experts ready to push you into their plan. These buying new home construction tips are designed to protect you from being steered to act against your own best interest.