It’s nearly twenty years since I scraped together enough money to buy my first brand new house. Since then I’ve bought plenty more for myself and represented countless clients who bought new construction.
Along the way, I’ve learned a lot about how to get the most out of the build process, how to get the best house for the least amount of money and how to reduce stress during the build, while avoiding costly mistakes.
Here is both the build process and my advice rolled into one
How To Find Your Neighborhood
This is the fun part, because new neighborhoods will have model homes, you get to spend a few afternoons driving around looking at gorgeous homes.
It's all too easy to fall in love with a model house and decide that's where you want to live. That's what the builder wants you to do, the models have every upgrade imaginable and are professionally designed with one purpose, to convince you to buy a home in that neighborhood.
But you're about to spend a lot of money, so here are some factors you need to think about before you go writing any offers.
Use Google Maps
Go onto Google Maps and enter the neighborhood address. Then do a driving directions to all of the locations that you go to often i.e. work, school, gym, church, stores. The good thing about Google is that it allows you to pick a time of day, so go ahead and set it to 8am and 5pm. See how the traffic is at those times. Naturally it will be busier at rush hour, but how much busier ?
My prime example is Johns Island. Until six months ago, I wouldn't suggest to anyone to buy on Johns Island. Traffic getting on and off the island was horrific at rush hour. Now they've added the extra lanes coming off the bridge and now Johns Island is back on my recommended areas.
Location, Location, Location
I'm going to use Johns Island as an example again because it's the area with the most new construction going on. Johns Island is more than 10 miles long, so you have to consider location within the island when you're buying. Proximity to the bridge to James Island is going to be a huge factor down the road as Johns Island gets more built up and more traffic comes on the island. It may seem like a nice quaint drive now if your house is 6 miles from the bridge, but what will traffic be like in 5 years ? Those six miles might take twice as long, so if I'm buying on Johns Island, I want to be as close to the bridge as possible, both for my daily drive and also for future resale value.
Even better if you're in a neighborhood that doesn't rely on Maybank Highway for access.
I'm using Johns Island as my example, but it carries over to all areas.
Also look at how you get in and out of your neighborhood. There is one neighborhood in Mt Pleasant that I love but I would never buy there because getting it and out of it is an absolute nightmare. You're always trying to get out against traffic. Imagine doing that 4 or 5 times a day.
How Many Houses Are Left To Build ?
The model homes are always front of the neighborhood so it looks very pretty and you don't see any of the construction. When the agent is showing you some other floor plans, they're always smart enough to drive you a route that is through streets where the houses are already completed.
If you buy early in the neighborhood's construction, the good news is that you'll get a good price since builders generally increase the price as they sell more houses.
The bad news is that you'll have to deal with construction for X number of years. Are you ok with that ? Do you have an infant who needs quiet time ? Do you work shift work and need to sleep during the day ?
Picking Your Lot
This is one of the most important factors. You can always replace your floors, counters, carpet, but you can never lift your house up and put it on a different lot, so choose very carefully which lot you select.
You want a lot that doesn't back up to a main road (noisy houses are so hard to sell), you don't want a lot that back up to land not owned by the builder. You never know what will be built behind down the road. You don't want a lot where you have huge houses on either side, if you are picking a smaller house. You don't want a house where the road ends or you'll have headlights shining through your living room all the time.
As you'll see below, there are always lot premiums, some lots cost more than other, so it's a balancing act of getting a good lot and not paying too much.
To Build Or Buy Inventory Home
This is a big decision and sometimes it's out of your hands. If you need to move in immediately, then you need to buy an inventory home. If you can't move for six months, then you'll buy a house that hasn't been built.
There's pros and cons with each. Here are my thoughts.
Inventory Homes
+ They are usually negotiable on price since the builder has got hundreds of thousands sitting there
+ They have been professionally designed by the builder's interior designer
+ The designer spends the average amount for the neighborhood on upgrades, so you don't run the risk of overspending like you can if you pick your own choices
+ If you don't like making decisions, they're already made for you
+ They can be less stressful, since you don't have to go through a 6-9 month build process
+ You can know your move in date with certainty
+ You can lock in at today's very low interest rates
+ Insurance rates are generally lower on new construction homes, because they have more safety features. Now insurance is a whole different ball game, that even I find confusing after all my time in the business. I really like this article that Money wrote about it. . It’ll answer most of your questions about it.
