How to buy new home from a builder.

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Buying a new home from a builder can be complicated or confusing if you do not know the following things.

Buying a new home from a home builder? I would like to share some of the information I learned to help you make wise choices when buying a new home already built or building one. I discovered the biggest obstacle on the part of the buyer is that they really did not understand the process and it scares them. Where do you start and where does it end? The end result of their fear is that they do no move forward with the purchase of the new home they have been dreaming of building. It is a struggle to help buyers understand the process when the buyer only allows sales staff short spurts of their time. The buyer limits the amount of time spent with a sales person out of fear of being talked into an expensive mistake. In reality, they should actually commit more time to the process with the aid of a sales person and Realtor.

The process of buying a brand new home, whether it is already built or one you have decided you want to build, can often times be daunting. The pursuit of that beautiful new home you are dreaming about can be exciting, overwhelming and confusing but most of all it can be expensive. Mistakes can be made if you do not understand the builders position during your the negotiation process.

Here are some things to know, ask and consider while you are choosing a builder and negotiating a contract to build or buying an already built home in a builder’s community. Remember that above all the builder wants to sell you a home but it is after all a profit business and the builder’s goal is to close the deal with a reasonable profit, as much cash up front as possible and financial commitment on the buyer’s part before breaking ground or getting to a closing table.

Why do some builders include upgrades, options or interior and exterior choices in the upfront price of the home, often called the base price, and some do not? The bottom line is that you will be expected to pay for upgrades often called options, interior choices and even elevations, exterior design choices, one way or another. Often it boils down to marketing and negotiating strategies between different builders. If there seems to be a large cost difference between builders, once you have chosen your features, then you need to look at several issues.

Ask yourself, am I comparing apples to apples on the kind of upgrades and quality of the structure the different builders are offering?

Example: the same quality of granite, flooring materials, window types, energy efficient programs , roof poundage, amount and type of decorative trims, and door qualities just to name a few. Each builder has a builders specification list that tells you what is included in your base price and the specifications of the materials such as granite level, heights of base boards, types of doors and electrical, energy and plumbing specifications.

If you do not understand the differences it is the job of your sales person to explain to you the differences in these items. When comparing product to another builder’s product offering the sales person needs to explain why their product cost more money. Remember, in life you usually get what you pay for when it comes to quality. However, do not forget some builders may expect you to pay more for identical quality items. They call it profit margin but you may call it price gauging. Can you afford to build with that type of builder? Is the cheaper builder financially stable? Who will still be in business in the long run when you may need to fall back on my warranty issues?

If you are shopping for a car, let’s say you stumble across a Ferrari or Maserati dealer, you look at the price and the sales person tells you the size of the price tag is a reflection of how beautiful the design is to look at. “Isn’t it pretty” he says” We have won so many design awards. Don’t you think it is worth 200,000 dollars” or however much the exotic collectable sells for in the showroom. Would you be impressed enough to buy it? Most likely not. You expect the sales person to give you all of the features and benefits, of those features, that make the car worthy of such a handsome price tag wouldn't you?

The sales person opens the hood and points out the extraordinary quality of the engine and horse power that drives the machine and the price. What about the chassis? Does the sales person expect you to count on an inferior chassis on a machine with extraordinary horse power that is so beautiful to look at? Well no! Ok, so you are not going to drive your house and you can sleep in your car, but are you going to live in it the rest of your life? Most likely not. Can you leave it to your children and their children to live in after you are gone? Now don’t you want to understand its chassis and its potential for longevity by understanding the quality of the materials, workmanship and engineering? Well Yeah! You deserve to know what you are paying $350,000 or $400,000 or more for don’t you? Well yeah! Well of course you can just pay for the fact that it’s pretty and some design awards were won. Where is the logic in that?

In building a new home or buying one already built from a builder compare the materials you cannot see in the home. Does the builder use stamp grade lumber or engineered wood? What is the difference between the two and what are the features and benefits of both products? What size is the lumber and how far away are the studs? What are the features and benefits of both if they are different? What type of foundation does the builder use and how does that foundation stand up long term to the soil type in your area? Does your area have foundation problems and how is the soil and foundation engineered to prevent extensive structural and foundation damage over time? Under difficult soil conditions is your frame and foundation warranted and for how long? What is the builders care and maintenance of the structure and foundation and surrounding earth to avoid damage to you new home long term?

