The idea of buying a brand-new home is very appealing. The slate is clean! You will not be inheriting someone else's country kitchen or outdated tile and carpet from a previous owner.
You will get a home that is in line with the latest trends in design and construction, and it should be move-in ready. But there are some things to be aware of when buying new home construction directly from the builder.
There is an expression “Forewarned is forearmed”. I believe knowledge is power and being aware of the process is invaluable. Most clients are unhappy or disillusioned with the process simply due to misinformation and lack of communication. Here we will discuss some steps to protect yourself and to make the process a pleasant experience with a happily ever after ending. Having worked with one of the most highly respected new home builders in the area SummerHill Homes, has positioned me to be an expert advocate for anyone thinking about buying new construction. Whether it be a 1-bedroom condo or a 5000 SqFt single family home, I would be thrilled to help you navigate the contract, the process, interior selections and manage your expectations when buying your new home.
You do not have to use a real estate agent to buy new construction, but you can. Most likely you will encounter a sales agent when you visit a model home or meet with a home builder.
This person is hired by the builder to sell properties in that community. I would say they should be experts in their community and can get you any answer if needed. However, if you have never bought a home or just not familiar with the new home buying process, I encourage you to have an advocate that knows the right questions to ask. Do you understand HOA fees and what they cover? What is the upgrade policy? What is the back out policy? Do I have to use the lender provided by the home builder? What is my recourse if something goes wrong? What is my recourse if the builder does not perform? While it appears to be easier than buying resale, there are many things that are new or unknown to a buyer in this arena. You do not want to be outmatched if you are not personally experienced in real estate and you are proceeding without an agent of your own. Keep in mind that the builder is paying their agent's salary and that the agent probably earns a commission from each property they sell. They might not be looking out for your best interests as a result. You can ensure there is a knowledgeable pro in your corner when you hire an agent that is versed in new construction. They can help protect your interests and ensure you are getting the best deal. Most importantly, hiring an agent will not cost you anything because the seller—in this case, the builder - pays the buyer's agent's commission.
Builders often recommend their own preferred mortgage lenders for a variety of reasons. It reduces their costs and helps keep the business—and the profits from that business—in-house.
It also makes it easier to keep both parties informed of the transaction’s progress. Since the buyer is also in contract for weeks to months at a time, the in-house lender is very experienced at knowing all the critical documents and timing when it come to that specific community.
Many lenders are not familiar with new construction and the process, so this is one case using the inhouse lender is a plus. In fact, builders sometimes offer special deals and discounts if you use their preferred lender. They might even offer money off your home’s sale price. However, do not jump in with both feet quite yet. Research the lender’s reputation, ratings, and customer service quality first. Your banking professional may have better rates or products to offer so like any purchase, proceed with caution and do your homework.
You might want to talk to a real estate lawyer or an agent that is very savvy at understanding new construction contracts before you sign a purchase contract.
Most large builders do not typically allow for a buyer to modify or “red-line” their contract. They use a standard purchase agreement across all their communities. Standard purchase agreements don't necessarily contain language to protect the buyer, but at the same time, they are sound and ethical contracts entered into by 1000’s of buyers. Again, it is particularly important to read the contract carefully and understand what you are committing to uphold. Below are some items in a purchase agreement that you will want to fully understand or inquire about:
*SB800 - Senate Bill 800 commonly known as the “Right to Repair, became effective January 1, 2003 and establishes a mandatory process prior to the filing of certain types of construction defect claims. The bill, codified into law as Title 7, Part 2 of Division 2 of the California Civil Code commencing with Section 895, applies whenever there are defects alleged by a Homeowner in new residential construction, subject to standards. The legislative intent of this law is to afford both homeowners and homebuilders the opportunity for quick and fair resolution of claims
The profit margin is highest on upgrades for many builders. You will want to get the details in writing if you are thinking of upgrading any of the materials or features in a home you are building or buying:
Talk with your mortgage lender to find out if they will finance all the options/upgrades you have selected. You will be required to pay for the extras out of pocket if your lender will not finance 100% of your choices. Also, sometimes it is to your advantage to purchase and install some upgrades or additions yourself after your sale closes. A good example of this is landscape/hardscape. It is typically more economical to hire your own landscape company to build an outdoor kitchen or water features since there will not be a builder mark-up on those items.
