Do’s and Don’ts of Buying New Construction

New construction is one of those segments of the market that is very enticing for most people. Brand new, never lived in homes that you can design to your tastes are not something you can get in all parts of the country. So, when people relocate to a city where new construction is an option, they are naturally drawn to it, or at least curious about it. There are some things to consider, however. Here are the do’s and don’ts of buying new construction in Austin.

Do’s of Buying New Construction in Austin

Use Your Own Agent

DO Use your own agent. Based on the belief they might get a better deal, or out of ignorance, many buyers use the developers’ on-site sales agent to represent them. New construction buyers should research what a dual agent can and can’t do under their state real estate license laws. Most states require written acceptance of dual-agency by both parties. All home buyers should be represented by an agent who has a fiduciary responsibility to them. Buyers shouldn’t forget that most Developers require that your agent must accompany you the first time you visit a sales center.

Ask for the Base Cost of the Home Before Upgrades

DO Ask for the base cost of the new home before upgrades. What you see is not what you get. What features are included in the price and what is not? Models are loaded with virtually every upgrade the Developer offers as an enticement for buyers. The profit margins on upgrades are substantial. Watch out for lot size and location premiums. Typically the home costs vary dramatically from advertised starting prices for a development.

Get a History on the Builder and Neighborhood

DO Pick the right developer and development. Ask your agent to get references from the Builder/Developer and ask your agent’s professional opinion of the history of the community and its prospects for the future. Do your own investigation of the developer’s previous projects and the area. You can also check out our Austin Neighborhood Guides for another opinion.

Carefully Consider Resale Potential

DO Carefully consider resale potential. The appeal of being the first to occupy a home sometimes masks an inferior location, poor craftsmanship and future development nuisances. You may want to compare the new home in an inferior location and a resale home in a superior location before signing on the line. Just because it’s new construction should not be the primary reason to buy.

Find Out How Much of the Neighborhood Has Sold

DO Know what percent of project is sold. Builder/Developers love to promote the sell-through rate of their projects. Inquire how much of the percent sold are reservations (i.e. dating is casual) versus actual signed contracts (i.e. engagement is serious). Reservations are cancelable. People do change their mind, develop financial hardships, lose jobs or cannot buy because of the builder’s delays.

Have Your Real Estate Attorney Review Builder Contracts

DO Have an Austin real estate attorney review all contracts. Developers’ contracts favor the Developers and are different from standard State of Texas approved REALTOR contracts. Retain a real estate attorney to review all contracts and don’t be embarrassed to ask about what you don’t understand. Once you sign a Builder/Developer contract there is little you back do to back out without penalty. Home sale contingencies are rarely welcome.

Research Property Tax Rates Independently

DO Research property taxes independently. Property taxes can be surprisingly more costly especially if you are moving from a State like California. Texas property taxes are expensive. Don’t get blind-sided because tax assessors haven’t valued a home or project, Developers can underestimate the property taxes. Check with the local taxing authority to find out the worst-case scenario.

Don’t Skip a Professional Home Inspection

DO Get a professional home inspection. Never skip or waive your right to conduct an inspection. The benefits far outweigh the costs and the discoveries could side-step an expensive over sight. New construction is neither perfect nor immune from deficiencies and lack-luster workmanship. Hiring a professional, not Uncle Louie, is prudent money well spent.

Find Out How Many Investors Have Purchased Homes

DO Inquire about investor (e.g. non-owner occupied) purchased units. In our post-real-estate-bubble-environment many Developer contracts restrict purchase of units by speculators to protect against flipping. Look for contract provisions that require purchasers occupy the home for the first 12 months after closing. Be sure to ask the sales agent what the percentage of owner occupancy is for the project, and the limit on investor owned.

Obtain a Certificate of Occupancy

DO Obtain a certificate of occupancy. Local municipalities issue a certificate of occupancy after the home has passed all building department code inspections. Most mortgage lenders will require a certificate of occupancy before they fund and close your loan. If you are paying cash you’ll need to verify yourself whether the Developer has delivered the certificate of occupancy. If not, don’t close.

Understand Why Developers Request Upgrades Paid in Advance

DO Understand why developers request upgrades paid for in advance. Experience has taught Builder/Developers that some buyers will not buy the home for which they have ordered specific floor-coverings, countertops and kitchen cabinets, or other selected features already installed by the developer. Subsequent buyers will want to select their own finishes and a home that has pre-selected finishes by a terminated buyer poses a marketing problem. Prepare to pay upfront for all upgrades and changes you order, and if you decide to walk away from the home after you have paid for upgrades, expect the Developer to dispute your claim for a refund.

