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Buying a new construction home can be an exciting adventure. The buying process is much different than if you were buying an existing home. With that in mind, we've brought you a guide to the new construction process below. Keep reading to get a sense of the pros and cons of buying a new construction home, the steps you'll take from start to finish, and questions that you should ask any builder before signing on the dotted line.
The pros and cons of buying a new construction home
While the idea of buying a brand new home might seem exciting, at the end of the day, it’s not the right choice for everyone. To that end, we've laid out the advantages and disadvantages of this decision for you below. Read them over so that you have a better idea of whether buying a new construction home or an existing home is the right choice for you.
Pros of buying a new construction home
- More customization options: The largest advantage of buying a new construction home is that you can play a prominent role in the design. (And it's cheaper than building a custom-home from scratch.) In most cases, you’ll have the option to select different finishes and add on various upgrades and amenities. Ultimately, it is much easier to customize the home to fit your tastes than it would be if you bought a resale home.
- Less maintenance: Because everything from the structure to the appliances is new, your new construction home will need less maintenance than an older home.
- More energy-efficient: Newly-built homes are typically more energy-efficient, as the builder incorporates eco-friendly innovations in windows, insulation, cooling and heating, and appliances.
Cons of buying a new construction home
- More expensive than resale homes: The biggest disadvantage of buying a new construction home is that customization and newness come out of cost. Often, these homes are more expensive than resale homes. If you're going to go this route, the best time to buy a new construction home is when you can get a good interest rate on your mortgage and when it's a buyer's market. In a buyer's market, properties tend to sit on the market longer, and sellers tend to be more open to negotiation.
- Longer timeline: It's important to note that it can take much longer to buy these homes because you have to go through the construction process before you get the keys. While your typical existing home can close in 30-45 days, new construction will take several months to complete.
- Builder quality highly varies: Finding a builder that is reliable and produces high-quality homes will take time. Because new construction is a longer, riskier process, you’ll also want to find a builder who will be responsive at every step.
The new construction home buying process: Step-by-step guide
Now that we’ve covered the main factors to weigh before choosing to buy a new build, we’ll walk you through the eight major steps of the new construction buying process:
- Finding a real estate agent
- Financing your new build
- Choosing the right type of builder
- Making smart style and design decisions
- Making an offer and negotiating terms
- Starting new home construction
- Inspecting your newly-built home
- Closing and moving in
Step 1: Finding a real estate agent
One question buyers often ask is, "Do you need a realtor to buy a new home?" While it is technically possible to buy a new construction property without using a realtor, it's in your best interest to hire an agent. Having an agent ensures you have someone in the transaction looking out for your best interests, helping answer questions, and negotiating the best terms for you.
Many times, a builder recommends a buyer’s agent and even pays their commission. However, you should still vet that agent before signing an agreement.
Here, not only is it crucial to hire experts who can assist you through the buying process, but you'll specifically want to look for professionals who have experience working in new home construction. Furthermore, if you still have a home to sell, it’s a good idea to find an agent who can represent you for both sides of the transaction.
Before joining Orchard as a licensed Home Advisor, Toni Thompson worked for a local home builder and got an inside view into the process. She notes, “Builder contracts are not standard and are very different from those for a resale home. You’re also agreeing to buy a home that doesn’t even exist yet.”
She adds, “Loop in your real estate agent before you even visit any new construction developments. Most builders require you to register your agent during the first visit and do not allow you to add your own representation at a later step.”
Choosing an experienced agent
One option is working with Orchard to buy your new construction home. Orchard matches you to an experienced agent, an Orchard Home Advisor. They not only help you negotiate the best terms for your new build but also help you list your existing home. Once your new home is ready, they list your old home to get you a top-dollar sales price, letting you avoid showings and making contingent offers.
Below is an overview of Orchard’s new build process:
Step 2: Financing your new build
Financing a new construction home is very similar to buying an existing home. However, you have to be more mindful of the timing. Your lender will not allow you to close on a new construction home until it is fully completed. If you already have a family, it will be challenging to line up the closing of your new home with the sale of your existing home.
You have a few options if you want to finance a new build house but still have a mortgage on your existing home:
- Bridge loan: A bridge loan is a temporary loan that helps you access your existing home’s equity before it sells. A lender advances you money for a predetermined amount of time, typically six to nine months. Qualifying for a bridge loan is tricky, and you’re taking a risk if your home doesn’t sell within the predetermined timeline.
- Construction loan: A construction loan provides short-term funds to use on the cost to build your new home. This type of loan is more common among custom builders but requires a 20 to 25% down payment and has higher interest rates than other more typical types of financing.