Make sure and question how the community you want to buy in was developed. Are the hills in the development natural or was the development created by bringing in land fill. What is really under that soil and how was the foundation below your concrete foundation created? Will it hold up to climate changes throughout the seasons for years to come preventing damage to your homes structure? Will shifting occur on a man-made landfill? Was anything injected into the soil to stabilize the pad the foundation will be poured on? All of these questions are fair and important questions and your builder and developer should be able to answer them before you consider writing a contract.

Do not forget to ask questions about the items warranties used in the home. Are the low e-vinyl windows warranted for life or will the vinyl crack and peel overtime causing expensive window replacement? How long are your plumbing fixtures warranted for? Is it a lifetime warranty or will you need to replace them after a few years due to leakage or inferior finishes? How can you clean them without damaging special finishes? Are the finishes warranted? Does your builder provide you with manufacturers warranties and care and maintenance brochures on products used in the home? They should!

Ask what are the costs of upgrading items such as light fixtures, paint colors, wall textures, granite types, flooring choices, door sizes etc? What door sizes are included in the base package throughout your home? What exactly in the model is upgraded that you like? You need to consider those cost in your budget before you sign a contract.

Builders are notorious for decking out models. Why? It is not to trick the buyer. It is to show the buyer endless possibilities and to get them excited about a new home. This can sometimes be confusing and downright scary when you start hearing that cha ching cha ching of dollars vibrating in your brain. Do not sign a contract or hand over an earnest money check before you get all the answers to the cost of these endless possibilities from the builders you are comparing.

Visit informational websites to research the products used to build a home. Try websites like Askthebuilder.com and the websites for the products used by the builders you are considering. The product manufacturer’s websites should be able to answer many questions for you when comparing similar items used by varied builders. It is the responsibility of the builder to provide website addresses to you so you can read up on the quality of these materials. Do your researches before you sign a contract. Once you turn over a check and make an offer you are signing a legally binding contract and if you change your mind after the fact you risk losing earnest monies.

In the home building business much emphasis is often placed on sales training tactics to rush the consumer into signing contracts and turning over a large sum of deposit money. Often times little emphasis is placed on product knowledge training. If you do not get satisfactory answers to your product questions then find a different builder. If you do not get satisfactory answers to the question why one builder’s product cost more than another then find another builder.

Expect your builder to pay for some of your upgrades or luxury options, it is usually negotiable. But be reasonable about it. If you are buying a home with a base price of $350,000 chances are you can get the builder to cover as much as $10,000 or more worth of upgrades cost. But only if they have not already offered them in the base price when compared to another builders offer. If you expect them to pay for $100,000 worth of upgrades, options, choices then you are most likely not being reasonable in your expectations if the base price is $300,000 or $400,000.

If you expect the builder to cover some of your closing cost, points and upgrades then be reasonable about the balance of the cost. The builder may only want to cover one third of your upgrade choices if you are also expecting him to pay money towards other cost. Some of these other charges could be closing costs or other expenses such as money toward getting you out of the last remaining months of a lease.

If you are planning to buy or build try to shift your lease options on your current living arrangements to a month to month. This allows money given you by the builder to go towards hard cost on your new home instead of wasting money paying off a lease on someone elses property. Contingent contracts on build jobs are sometimes offered to home owners that must sell. A nice size down payment however, is usually expected and as general rule 50% of it can easily be lost if you cannot sell your property and you back out of the purchase. Remember the builder is incurring the expense of breaking ground and building while you sell. He is taking on the expense on a risky build job. If you are afraid you cannot sell then do not risk your earnest money. It is safer to sell, place things in storage and lease month to month while your new home is being built.

If the builder covers the cost of all or some of you upgrades, choices or options in a build job contract deposits on the upgrades are still expected. When you reach the design studio appointment to select these items, in most cases, you will be expected to pay 50% of the upgrades.

Example: Let’s say the builder offers to give you $40,000 dollars in upgrades in the contract. You go to your design studio appointment to select your goodies. Once complete the designer will then ask you for $20,000 in the form of a check. Surprised? You could be surprised if not forewarned by your sales person. It is however, in the fine print of your contract.