Require Earnest Money Go Into an Escrow Account

DO Require your earnest money deposits be placed into an insured escrow account. Insist that all deposits and payments you make be placed into an escrow account and not the Developers business account. Developers must follow Texas state law regarding the handling of the buyers’ money. If disputes arise it is easier to receive refunds from a neutral third-party or escrow agent than from a Developer.

Get Copies of Floorplans, Surveys and Blueprints

DO Request from the Builder/Developer copies of blueprints, floor plans and surveys. Get clean copies of blueprints and floor plans of your new home with all the activity and decisions during the construction process. Later when you want to make changes or sell, having the blueprint and footprint of your home will save you expense and time. Be sure the Developer provides an updated survey showing your parcel. You’ll need it later when you sell or remodel. Verify your new home has its own parcel identification number issued by taxing authorities.

Know What Your Warranties Cover

DO Research warranties on structure, finishes and appliances. Builder/Developers typically offer five or ten year warranties on structural elements of a home and rely on manufacturers warranties for appliances, furnaces, windows and overhead garage doors. Beware of one-year warranties on structural elements, if you come to not need help during the warranty period.

Don’ts of Buying New Construction in Austin

Don’t Forget to Ask for Monetary Holdbacks on Unfinished Work

DON’T Forget to ask for monetary holdbacks on any unfinished work. Sometimes weather or material supply shortage or delivery problems can delay completion of a home. If some items aren’t necessary for occupancy the builder will want to close on your home. Make sure any substantial items or features that are not completed in your new home have ample funds set aside for their installation or completion. Request these funds be withheld and deposited in an escrow account at closing.

Don’t Omit a Final Punch List at Walk-Through

DON’T Omit final written “punch” (e.g. things to do) list. Keep a copy for your records. You should have a final walk-through at least three days prior to closing on your new home. Create a “punch” list of all uncompleted or unfinished items. Punch lists can also be used to identify items that need additional attention. Both the developer and the buyers should sign the final punch list in agreement. Developers should complete punch lists within 30 days of closing.

Don’t Forget to Closely Monitor Construction

DON’T Lose focus during the construction process. Family, job or distance can distract you from closely monitoring the construction and completion of your new home. Proactive buyers can catch design mistakes, oversights or irregular materials by visiting the job site on a regular basis. Developers limit access to construction sites for insurance purposes. Stipulate in purchase contracts when you may visit your home during the construction process.

Don’t Be Fooled by Low Assessments

DON’T Be fooled by low assessments. Developers can use low estimates of the monthly homeowner assessments in new construction marketing materials. Plan on an increase in the monthly assessments the first year after the developer delivers the association to the homeowners. The monthly assessment increases could be substantial.

Don’t Overlook Upgrade Costs

DON’T Overlook costs between standard and upgraded features. There can be a large differential in both quality and the useful life spans between builder grade and upgraded finishes, fixtures and appliances. It may be worth the additional expense to install better carpet, pad, cabinets, fixtures and faucets. Compare builder prices for upgrades at your local home improvement center.

Don’t Let Builder Incentives Weigh too Heavily on Your Decision to Buy

DON’T Ignore Builder/Developer incentives as a sign of slow sales. Credit toward monthly homeowner assessments (e.g HOA fees), “free” stainless appliances even plasma TVs can be thrown in to induce buyers to act. What many buyers think are a “free” are actually signals that a project’s sales are slow and the Builder/Developer are more motivated to make a deal.

Don’t Be Surprised at Builder’s Unwillingness to Negotiate

DON’T Be surprised when developer holds firm on pricing. Developers of popular projects don’t typically negotiate on home prices. However, sometimes even in an active market, a developer will throw in upgraded appliances or hardwood floors in place of standard carpet to demonstrate good will. When a developer doesn’t move on prices, it is because their sell rate is acceptable.

Don’t Ignore Risks of Buying Pre-Construction

DON’T Disregard risks of buying new or pre-construction. Pre-construction pricing can attract value-driven buyers. However there is a risk when buying into a project before it has started. Verify that the developer has received a green light from local building authorities and has a proven track record of timely completion in the community. Buying pre-construction in a project that never materializes can be a giant opportunity loss.

Don’t Forget a Contingency Plan

DON’T Assume everything will go according to plan or intent. Having contingency plans for cost over runs and construction delays will only serve to minimize the frustrations these unanticipated events engender.

Want to Read More About Buying New Construction in Austin?

Check out our Austin New Construction Blog for more articles on how you can buy a new home with the least hassle and stress. Have a question? Need an agent to represent you? Call us at (512) 827-8323 or email us at info@11OaksRealty.com to schedule a no obligation consultation.

Think You Might Be Ready to Buy a New Home in Austin?

Check out our Austin Home Buyer Representation Program to learn about who we are and how we are different than your average Realtor. Then, call us at (512) 827-8323, fill out our Buyer Survey, or email us at info@11OaksRealty.com to schedule a no obligation consultation.