Thinking of Buying a Preconstruction House? Read This First!
With a 24.5% decline in the national inventory of active listings, finding the right house that fits your budget and must-haves can be a significant challenge these days.
So if you aren’t finding anything that fits what you’re looking for in a home after searching high and low, it might be the perfect opportunity to buy a preconstruction home. That’s especially true if you have time on your side and don’t have to move right away.
“Buying preconstruction allows buyers to lock in preconstruction pricing,w because completed properties show better and are highly desirable,” says Anne Van Dyke, a real estate agent with Coldwell Banker in northern New Jersey.
But it’s crucial to think ahead before you buy a home that doesn’t exist quite yet. Here’s a breakdown of everything you need to know about buying a preconstruction house.
Do a deep dive on the developer
Just like with buying an existing home, buyers must do their due diligence and research everything they can about the new house. As with any home search, you want to feel comfortable moving into the area. But just as important, your research on a preconstruction home needs to focus on the developer or the contractor.
“Make sure they have good reviews and are highly respectable in their field,” says Jeff Johnson, real estate agent and acquisition manager at Simple Homebuyers in Maryland’s Charles County. “It’s inevitable for some minor errors to happen even in new developments. But the contractor must respond quickly to any issues and be willing to fix them. This shows their work ethic and credibility.”
So look for online reviews, testimonials, and any information on the developers you’re interested in working with and the development itself.
And if you’re buying in a brand-new development, it’s crucial to look into the future of the neighborhood and the surrounding area, which will, in turn, determine the return on your investment. The local planning department is an excellent place to start your investigation to see what else is in store for the area.
Beware of hidden costs
New homes provide homebuyers with a clean slate. So instead of worrying about how to replace the questionable design choices of a previous homeowner, you can usually choose everything from the tile to the countertops to the wall color—all tailored to your personal style and budget.
But be sure you fully understand which fixtures and finishes are included in your builder obligation contract. Everything from door handles to light switches can often be upgraded—for an additional fee.
You may also encounter additional costs like a monthly fee for membership to the homeowners association. The HOA typically pays for the community amenities, landscaping, and implementation of regulations that keep the houses well-maintained. While there might not be a homeowner’s fee initially, the HOA may institute it later as the community grows. Again, make sure you get all the information upfront.
Also, don’t forget that the brand-new home you receive may come with a higher property tax due to its pristine condition. Keep this in mind because your property tax will rise over time, especially as more houses are built.
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Research where the best lot is
Most developers allow homebuyers to pick finishes. Some will also let you choose where the house is physically located within a development or a given area.
“Preconstruction homes are usually a good option, because if you’re buying early, you get first to pick,” says Cristina Ortega, owner of Mrs. Property Solutions in Los Angeles.
The key is to get into a development early and take time to drive around the future neighborhood. Check out the topography in each lot. For instance, a flat lot may have drainage problems, while a home on a slope may end up with a steep driveway. So be sure to talk with the developer about the property itself and not simply the home design.
Be sure to conduct a home inspection
While most new construction includes a final walk-through, the builder might not offer a final home inspection.
And as great as a brand-new home sounds, living in the structure is untested until you move in. And homebuyers can encounter problems once the home is up and running. Builders are often working quickly with many projects handed off to subcontractors, and mistakes happen. So it’s safer if you don’t assume the house is flawless and built to code.
“Have a licensed home inspector perform an inspection prior to closing and once again before the warranty expires,” advises Luis Dominguez, a real estate professional with Douglas Elliman Real Estate in Miami.
Consider new home warranties
New homes usually come with a builder warranty, which should cover all of the home’s materials and quality, Dominguez says. This includes things like the concrete foundation and floors, carpentry, insulation, roofing, plumbing, and electrical work.
According to the Federal Trade Commission, the length of coverage varies between one year for workmanship and materials and up to 10 years for major structural defects.
But while the warranty provides peace of mind that the builder will cover the cost of any issues that arise after you’ve purchased the home, one warranty may not offer enough coverage.
Remember that homebuyers can purchase an additional home warranty for an extra cost to cover the replacement or repair of appliances or air-conditioning system. Basic coverage can start at around $300 and go up to $600 for a more comprehensive plan.
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