- You don't get to choose anything. Everything has been selected already
- That's about the only negative ! I like buying inventory homes
Building Your Own House
+ It's your design, you pick the floor plan, the lot, the design selections. It's your baby !
+ You can have time to prepare for the move and sell your own house with no pressure
+ You lock in at today's price and (hopefully) prices increase so that by the time you actually close on your house, you've already got equity
- It's easy to overspend on your designs. You have to be careful to stay within the average price for the neighborhood
- You have a lot of decisions to make. Some people find that very stressful
- It takes more time. There are more meetings to go to, design appointment, pre construction meetings
- There is uncertainty on when it will be complete. If a builder says it should be ready in November, you can't plan for that, it might be January. Building a house is complicated and depends on a lot of factors, so the builder cannot guarantee when it will be ready. It's very common for close dates to move by weeks and months. Weather is a big factor around there.
The Final Cost
When you drive into a neighborhood, there'll be a big sign saying "Houses from the low 300s". The sign should really say "base price is in the low 300s, on top of that there will be lot premiums, structural premiums and design premiums!".
Let's break it down. Here are the factors that make up your final sales price
1. Base Price for the house
2. Lot Premium - Each lot has a different cost depending if it's on a lake, a cul-de-sac or on a busy road
3. Elevation Premium - Each floor plan usually has three elevations to choose from i.e. what the front of the house looks like. Each has a cost.
4. Structural Upgrades - These are big items like adding a porch or garage. They are on the plans that the builder submits to the town to get its permit so they have to be chosen at the contract signing
5. Design Upgrades - These are things like upgrading your flooring or your countertops. These are not chosen at contract, but instead within 30 days at your design center meeting.
As an example, here are some real numbers on an investment property that I recently bought.
Base Price : $312,990 ( and yes, the sign said "Houses from the low 300s")
Lot Premium : $8,800
Elevation Premium : $5,000
Structural Upgrades : $15,000
Design Upgrades : $36,750
Final Price : $378,540
I've done this many times so I know what to chose in lots, structural and design to make the nicest looking house at the best price. Even with that, you can see my base of $312k ended up being $378k.
All the costs are reasonable, I was happy to pay the money (especially since that house went up $50k by the time I had closed on it), but just be aware of what's involved.
The Smart Questions to Ask
Remember what I pointed out in my 12 Reasons To Buy New Construction, the builder's agent is super friendly and asks your kids names and ages, but they are there to sell you a house and they work for the builder. Hopefully you've taken my advice and have your own agent to represent you (at no cost to you), but if not, here are the smart questions to ask
- How many houses are being built in total in the neighborhood ?
- How many have sold so far ?
- How long have you been selling them for ? ( to understand the rate of sales)
- When do you anticipate selling out the neighborhood ?
- Have you been raising prices ?
- When is your next price increase ?
- What incentives do you have at the moment ?
- How much closing costs will the builder pay if I use their lender and attorney ?
- Which floor plan has been the most popular (it's usually the model)
- When will construction be complete in the streets close to my house ?
- Is my lot in a flood zone ? If so, how much has flood insurance been for previous buyers ?
- What is the typical utility bill for folks already living here (stop and ask people you see, people love talking about their new house)
- What will the annual HOA cost be ? What's included ? Are all the amenities already built ? If not when will they be ?
- Who runs the HOA ? Will the homeowners take it over when the neighborhood is sold out ?
The Offer
You'll go to the office and the agent will prepare the offer. Unlike a resale where we use a standard contract, every builder has their own contract that is heavily weighted in their favor, but you've no option except to use it.
You'll select your floor plan, your elevation, your lot, your structural features and initial all the pages with these. You'll submit your offer price and sign about 40 pages of the contract.
