Purchasing New Construction

This year has been a tough year for buyers, as the inventory has been extremely limited in the Silicon Valley. Add on a new consideration where most professionals are working from home, and the desire to move has skyrocketed for a multitude of reasons. Homes with office space, pools, and room to grow have been in great demand. To say the least, 2020 has been a Seller’s Market. When demand is high and inventory is low, we have a Seller’s Market. And vice-versa, when demand is low and inventory is high, it is a Buyer’s market. Even though many people are leaving California for more tax-friendly states, the job market is particularly good, and homes/land are limited. On average, homes have sold at or over asking price for most of 2020. This leads me to help my buyers think about different options and opportunities when searching for a home. New construction is a great way to enter the market and begin to develop a real estate portfolio when the competition is high in the resale market. It is also a great way to get exactly what you want without having to make significant updates or major renovations. Financially, you are buying at cost so the upside has great potential. This month’s blog is going to focus on buying new construction properties and the pros and cons of doing so. In my past, I worked with a new home builder, SummerHill Homes, and sold the Sorellas community in Los Gatos. It was a great experience; I learned the ins and outs of new construction sales and today consider myself an expert in knowing how best to negotiate a new construction purchase.

SummerHill has two new exciting communities available in 2021: Monte Sereno’s Montalvo Oaks and Los Gatos’ Bellaterra (North 40).

When you’re buying new construction, you need to be deliberate about asking the right questions and foreseeing the “potential” in a new community or property. The more you can understand about what to expect before getting started, the better prepared you will be for getting through the process with your sanity intact. Buying new construction is not for the faint of heart, and while the pros overwhelmingly outweigh the cons, these are some things that you should keep in mind before deciding to build or buy a new construction home.

Pro: New versus “used” home

There is something to be said for the desirability of moving into a home that nobody has lived in before. Everything is perfectly clean and pristine, and every detail, from the biggest appliances to the 7” wood floors and tile color, was put there specifically for your use. While it is not a necessity (and certainly many people love the pre-owned properties that they’ve purchased), if you’re someone who likes to keep things extra clean or is worried about scary surprises from a resale home, starting from scratch is a great way to go.

Con: All builders are not equal

The experience of building new construction varies among buyers because the policies, skills, and options vary among builders. When choosing a builder for your new construction home, look beyond the pictures on their website, and seek out more information to ensure you are making the right choice. Do your due diligence and verify references, check with the better business bureau, and make sure your philosophy matches with that of the builder. It is like a 1-2 year marriage, and you will be spending a lot of time with your builder. Make sure you are compatible from the start. There are many great builders out there, so finding a good reputable builder should not be hard—you just have to do the work to make sure whoever you go with will deliver what you are looking for.

Biggest lessons learned

  • Ask and re-ask questions if something is not clear
  • Understand the contract
  • Understand the deliverables
  • And most importantly, understand the change order process

Pro: Exterior and interior customization

Nobody knows your wants and needs better than you do, and having so much control over the details that fit your home to your taste and lifestyle is quite a luxury. Buying new construction means that you get to pick out everything, from the color of your siding and trim to the placement of every single light bulb and outlet. Many of the things that you get to customize are difficult—or at least very expensive—to put in after a home is constructed, such as electrical for a pool heater or extra windows in the living room. If you are someone who loves design or just someone with a lot of preferences about what makes a perfect space, you will really enjoy getting to make so many decisions about the different aspects that make your house a home.

Con: Limited options or too many decisions

While you do get to customize, there are far from limitless options dictating your choices. For example, you will not be able to add a gym that is not listed as an option on the original plans or choose a different placement for the fireplace. Many builders will only let you choose between one or two paint colors for all your interior walls, so if you want anything different, that is a project you will have to take on after the home is built and closed on. In some cases, you will be able to purchase options such as different appliances outside of the buyer and have them installed (usually at a premium) with the general construction. But for things like countertops and carpeting, you will likely only be able to choose among the options presented by the builder. 

Biggest lessons learned

  • There is a big difference between semi-custom and custom
  • Keep with the spec and make expense changes after completion
  • Understand the base product spec and the cost for upgrades
  • Negotiate specific requirements into your contract 

Pro: Thinking Green 

Newer homes across the board are taking advantage of innovations in energy efficiency, and if you build new construction, chances are you will get a home that is specifically built to use less energy. There are a lot of variables in a home that can be optimized for energy efficiency, including insulation and air sealing, heating and cooling, and appliances. When you build new construction, you have more say over the strategies used to reduce your home’s carbon footprint. Your builder likely already includes some of those options, like energy-efficient windows, which can prevent the 25%-30% heat gain and loss attributed to less efficient windows. Ask about other energy saver options as well, like dual flush toilets, smart thermostats, and LED lighting.

Con: Less room for negotiating

When you are buying a pre-owned home, the price is set by the market and by the previous homeowner, who may or may not understand the true value of their home. For that reason, negotiating is just part of the process, and it is totally rational to expect that you will pay less than the price that you see on the listing, provided there is no competition for the property. When you are buying new construction, however, what you see is typically what you are going to pay, plus any upgrades. Builders do not like to lower the base prices on homes because that alters the comps of the development and will result in more buyers looking for ways to negotiate down. They may, however, offer some discounts or financial incentives, so look for those instead of expecting to convince a buyer to lower their price.

Pro: Fewer maintenance costs in the first few years

New homes are not necessarily impervious to needing repairs, but the chances of having to fix a leaky roof or a broken pipe are significantly lower, meaning less stress and less money spent while everything is still new. In addition, most builders include a range of warranties with their homes, which may include a short-term full structure warranty and a longer-term exterior warranty. It is a big financial benefit and a nice relief in the years following such a major purchase.

My own experience buying new construction has been an incredibly positive one, with the cons being very few in comparison to the pros. I, however, really enjoy the building process, have an easy time making decisions, and have a background in products and design. To figure out if it is the right choice for you, gather all the facts, do your research, and think clearly about what you want in a home, both now and in the future. Enlist a real estate agent that understands new construction. The more you know going into the process, the better you will be able to navigate the unknowns of building a new construction home.

Looking for an agent to help guide you through the process of landing a new construction in the Los Gatos area? Contact me today.

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I empower buyers and sellers to understand the value and potential of a property and position them to realize the best return on their investment.
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