Buying a home is a complex affair, even if you have bought and sold dozens of homes in your lifetime. A new construction purchase adds a layer of complexity and comes with some very specific caveats to bear in mind when making a purchase. These are the five most common questions I get from buyers considering buying new.
1. Getting A Good Deal/Negotiability
Like most people, you probably want to know that you are getting the best possible price. The negotiability in selling price will vary from development to development, determined primarily by market conditions, demand for the exact unit you desire, and the policies of the project financiers. In general, there is very little flexibility in the asking price for a new construction offering. It is almost always easier to receive credits, additional included options, and other consideration not related to the purchase price. Knowing how to best structure the deal going in will yield you the best net price.
2. The Model vs The Standard
As with many things in life, the display model is the ideal in every way. With new development, model homes often showcase features that aren’t even offered by the developer. Beware: the models are designed for you to fall in love and do not accurately depict what you will actually receive. To manage expectations, I like to walk through a model with my buyers and point out specifically what is/is not included. When possible, it is a good practice to arrange for a walk through of a unit that is being delivered very close to the “base model” for reference. On a typical single family home, you can plan for 25% of the purchase price in upgrades. Today’s luxury condominiums are increasingly delivered move-in ready, though the “standard” in many areas is to deliver with concrete floors and primed drywall; this is referred to as called “decorator ready.”
3. Deposit Structure
Once you decide to make a purchase, there will be a deposit required to go to contract. The initial deposit is typically between 10% and 30% of the purchase price (depending upon the stage of construction when you go to contract). Some developers will require multiple deposits along the way, some only require an initial deposit with the balance at closing. Because there is no standard structure in place, it is important to get clear about this with your agent.
4. Financing Options - Purchase
With the cost of capital at all-time historic lows, many buyers who are in a position to purchase without financing are choosing to close with financing and use their capital elsewhere. Some developers will accept a contract with a contingency for financing, others will not. In general, the new homes communities in the opening price points of a given market have developers willing to accept contingent deals and the luxury developments will not. If you are considering a purchase with financing, this may be a very important caveat for you.
5. Timing/Delivery
Once you sign a contract, the next thought for most buyers is moving in. It is important to note that all timelines offered by a developer are subject to change for a multitude of reasons. There are circumstances in which the delivery of a unit may be years later than planned. For those with abundant flexibility (and patience!) this may be a lesser issue; for most it is a major consideration. One can negotiate certain contractual terms reserving additional rights to cancel should delivery be delayed, though most people just want to know the unit will be delivered. A few indicators of better likelihood of an on time delivery include: secure financing in place through completion, developer viabilty, contractor viability, and sales velocity.