May 12 2022

Working With a Builder to Buy a New Home

There are certain advantages to working with a builder when buying a new home, and a few pitfalls to watch out for.

Now that you’ve decided to look for a new home, you have to decide whether you want a home that’s new to you or new altogether. There are certain advantages to working with a builder when buying a new home, and a few pitfalls to watch out for. 


3 Categories of New Home Construction 

Whether you’re looking for a sprawling multi-family dwelling or a cozy condo, there are three basic home-building options: custom, semi-custom, and spec. 


  • Custom. This is where your new home starts with nothing more than a dream. In some cases, the buyer will purchase a piece of land and then hire an architect and a builder — though more often the buyer first finds a builder and together they find the land. It goes smoother this way because builders are usually experts at bidding on lots, armed with knowledge of the process buyers don’t have, and most builders have a team of engineers, architects, and real estate agents at the ready. If you go this route, consider a Construction to Permanent loan from City Lending. 


  • Semi-Custom. More common than custom homes, semi-custom homes are often found in more upscale neighborhoods. Here, a builder will begin with a basic design and offer a range of different options that the buyer can choose from. This could be anything from the difference between a one- or a two-car garage, varying floor plans, exterior options such as stone veneer siding, or interior upgrades including fireplaces and hardwood floors. 


  • Spec. Also known as production homes, spec houses are built and sold as-is. Any customization the buyer can do is highly limited — perhaps choosing paint colors and different lighting fixtures among the few add-ons that spec homes allow. As the term suggests, builders build these homes on the speculation that they’ll find buyers, so they’re often made with traditional aesthetics to appeal to the masses and spec homes are usually move-in ready. 


Mortgage Pre-Approval is Key 

It’s often the case that a builder will want to steer buyers to their preferred lender. While there’s nothing inappropriate about this, know that the homebuyer is under no obligation to work with the lender that a builder recommends. And it’s more than likely the case that you can find better and more diverse lending options with City Lending. Whichever lender you choose, mortgage pre-approval will show a builder that you are serious about the deal, and it will almost certainly make the sale go faster and smoother. 


Yes, you should still hire a real estate agent. 

Some people may assume that buying directly from a builder is a great way to cut out the middleman, and so they won’t have to pay the commission that a real estate agent receives. That’s possible, but not advisable. Here are a few reasons why: 


  • Advocacy. Your real estate agent advocates for your interests; a builder is out for the interests of the builder. And these two interests are usually at odds. This is most often the case when buying spec and semi-custom homes and there’s negotiation on a host of different contractual issues between the buyer’s agent and the builder’s sales representative. 


  • Inspection. Don’t think because a home is newly built that it doesn’t need to be inspected. New-home defects are common and the agent for the builder isn’t likely to seek them out. So having an agent in your corner to shepherd the inspection process is a big plus. 


  • Choosing the right builder. Real estate agents tend to know a lot about the builders in their markets, so you might want to find a real estate agent first and have that agent help you find a new home from a builder. 


  • Resale value. How the home appreciates is also an important factor to consider, and real estate agents are some of the best people to give advice in this area. If you’re buying a semi-custom home, there are bound to be available upgrades that may or may not add resale value to the home. A real estate agent can give you good guidance here. 


  • Agent fees. You probably don’t even have to pay your real estate agent; it’s quite common for the builder to pay the fee of the buyer’s agent, which is often around 6% of the home’s sale price. 


The Pros of New Construction 

  • Smart technology. With smart homes getting ever more common these days, chances are pretty good that most new spec or semi-custom homes come with high-tech features. These can include smart thermostats, lighting, and smart appliances among the many fun new gadgets. 


  • Customization. While nothing offers personalization like a full custom home, semi-custom and even some spec homes offer the buyer more of a chance to make it their own on move-in day than existing homes do. 


  • Less maintenance. With a brand-new roof, shiny new plumbing, and new everything else, the possibility that the buyer of a new home will be saddled with home maintenance and repairs is low. And if any problems do arise, they’re almost surely covered by a warranty initially. 


The Cons of New Construction 

  • Cost. It’s a fact: new homes often cost more than existing ones. How much more? With overall home prices surging, and supply issues cutting into home construction, that answer fluctuates. But, in general, new single-family homes tend to cost more than existing single-family homes. 


  • Less landscaping. One of the big advantages existing homes have over new ones is the landscaping, as existing homes offer the possibility for tall shade trees and other mature greenery that are harder to find with new construction. 


  • Off-gassing. Love that new-home smell? Is that the feeling of hope and promise you’re breathing in? No, it’s more likely formaldehyde. From carpets and curtains to wood that’s just about everywhere, new homes tend to give off significantly more volatile organic compounds (VOCs) than existing homes do. 


Whether you go custom, semi-custom, or spec, City Lending is here with a wide range of lending options for your new home. Contact us today. 

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