How to avoid pitfalls when buying a new house.
There’s something very appealing about a brand new house. You get to pick out the carpet, drapes and appliances, and have things designed just the way you want them. New houses are sometimes priced more reasonably than comparable old ones, often come with amenities such as pools and tennis courts, require less immediate fix-up work and are more energy-efficient.
Too often, though, the advantages of new houses are overshadowed by problems such as shoddy construction and lengthy construction delays. Here are some suggestions on how to avoid problems.
Choose the Developer, Then the House
The most important factor in buying a new house is not what you buy (that is, the particular model), but rather who you buy from. In other words, don’t buy a house — buy its builder.
To check out a builder, talk to:
Owners who live in the development you’re considering or in a recently completed development by the same builder. If you are considering a development run by a homeowners’ association, talk to existing owners — association members — and the board of directors. They are especially insightful sources of information.
An experienced contractor or home inspector. Have him look at the house you’re considering for the quality of construction. If your house isn’t built yet or is already finished, have him look at other houses the developer is in the process of building. When a house is being done, it’s easy to see if construction standards are high or not.
County planning or building department staff who deal with local developers.
Real estate agents who’ve worked in the area for some time. Agents won’t usually deal directly with new house sales, but they may have handled the resale of houses built by developers and may know their reputations.
The state or local licensing or consumer protection agency that oversees contractors, and the local Better Business Bureau. Ask about complaints filed against the developer.
Keeping Track of Construction
If the builder allows it, have your contractor or inspector give the home a once-over at least three times during construction: when the foundation is poured, when the framing is completed and when the home is finished. Have the inspector examine various systems as they are completed, including the walls, roof, plumbing, electrical and insulation systems. Even if the home is finished when you buy it, hire a home inspector to give it a thorough examination.
Visit your home site periodically during construction and take the final walk-through to catch last minute cosmetic defects. Don’t close escrow on a new home until the work is completed. Otherwise, you could find yourself moving into a mess.
Be Wary of Optional Add-Ons
Many developers advertise houses at comparatively low prices to get you to come out and have a look. Once there, commissioned salespeople show you models loaded with expensive extras such as spa, fireplace, high quality carpet and big master bedroom. If you become seriously interested, the advertised price will rise as the developer tries to sell you the extras.
Buying extras lets you semi-custom design your home. But ask yourself what you really need and how much it will cost. Upgrades often add 5%-20% to the cost of a new home. To get the most for your money, follow these steps:
Take Care of Essentials First
Be practical. More electrical outlets, a fenced yard (especially if you have children or pets) and, in many areas, air conditioning, are day-to-day necessities. A fireplace and hot tub are not.
Make Sure Prices Are Fair
Some developers are less ethical in pricing extras than others. Steer clear of those who deliberately use poor-quality materials in highly visible spots in their models, almost forcing you to upgrade to over-priced substitutes.
Ask for one free extra for every two you buy. For example, if you pay top dollar for good carpets, tile and kitchen cabinets, ask the developer to throw in a better stove at no charge. And don’t be afraid to ask for the right to buy and install extras on your own.
You’ve probably heard horror stories about new houses that begin to disintegrate soon after the buyer moves in – the roof leaks, or the basement floods after the first big rain. This shouldn’t be a problem if you buy from a reputable developer — but not all developers are reputable.
Your best bet is to buy from a developer who includes a new house warranty from an independent insurance company. Typically, they cover workmanship and materials for one year, plumbing, electrical, heating and air conditioning systems for two years and major structural defects for ten years.
You can also buy a warranty on your own, but it probably won’t cover major structural defects. A typical warranty begins at the end of the first year you own your new home and runs four years. It costs about $500 for a single family home, with a $50 deductible for each claim. These warranties are often of questionable value because, much like extended warranties on cars and appliances, civil remedies for poor workmanship are already in place.
Read the Contract Carefully
Many new house contracts contain a clause saying that the model’s features, such as carpets and appliances, are not necessarily the same brands you’ll receive. You are guaranteed only the functional equivalent of what you see, which is typically different and costs the builder far less. Make a list of the precise features you’re concerned about (with makes and models) and include it in your contract. If one developer won’t accommodate you, shop elsewhere.
Get It In Writing
When dealing with a developer’s sales representative, get all promises as to what will be done, and when, in writing. Before you sign the purchase contract, make sure it includes all agreed-upon changes. If you’ve already signed the contract when you negotiate changes, write them down in a separate document. Don’t rely on oral commitments, which are notoriously unreliable and almost impossible to enforce.
Protect Yourself Against Delays
It’s always best not to close escrow on a new home until the work is completed, or you could move in on top of late or unfinished construction. Some hot markets don’t give you that option.
If you agree to buy a house that isn’t finished (or even started), you’ll be asked to sign a very one-sided contract. You’ll be given numerous deadlines (to make deposits, agree to design changes, get loan approval, sell your present house and close escrow), but the developer will have great leeway — sometimes up to a year from the target date — to deliver the house.
Do what you can to negotiate a fairer deal. Most important, you want to establish a reasonable date at which you can cancel the contract and get all of your money back if the developer doesn’t deliver the house. Again, get it in writing.
Before escrow closes, inspect the house, and don’t pay your money (close escrow) unless everything is complete to your satisfaction.
If you must close escrow because you need to move in, but significant and costly work remains, insist that the necessary funds be taken out of what you’re paying the developer and placed in a trust account after escrow closes. Then ask for a written agreement stating that if the work is performed on time, the money will be released to the developer; but if it isn’t, the funds go to you to hire someone else to do the work. If the developer refuses, at least make a list of what needs to be done, assign a completion date to each, and have it signed by the developer. If the developer fails to make a good faith effort to do the work, you may be able to sue in small claims court if you have out-of-pocket losses, such as rent or hotel bills because you could not move in on time.