When purchasing a new home from a builder, prospective buyers need to know that contract negotiations are a bit different from the typical resale process. First, and foremost, the on-site real estate agent works exclusively for the builder, meaning buyers need their own agent who puts their interests first, particularly through the sales contract negotiation process.
More money up front. Builders will typically require more money down than a normal earnest money deposit because they are taking more of a risk if the deal doesn’t go through. For example, if you back out of deal after choosing kitchen cabinets and counters, the builder will be left to sell another buyer your choices. You may also have to pay a non-refundable deposit on upgrades, adding more upfront costs.
Little to no price negotiation. Tract home builders usually don’t negotiate on price unless they have a slowdown in business or have built homes on spec that have been on the market for 45 days or longer. Builders may be more open to negotiation at the end of a quarter when trying to reach a sales goal. Incentives may take the form of upgrades at a reduced price or as a bonus.
Lending process. Similar to a resale deal, buyers have a defined period to apply for a mortgage and be approved. However, buyers may not be able to lock in an interest rate until much closer to the time of closing.
Using preferred lenders. Often, a builder will have one or two preferred mortgage lenders. These brokers may offer incentives such as reduced closing costs or other favorable financing terms so the builder will send more customers their way. It is still wise to shop around for the best loan that suits your needs.
Construction time period. With a resale contract, the buyers and seller negotiate a closing date, often within a month or two. A builder often has up to 180 days to build the home and may have caveats that give him the option to delay the closing. This is meant to give builders time to recoup after weather delays.
“Substantially similar” substitutions. Although you may have bought a floorplan based on a model you toured, the contract gives the builder wiggle room in the use of materials and variations on features. You may find that a window is in a slightly different position, for example.
The final walk through and closing. Spend a few hundred dollars to hire a professional to thoroughly inspect the house upon completion. It’s not uncommon for the inspector to find deficiencies and overlooked building code violations. Prior to closing, you will do a “walk through” with the construction superintendent to create a list of items for the builder to fix before closing. Have your real estate agent with you to ensure nothing is missed. Hire a reputable real estate attorney to order a title search and complete all legal aspects of your purchase before settlement.