Word typically spreads quickly when a buyer has a bad experience with a builder. Check online reviews and look at public records to find out if there are any previous or...
pending lawsuits against the builder, then talk to the neighbors, too. Did they experience any problems if they bought from the same builder?
You should also scrutinize the construction quality of surrounding homes. Is the builder consistently building identical or larger homes in the area or is construction lagging with homes shrinking in size?
Finally, find out if the builder sells to investors. Some builders require that all their homes must be owner-occupied, but others eagerly sell as much inventory to investors as profit margins will allow.
Investors are typically the first to bail if the market suddenly dips. Your community could clear out and fall into disrepair if this happens, sending home values down even more. You want neighbors who have a stake in the community, not transient tenants.
Most builders offer a wide array of incentives as a way to sell properties or finish out their communities. Ask what incentives you might be able to leverage in your home purchase.
These could save you valuable cash or get you free upgrades on your property.
Some of the most common incentives include:
It is easy to believe that new construction will be flawless, but that is far from the truth. Always get a home inspection when you buy—whether the home is brand new or centuries old.
A home inspection offers a third-party assessment of your home’s systems and structure, and it can help ensure that your home is safe, hazard-free, and a good investment. An inspection will run you from $300 up to about $1,500 as of 2020, depending on the size of the home and the extent of the inspection, from basic to every bell and whistle. Most inspectors find a laundry list of issues, even with brand new properties. A few things that are on my radar in new construction are:
Go back to your builder if the inspection reveals any issues or problems and ask them to make repairs before you close on the home. They might be willing to lower the sales price instead if they refuse.
One last area of note is the HOA (Homeowner’s Association) Dues or Requirements (CC&R’s). Make sure you thoroughly understand the bylaws and covenants of the HOA.
Do not find out you cannot do something a year down the road which completely upends your plans for the future.
Do not be put off by HOA fees as a good HOA covers many costs that you would typically be paying anyway like paint, roof repairs, insurance, and landscaping. You really should look at it as an advantage since someone else is responsible for the upkeep. Additionally, it keeps the integrity of the community at the highest level. When living in close proximity to other people, rules and regulations can be your friend. Let us say you have a color scheme requirement of the homes in the community. You will not have to worry about anyone painting their home yellow or unsightly colors. Another good HOA rule is restrictions on additions and modifications to the homes. Again, what one person thinks is attractive is not always your same opinion. Yes, it is a hindrance at times, but the overall objective is to benefit the entire community.
What is most important is understanding exactly what is covered by the HOA. Is it just the roof or all exterior components of the home? I have seen some HOA’s that cover very little and then the monthly fee it is a concern. Finally, who is managing the HOA is of paramount importance. Make sure you screen the management company and their records. You want a financially sound and secure company managing the finances. Imagine what is at stake 4 years down the road with 50 homes paying into the HOA- a lot of money! A good HOA story I can recount is a local small community had to address a termite issue and the HOA covered everything including the re-construction of some of the eaves and floorboards. My friend had only been in the home a year and received the benefit of the abundant coffers in the HOA that paid for the termite work. It can also work in the reverse. The HOA might have just painted and paved the community and the coffers are depleted. Thus, an HOA can be your friend and can cover items you would normally be paying for out of pocket every month/year, just read it carefully and understand the balance.
Two communities of particular interest in Los Gatos are Montalvo Oaks on Rt.9 previously the site of Jack Rose Restaurant and...
Bellaterra (The North 40) at Lark Ave and Los Gatos Blvd. Both are offering several home style options from Condos to Single Family Homes. Montalvo Oaks offers homes from 3-5 bedroom, 1700-3300 SqFt. Bellaterra has smaller homes, great for extended family or first-time buyers, ranging from 1-3 bedroom and 900-2100 SqFt.