Why you ask do I need to give a 50% deposit on upgrades given to me? The builder said I was getting these upgrades at no extra cost to me. Well the truth is everything in life has a cost. The cost to you the buyer is financial commitment. The builder wants you to commit financially more money to the process. That money will go towards your down payment at closing. Guess what happens to the builder if you can’t close on the property or get cold feet. Well, he gets stuck with an expensive home with your personal color palette. It may be a hard piece of property to sell. He wants you committed to close on the property he is building you and that is done by financial commitment on your part. Yes, everything has a price.

I suggest you select upgrades in an amount that you can afford to pay 50% of at the design center. This is on top of any earnest money you have already put up normally $5,000 to $10,000 or more depending on the price of the finished product. You can usually negotiate on the front end of the contract smaller percent terms to be paid at the design studio. Be honest with yourself on the amount of cash you have to work with and do not forget closing cost add up.

Get a handle on closing cost first before you sign a contract by working with a legitimate lender and getting pre-approval before shopping for a home. Bring you pre-approval letter with you. You may need it to present a contract. Like I said earlier sales people in the new home building business are trained to get you on contract fast with a nice earnest money check. They are trying to commit you to the process. They will usually include a statement in the contract that says the contract is only good with the approval of the corporate office and signed off by a VP or owner of the company. Click here to contact a reputable Dallas and Fort Worth based lender.

They have your earnest money check usually in the form of $5000, $10,000 or even $20,000. The goal now is to negotiate you up on the price. Negotiating up does not happen always if the builder feels there is a reasonable profit in the contract. They want you to buy their home but it needs to be a win win for both buyer and builder. A reputable builder will give you your earnest money back if the two of you cannot agree on the price or terms of a contract. Sometimes, however, it takes a week or two. You may not want to be out that amount of cash while looking for another builder or another home.

How should you avoid locking up such a large sum while negotiating a price and terms you can live with? Well here is a suggestion. The sales person will tell you that the corporate office will not look at a contract without earnest money. Remember they want you committed. If you are serious about buying the home offer a $1000.00 earnest money check to get the builder to seriously consider your contract. Tell them you will give them the rest of the earnest money required once the terms and pricing are agreed and signed off by the VP or corporate office. If both parties cannot agree then you only have to wait for a small sum of money to be returned. This will allow you to continue searching for another builder or home. Insist, in the contract, the sales person stipulate a date your earnest money check must be returned to you.

Be prepared to turn over the promised remainder of earnest money to the builder once the contract is accepted. After all that is the fair thing to do. You expect the builder to step up and take the risk of building for you don't you? The sales person will most likely include a date on the contract stipulating when the remaining monies are due once term and price are agreed on by both parties. That is more than fair, in my opinion, to both parties. If the house is already built do not expect the builder to take it off the market until you have satisfied 100% of earnest money to the builder. If you are afraid of losing the already built home or a special home site you have selected then be fair and cough up the entire earnest money amount. Make sure in writing the earnest money will be refunded, in full, if both parties cannot agree on price and terms.

Other expenses in the negotiating process could include changes you may want to make on the structure of your new home. Builders will expect you to pay 100% of said cost for structural changes. Why? Once again you are making the home fit your tastes and needs and if for some reason you cannot close then the builder is stuck with a home. It may be harder to sell once it has deviated off of the original floor plan. Once those changes are made to the home then kiss your money good bye. When planning structural changes and upgrades, options or choices keep in mind the house has to appraise for the selling price.

The more upgrades you choose and the more changes you make affect cost. The higher the cost the higher your risk the finished home may not appraise for the selling price. OOPPS! It is now on you. If the selling price is $425,000 due to excessive upgrades and the property only appraises for $395,000 then you the buyer will have to come up with that additional $30,000 at closing. Unless, you have already done so throughout the building process. This is in addition to your down payment and any closing cost. If you walk away from the deal you risk losing all money you have put into the building of the home. The builder is now stuck with a home that may be hard to sell. Ask good hard questions about refunds coming to you if you change your mind or cannot close and ask for it in writing. It should be covered in your contract.

Read your contract before you sign it. Sales people hate when you want to read your contract because it takes extra time but that is not your concern. Set your appointments during the week not on weekends. Week days will usually allow you quality time from sales staff and their superiors that may be helping the negotiation process. This goes for the studio designers as well. It is in your best interest to make the time for these important decisions. Do not sell yourself short by trying to squeeze the process in on the weekends with gazillions of other buyers. Do yourself an even bigger favor and leave the kids at home with a baby sitter or family member. We all love children but they get bored and you are making big expensive serious decisions.