- Builder financing: Many builders have relationships with lenders who finance new construction homes. Sometimes there may be financial incentives for using the builder's preferred lender, but again, proceed with caution and vet other alternatives as well. These days you can even find lenders who will shop rates for you to make sure you’re getting the best terms possible.
Neither one of these options is ideal and puts you in a riskier position if you’re also balancing selling your existing home. One alternative is Orchard’s new build program.
Similar to a bridge loan, Orchard helps unlock the equity from your current home so you can buy a brand new house. But unlike the financing options outlined above, Orchard guarantees your existing home will sell and does all the legwork to list it on the market after you’re all settled into your new home.
Step 3: Choosing the right type of builder
Once you have an agent and lender on your side, the next step is to find the right builder. Knowing which type you need can help you zero in on local builders who are a good fit for the job. Here are the four most common types of home builders:
- Tract or production home builders: As the name suggests, tract builders buy large tracts of land and build subdivisions. Typically, they only offer a few different floor plans for buyers to pick between, and there's not much opportunity for true customization. However, this type of new construction home is often the most affordable and is built on the quickest timeline.
- Spec home builders: A spec, or speculative, home builder usually builds one or two homes before eventually putting them up for sale. Spec builders often have more potential for flexibility than tract builders, so you may be able to get some customization at a lower price point.
- Semi-custom home builders: A semi-custom home is often thought of as a middle ground between a pre-built house and a custom build. Usually, with this type of new build, the homebuyer will pick the lot’s location but will choose from a selection of pre-made floor plans that the builder offers.
- Custom home builders: A custom home is often thought of as a "dream home." A custom home allows the buyer to design every element of the house from scratch. As you may guess, this option is often the most expensive and takes the longest.
After you've zeroed in on the right type of builder for you, it's essential to do your research. You'll want to look up appropriate builders in your area, dig into each builder's reputation, and get a sense of their current or past projects.
"Walking into the model home should immediately give you a sense of the builder's quality of work." - Toni T., Orchard Home Advisor
If you need a trusted builder recommendation, feel free to reach out to us at firstname.lastname@example.org, and we’d be happy to provide recommendations. We’ve worked extensively with builders throughout Atlanta, Austin, Dallas, Denver, Houston, and San Antonio, including:
- Perry Homes
- David Weekley Homes
- Taylor Morrison
- Century Communities
- Chesmar Homes
Step 4: Making smart design and upgrade decisions
Typically, when you see a price advertised for a new construction property, it is simply the base price. It comes with builder-grade flooring and finishes. If you want higher-end finishes or selections beyond what is included in the base price, those features will be considered upgrades, and they will likely come at an extra cost.
After you choose your builder, they will schedule a design consultation to walk you through your options. You'll need to plan your selections carefully, so you'll make sure to stay within your budget. Here are a few choices you’ll make:
- Location of the lot (interior lot, corner, cul de sac, etc.)
- Basic home characteristics like exterior style, floor plan, square footage
- Stylistic choices like paint color, type of flooring, and light fixtures
- Feature upgrades like wood flooring, granite countertops, heated flooring, etc.
What upgrades are worth it in a new house?
It’s easy to get caught up in the details and drive up the cost of your home. When thinking about upgrades, choose features that will add to the value of your home.
Chad Cox, an Orchard renovation manager who recently built his own home, says, “Spend money on things you can't change later - like the home’s frame, insulation, foundation, and windows. You can always change flooring, countertops, and light fixtures as you’re living in the home.” He suggests prioritizing practical upgrades, like energy-efficient windows, that will ultimately save you money down the road.
That said, you may still want to make a few aesthetic changes. Prioritize high-impact spaces, like the kitchen or master bathroom. Future home buyers will care more about these spaces than guest rooms or bathrooms. Toni adds, “I always advise my clients to focus on upgrading the countertops, cabinets, and flooring. These upgrades will add value to your house.”
On the other hand, we caution against spending money on the following:
- Lighting fixtures: Builders have a limited selection of lighting options. Since it’s easy to change out light fixtures, wait to find more affordable options that better suit your tastes.
- Appliances: Once again, you’ll be limited to the options and prices your builder provides. Buy the appliances on your own and take advantage of local sales.
- Outdoor patios: New homes settle and if you build outdoor spaces right away, you may end up with cracks in your patio.
"If you walk into a model home and fall in love with the upgrades, you may be in luck. Builders often sell their model homes at a discount once they sell most lots in the community." - Toni T., Orchard Home Advisor
Step 5: Making an offer and negotiating terms
When you're ready, you'll put together an offer on the home. In new construction, you'll usually sign a builder contract rather than the standard purchase agreement. A builder contract outlines the terms between the builder and the buyer, including what will be built, how much you’ll pay, and the completion date.
