NEW HOMES: The Shrewd Homebuying Guide
Tips When Buying from a Builder
- Be wary of promotional materials. Promotional literature
is just that; it's designed to entice you to purchase. It presents
the builder, the homes, and the neighborhood in the best possible
manner. Negative information isn't included, so it's your job and
that of your agent to find out anything that could present an unpleasant
surprise at closing or after the sale. READ EVERYTHING THOROUGHLY.
Look for vague or ambiguous statements, and make certain you understand
what you are purchasing.
- Check out the builder contract. Larger builders often have
their own sales force and their own contract form. Such contracts
are always written in the builder's favor. Read the contract and
get explanations for anything you don't understand. Does the builder
limit your ability to have the property inspected or the people
who may accompany you at the walk-through?
- Be careful about giving too much information to a builder's
agent. They will relay it to the builder which could damage
your negotiating position. It's best to leave the site and discuss
your offer with your agent in private. He or she can then return
with your signed offer.
- Make certain your purchase offer includes everything you want.
Remember, if it's important, write it in the contract. Anything
not in the contract will not be considered. Don't be mislead by
verbal promises from the builder's agent. While the agent may not
knowingly attempt to deceive you, the builder's obligation is to
meet only those terms and conditions that are written in the contract.
Put everything in writing.
- Ask for a copy of the builder's warranty. If the builder
has a written warranty, read it. Understand what is covered and
what may be excluded. Be careful of builders who have no formal
warranty. They may defer to their state's guidelines which are usually
vague and difficult to enforce on minor issues.
- Understand the amenities package. If the community includes
and amenity package-pool, tennis court, playground, etc.-make certain
you understand how the facilities are to be maintained. Is the builder
involved in the process? Is there a possibility of future assessments
to homeowners when the builder is no longer involved? If the facility
isn't complete is there a written commitment for completion? Is
the builder financially sound so that completion will not be delayed
- Does the builder offer special financing? If so, is it
competitive with what is available in the market? Sometimes such
offers come with low up-front rates that can escalate beyond the
purchaser's ability to pay. If you are using an agent have them
compare the builder's financing package with those from their preferred
lenders. Remember, someone pays for everything; there are no "free
lunches" in the mortgage business. With builder profit margins
generally low, the cost of a lower interest rate may just be added
back into the price.
- Building a home? If you're having a home built from scratch,
ask the builder to attach a copy of the plans and specifications
to your contract. This will give you a written record of exactly
how your home will be constructed and will help you avoid future
disagreements on design, materials, and equipment. If your builder
is unwilling to include a specifications sheet, be especially certain
that everything is spelled out in the contract.
- Who holds the earnest money? Some builders specify that
they are to hold the deposit or earnest money. Be careful, for this
clause is specifically designed to keep you from cancelling the
contract should something go wrong with the process. Builders who
are unwilling to allow a Realtor® or other third party to hold
the earnest money do so to maintain control and can use it as leverage
if problems arise. If there is a disagreement or if such builders
declare bankruptcy, the money may be lost. I recommend having a
third party hold the funds.
- Understanding the closing. Make certain you fully understand
the options for scheduling your closing. Can the builder force you
to close earlier than you wish if the house is completed? Does the
contract specify that closing must take place upon the issuance
of a certificate of occupancy by the local building authority? If
so, you could be forced to close sooner than you wish, in some cases
prior to the completion of the punch list. Can the builder delay
closing-perhaps causing you to lose your preferred interest rate-without
penalty? Read this section of the documents and understand what