Once the home is built and a closing date is set you will be expected to close on the house. Do not expect the builder to delay the closing date for your european vacation. Once the property is ready to close you can suffer financial penalties for delaying the process. This is normally stipulated in your contract.

If you are comparing similar neighborhoods within a reasonable driving distance to each other, by the identical builder, do not be trapped by the emotional tactics of some sales staff. If they promise they can give you the moon, a much better deal than the sales person in another community working for the same builder, be wary. Do you really think the builder will drop his profit margin significantly from one community to the next? Chances are the sales person is only trying to get you locked into a contract and their hands on your check book. The intent is to negotiate you up on the price after the fact. You will only be disappointed when they cannot deliver. You can pretty well be guaranteed somewhere in that contract it says the contract is subject to VP or owner approval before those ridiculously low prices are set in stone. Best to go with the sales person offering to give you a fair deal instead of the one offering to give you the moon. A trip to the moon is expensive.

Most sale staff works on commission only basis and the reward for a sale can often entice them to participate in not so desirable tactics. A big one is guilt with the intent to emotionally tie you into buying from them. They are trying to prevent you from buying from another sales person for the same builder or from a different builder. Do not fall for the tactic. It is unprofessional and not you’re cross to bear. Stay focused on the community, builder and house you ultimately want to purchase and live in. Do not let anyone convince you to ignore other sales person’s phone calls. If you are serious about buying a home then answer the phone calls.Guilt tactics are used to prevent healthy competition amongst builders or piers working for the same builder. Again, focus on the best community, geography, builder and plan you really want.

Here are some points to remember: be prepared to pay for a healthy percentage of upgrades, home site premiums and elevations. Be prepared to pay for 100% of any structural changes if the builder will make them. Fancy patios and exterior balconies are often considered upgrades or structural changes depending on the original blue prints. If you want to add structures not in the original blue prints or move walls expect to pay design fees usually running from $2500 up depending on the complexity of the changes. Sometimes these fees can be negotiated.

Do not allow a sales person to convince you to cut down the size of your future home to fit on a lot. The builder should offer floor plans that fit on the lots the community offers. If you must have a plan in a specific community and the floor plan has to be cut down demand blueprints. Blueprints will show you the completed plan and room sizes. You want to make sure your rooms are livable and that furniture can fit in the rooms properly. A fee may be associated with this but it can save you from great disappointment down the road. Do not let a builder just lop off one whole side of your home unless the plan is so large it will not affect the functionality of the plan.

You have now negotiated on your own and you suddenly realize a Realtor would have been good to have on your team. In some states a builder or home sales person can sell you a home, for a builder, without a real estate license. But who is looking out for you? You’re not a real estate expert are you? If you bring a Realtor into the deal at the beginning the builder will consider it will cost him an extra 3%. When negotiating the price he keeps this in mind. Remember nothing is really free. The house will cost you a little more. If you negotiate the contract and then before signing it you tell them you have a Realtor then you have just undone all your negotiations. Again the house will cost you more money.

Realtor's are business people they must be paid for their time and expertise. If you negotiate a contract with the builder then you throw a Realtor in the mix after the fact…well let’s just say your Realtor will not see a commission. Expect to pay the Realtor out of your own pocket. You may be able to negotiate with a Realtor a reasonable fee for looking over the contract after the fact. The cost is on you.

The risk is yours. Hire a Realtor to watch out for your interest or hire an attorney to review the contract before you sign anything and before you turn over your hard earned money. You are hiring them to look out for your interest. It may cost a little more but you could be saving yourself tens of thousands of dollars in costly mistakes.

This is a lot of information to digest but these are important things to consider before you allow yourself to be pulled into a contract that you may one day regret. Check the JD Powers performance rate of the builder you are considering. Ask questions about their ratings from the builder not from their competition. This way you can truly understand the ratings. Do your homework on materials and construction, hire a qualified agent or attorney to protect you, check with the better business bureau and most importantly do not let a sales person rush you into a decision of a lifetime.

New homes are not always easy to sell once you have acquired them if builders are still building around you. The business of selling you a new home is dependent on tying your emotions into the buy and to propel you to make a quick decision. Slow down before you sign a commitment of a lifetime. It is for your own good.

I hope this information helps you and I wish you Happy Building! Now, I know you can truly enjoy your wonderful new home!

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Buying a new home from a builder can be complicated or confusing if you do not know the following things.

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