This step is where your real estate agent will be invaluable to you. They will be able to negotiate on your behalf and to advocate for your interests. In particular, one thing that you should negotiate is the builder warranty. A builder warranty will help cover the cost of anything that breaks or malfunctions after your house has been built. Specifically, you'll want to ask questions about the scope of the warranty that your builder offers, as well as how long it lasts.
Step 6: Starting new home construction
After negotiations are done, you will hand in your earnest money deposit and will officially start the construction process.
Usually, the construction process will be broken down into several phases, and you will get a chance to see the progress after each phase is complete. Depending on the type of mortgage you are getting, your lender may also require performing an inspection at the end of each stage.
At this point, you may be wondering how long it’ll take to build a new home. According to the Census Bureau, building a new single-family home takes about 7 months, though the timing will vary depending on the type of home you’ve purchased. You should expect a custom home to take at least 9 months, while a semi-custom home will take around 6 months.
Step 7: Inspecting your newly built home
Once construction is complete, you will be given a chance to do a home inspection. Just like with a resale home, the home inspector will walk through your new house and look for any apparent issues. Then, they will write up a report with their findings, and you will be given a chance to work through any necessary repairs with the builder.
Next, you will do your final walk-through. Again, just like with an existing home, this is your chance to see if you notice any problems with the property before you go to closing. Make sure to test everything out, including turning on all your appliances and flushing the toilets. If you notice any problems with your new home, be sure to speak up about them before you head to the closing table.
Step 8: Closing and moving in
At closing, you will go over all the paperwork with your real estate agent and sign on the dotted line. The final funds for your mortgage will be disbursed, and you will be asked to bring a check to cover your closing cost. However, once everything has been signed and the money has changed hands, you will officially be a homeowner.
4 questions to ask when buying a new construction home
Now that you have a better idea of how the new construction process works, we've brought you some questions to ask when negotiating with a builder. Keep them in mind so that you can go into the building process feeling informed.
Can I see references and examples of previous projects?
As a home buyer, it is crucial to ask to see examples of a builder's previous work. They will likely offer to show you the model home for their current project, but you should insist on seeing previous projects as well. Truthfully, doing so will give you a better idea of how the builder's work holds up over time.
Also, it's in your best interest to ask to speak to a few references. You can ask them what it was like to work with the builder and what they thought about the construction process.
Who will be in contact with me during the building process?
Believe it or not, after contract negotiations, you probably won't interact with the builder very often. Instead, you will likely work with one of their project managers. In any case, ask for their contact information, so you know who to go to if you have a problem.
Which features are standard and which are upgrades?
Picking out features and finishes is often one of the hardest parts of buying a newly built home. Upgrades may be tempting, but they can also become expensive fast. Builders will typically show you a model home, so don’t be afraid to ask questions to learn what’s a basic feature and what’s extra.
To that end, when you're negotiating, also ask to see a future sheet before you sign anything. That will give you an idea of what is included with your base price and which features will cost extra.
How do you handle change orders during the building process?
It's not uncommon for homebuyers to change their mind during the construction process. However, you should know how any change orders will be handled upfront. Be sure to ask what paperwork you will receive documenting the change and how you will be charged for any extra materials and labor.
3 common mistakes to avoid during the new build process
Because buying a brand new home is such a large commitment, you do not want to be stuck with a home you don’t love. We scoured the internet to find some of the most common mistakes recent homebuyers made that you should avoid:
Choosing the wrong builder
Choosing the wrong builder is one of the top-cited mistakes we came across on forums and blogs. Upon seeing their new home, buyers felt the finishes and work were poor-quality. Some even cited that during the process, the builder was unresponsive.
To avoid this mistake, spend time getting to know the builder, their history in the community, and see multiple samples of their work. Go to open houses in that community to get a sense of the interior finishes. You can also ask for a few references of past clients to hear about their experiences.
While it is harder to negotiate the price of a new construction home, there are still ways to get a better deal. For example, while the builder may be unwilling to reduce the sales price, they may be open to including complimentary upgrades. Having an experienced agent will come in handy during the negotiation stage.
Skipping a third-party inspection
Don’t assume that a brand new home comes without imperfections or significant issues. Getting a third-party inspection will ensure that everything is up to code and helps you identify issues upfront.
According to REALTOR Magazine, the most common problems in a new build are exterior weather barriers, structural framing, electrical, mechanical, and plumbing systems, and window and door installations. This is not an exhaustive list but should help you focus on the most common issues.
The bottom line
Starting the process of building a new construction home can be both exciting and nerve-wracking. However, as long as you make sure to do your research and due diligence, in the end, it will likely end up being a very rewarding adventure.
With that in mind, feel free to use this as your guide on what to expect. Armed with this knowledge, you should have everything you need to get started.