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9 Things to Know About Buying Pre-Construction Homes

There are obvious perks to buying a brand new home; namely, new materials, the ability to customize to your liking, and the potential to buy at pre-construction prices. But as convenient as new home construction may be, there are certain things that buyers should be wary of when buying a new home from a builder.

Understanding all the ins and outs of buying pre-construction can help you make a more informed decision before being bound by the contract.

1. You’ll Need a Hefty Down Payment

When you purchase a resale home on the market, you can put as little as 5% down for a conventional mortgage (with private mortgage insurance), and even 3.5% for government-backed mortgages. But buying new home construction with a builder will require you to put a bigger down payment towards your purchase, typically as much as 20% or more of the final purchase price.

That said, the down payment isn’t usually due all at once. Typically, builders require buyers to submit a 5% deposit upfront, then pay the remainder in increments over the course of the next year or two. If you’re buying new home construction, be prepared to dish out a larger down payment for the property.

2. Delays Are Commonplace

When you buy a new home with a builder, your contract should stipulate the completion date of construction. However, it’s very common for these completion dates to get pushed out a few times and by several months or more.

It should be no surprise that anything can happen to cause delays in the completion of construction. Even still, delays can be frustrating for buyers who have already made plans to move in by a certain date.

While delays with new builds are common, it would still be in your best interests to do some research on the builders that you’re considering buying from to see which ones have a habit of experiencing delays versus those who are pretty good at sticking to their schedules. Some builders are just better than others at foreseeing potential delays and taking steps to reduce their occurrences.

3. There Could Be Hidden Costs Involved

In addition to the deposit and purchase price spelled out in the purchase contract, be wary of plenty of other hidden fees that might not come up until well into construction. It’s possible for buyers to get hit with a ton of surprise closing costs, such as development charges and levies. These extra expenses can cause the overall price to soar.

Do your best to be diligent when inquiring about any extra charges that are likely to pop up right before closing so you can budget appropriately. If possible, set a limit of how much you are comfortable with paying from the onset so you don’t wind up stuck with a contract that will cost you more than what you expected. Ideally, these extra fees shouldn’t end up costing you any more than 2% of the purchase price.

4. Model Homes Are Usually Filled With Upgrades

The model home is probably what prompted you to buy from the builder, thanks to all the fancy upgrades and finishes that are typically used to create a stunning home. But don’t be lured into making a purchase after being mesmerized by the model home. Many of the finishes used in model homes are upgrades, which means they’ll cost extra.

Find out exactly what finishes and materials come standard with the home purchase versus those that are considered an upgrade and will require additional expenditures. It’s crucial that you fully understand what you’ll be getting with the base price and how much you would have to spend to get certain finishes that don’t come standard. Calculate exactly how much any upgrades will end up costing you so you work with a price that you’re comfortable with and won’t be unpleasantly surprised.

5. Builders Don’t Like to Negotiate on Price

It’s commonplace for buyers and sellers to negotiate on the price of resale homes, but builders typically expect to be paid the quoted price of their homes. They’re not in the habit of wheeling and dealing with buyers, because if they do, that will open the floodgates to more negotiations with future buyers, which they would much rather avoid.

That said, you can still try to lower the overall cost of the home purchase by asking the builder to cover some closing costs or throw in an upgrade or two. Builders may be more open to negotiating in this way while still keeping the purchase price as is.

6. The Home Should Be Inspected When Complete

Just because you’re buying a brand new home doesn’t mean it shouldn’t be inspected before you take possession. Even though new homes are often required to pass inspections from the municipality, you might want to bring in your own home inspector to check the place out in addition to the final walk-through that builders generally allow just before closing.

7. Not All Warranties Are All-Encompassing

New homes usually come with a warranty from the builder, but that doesn’t mean that the warranty you get covers absolutely everything. Many components of new homes come with their own warranties from contractors and manufacturers, such as those for windows, doors, HVAC systems, and so forth. In this case, you’d have to deal with third parties if issues arise. It’s important to find out exactly what is covered and when those warranties expire. 

8. Other Surrounding Developments Can Pop Up in the Future

Just because there may be greenspace surrounding the home you buy today doesn’t mean there won’t be other structures built some time in the future. Be aware that future developments surrounding your home and subdivision can be built, which could impact your enjoyment of your home if you’re not prepared.

Builders don’t necessarily have to tell you about what plans might be in the forecast, so it’s up to you to either find out if there are plans in the works for other developments or simply accept whatever pops up in the near future.

9. You Should Get Your Own Real Estate Agent

Builders typically have their own team of agents who are responsible for sealing the deal with buyers, but that doesn’t mean you have to go in it alone. Instead, you’d be well-advised to hire your own real estate agent to represent you in order to ensure the contract you enter is a sound one. The builder’s agents represent the builder, not you. That’s why you should have your own representation to look after your best interests.

A real estate agent can guide you about which features you might want to add for resale purposes. They’ll also be able to help you identify which features come standard versus those that are upgrades and come at an additional cost.

The Bottom Line

Buying a brand new home from a builder can afford you with the benefit of being able to customize the home to your tastes and not have to worry about repairing or replacing any materials or systems anytime soon. It’s also a great opportunity to buy at pre-construction prices and build some equity by the time the closing date arrives.

But buying pre-construction doesn’t come without its downsides. The earlier you’re made aware of certain potentially negative aspects of buying pre-construction, the better able you’ll be to make a sound buying decision.