Builders want to keep prices stable and increasing, so you've a much better chance of getting more money in incentives (such as $10,000 bonus money for design choices), than you will asking for an outright price reduction. Sales prices are public information, but design options incentives aren't. The builder doesn't want your neighbor knowing you got a better deal than them, so that's why you should ask for incentives.
The agent in the office doesn't have the power to accept the offer, but they'll submit it to their manager who does. It normally take 24-48 hours to hear back and there may be a round or two of negotiations.
Now, when you are initially the floor plan, you have to remember that what is on that floor plan is what is being built. So really study it carefully, even things like which way a door swings. It's easy to change it now on paper. Once it's built and you walk through and wish something was different, it's very difficult to get a change, so study that floor plan very carefully and try to picture each room and how you would live in it.
Design Center
This is another fun part. Within 30 days of signing the contract, you'll go to the design center. Depending on the builder, this could be a huge 3,000 square foot place or it could be an office. Here you will get to select every single option for the house, thing you didn't even consider like door pulls. It takes a long time, 4 hours and more sometimes. It can be stressful, especially with couples who may want different things. Don't worry, there will be a professional designer walking you through it, so they won't let you go too crazy on your choices. They'll make sure everything will look good at the end.
It's very easy to go over your budget, you're like a kid in a candy store and you want everything ! So before you go to the design appointment, pick your budget and STICK TO IT ! Tell the designer before you start what your budget is and they can help keep you within your limits. Remember they do this every day, so trust them.
I'd advise to have an idea of what color palate you like, for the floors, cabinets and counters, since they take up so much visual space. They are also the places to spend your money since they'll be in the house for a long time. You can always change out lighting etc.
You don't have to commit on the day, so go ahead and select the items you want. At the end of the day, the designer will print out an itemized list of everything and you can go home and study it and eliminate items until you get to within your budget.
Remember, don't overbuild for your community. If you are in a $400,000 community, pick options suited to it. Don't install a Wolf Range, you won't get your money back on resale and even worse, it may not appraise for your mortgage.
During the design, you'll also have to consider things like how many outlets do you want, how many recessed lights, where will the tv go, so think of those before you go to the meeting too.
Finally, the builder makes a lot of money on design choices. Some things are a good price from them and some things you can do later on your own at a lower price. I can guide you on these since I'd done it so many times.
The Construction Process
During the build, you'll have a number of meetings.
1. A pre-construction meeting
You'll meet your foreman, walk the lots and review the plans to make sure everything is as you selected. Get to know your foreman, they control so much of the quality of your house.
Reminder to really study the plans, it's easy to change a drawing. Not so easy to change something that has been built.
2. A pre-drywall meeting
At this stage, the concrete has been poured, the framing is up, the electrical and plumbing rough in has been done. Before they install the drywall and hide everything, you walk through it with your foreman again. This is the time to take photos so you know where plumbing is so you don't accidentally put a nail through it one day.
If you see anything you don't like, point it out now before the drywall goes up
3. Walk through
A week before closing, you'll go through the nearly finished house with the foreman. He'll explain how everything in the house works, where the breakers are, where the water shut off is, how the irrigation works etc. It takes about 2 hours. You'll also have a roll of blue tape and can put it on any nick, scratches or anything at all that doesn't look good.
The house won't be completely finished, there'll always be some open items but the foreman will document this and get them finished before closing.
4. Day Before Closing
You do your final walk through. The open items from last week are complete and you're just doing one final check before you sign the paperwork.
Warranties
The nice thing about a new house is that it comes with warranties.
When you move it, keep a list of issues (there'll always be some). The builder usually does a 30 day walk with you and addresses all those issues at once. So unless it's something major just write it down and a month after you move in, the builder will fix everything.
There is also a 12 month walk through, where you have another chance for the builder to come in address any items.
Keep Good Records
Be sure to scan all your closing documents and save them.
Scan the plat, the elevation survey, the design selections you made. These will all be invaluable when you sell your house because you’ll have full list of what’s in your house.
Also start a spreadsheet and keep track of any money you spend on the house i.e. any upgrades you do or renovations. These may be tax write offs when you sell, so if you keep a good paper trail from day 1, it’s a lot easier than trying to remember everything.