Tips for New Construction (incentive, recommendation, appraisal, negotiating)

[zhelder]

I am a first time home buyer (of above average first time home buying age) that is in the very early stages of getting ready to plan to buy my first home. Next week, I am going to look at a new townhome construction complex, and I have some questions about the process should I want to purchase a home there...

- Should I deal with a real estate agent and/or a real estate attorney automatically, or is it possible to have a successful transaction on your own? What's the best way to start contact with these people?

- Is there a possibility of negotiating on the actual price of the unit? It seems builders are far more likely to negotiate on upgrades or closing costs rather than the actual price, but since even the base price of the unit might be a bit of a stretch for me, I'd like to know if there is any chance to work on the price.

- The units are likely a year or more away from completion. Is the full down payment required as soon as you sign on the dotted line? If not, how much is usually due immediately?

- Are builders/lenders willing to "hold" the property for a period of time for you? For example, if I'm in the middle of a lease, would builders and/or lenders give me some time to fulfill my lease before closing or is immediate closing/mortgage payments upon completion of the home more the norm?

- The builder is also a lender, and they claim they have a no PMI program for people with smaller down payments. Does anyone know exactly how these programs work?

Thank you all for any information or tips.

[Coldjensens]

Originally Posted by zhelder

1. I am a first time home buyer (of above average first time home buying age) that is in the very early stages of getting ready to plan to buy my first home. Next week, I am going to look at a new townhome construction complex, and I have some questions about the process should I want to purchase a home there...

2. - Should I deal with a real estate agent and/or a real estate attorney automatically, or is it possible to have a successful transaction on your own? What's the best way to start contact with these people?

3. - Is there a possibility of negotiating on the actual price of the unit? It seems builders are far more likely to negotiate on upgrades or closing costs rather than the actual price, but since even the base price of the unit might be a bit of a stretch for me, I'd like to know if there is any chance to work on the price.

4. - The units are likely a year or more away from completion. Is the full down payment required as soon as you sign on the dotted line? If not, how much is usually due immediately?

5. - Are builders/lenders willing to "hold" the property for a period of time for you? For example, if I'm in the middle of a lease, would builders and/or lenders give me some time to fulfill my lease before closing or is immediate closing/mortgage payments upon completion of the home more the norm?

6. - The builder is also a lender, and they claim they have a no PMI program for people with smaller down payments. Does anyone know exactly how these programs work?

Thank you all for any information or tips.

1. Congratulations. Exciting and somewhat scary time in life.


2. This depends on what you are buying and where. It varies from state to state. If it is new construction by a developer, you may not need anyone. Their prices and terms are usually not negotiable, especially in a sellers market. However, if you do not clearly understand every part of their agreement form, you may want to pay an attorney a few hundred dollars to review the agreement and make certain you are not signing away some critical right if there are major defects or health issues. Some types of waivers may be standard in your area and you are not going to find anything new without those terms, even if they are awful. In most cases, however, your options are sign their terms or walk away. Understanding which terms are normal for your area and which terms are unusual, is the primary thing a realtor or lawyer can help you with in purchasing from a developer.

3. Sometimes you can negotiate price. It depends on the market where you are and the type of housing. Condos and town homes are usually built as cheaply as possible and sold with very little margin. They make their money due to volume. However you never know; that can vary from one developer to another or from one area to another. Give it a try. What is the harm? You are right about the upgrades being more common. Upgrades cost them next to nothing, so they re often willing to throw them in.

4. Usually only a small deposit. Sometimes they require an irrevocable promise to buy. Unless these homes are selling out before they are built, it is not generally a good idea to pay a large deposit that far ahead of time. If home prices drop, you are still stuck paying the prior price. If they rise, you get a bargain. If the project gets delayed by a yer (or more likely a few months), you may be stuck waiting, depending on your agreement. If you discover the construction is shoddy,you re still stuck buying under some contracts. If some other developer comes out with a phenomenally better development int he same price range, you will have to sacrifice the deposit or accept the lesser location. Best option is to pay a deposit that you can afford to lose. To me a deposit of $500 - $1500 is a decent deal as it locks the price against increases while giving you an out. Just make sure that you really have an "out" Sometimes they can keep your deposit and then also sue you for the difference between what you agreed to pay and what they end up getting form another buyer.


5. Generally not. Most developers work on a model called "OPM" (other people's money). They invest comparatively little in the project themselves. They borrow money but mostly force their contractors and subcontractors to carry much or all of the costs of construction until the homes are sold. They can only stall payments to contractors for so long before they start getting liens and lawsuits. So, typically, they cannot wait. There are exceptions however. If they are going to hold it for you until your lease runs out they may require: a. big deposit; b. irrevocable commitment; c. more money (probably monthly fee equivalent to rent or at least their catty costs).

6. They all work differently. If you have to have PMI, I would wait. PMI is theft IMO. If you need PMI it means you cannot really afford the mortgage. Builders programs vary, some "lend" you the money then sell the loan. Sometimes the buyer of the loan can then require PMI. It depends on what is in your agreement, and it can depend on your State. Some companies cover the equivalent of PMI in steep "origination fees" or fees with other unclear titles. Some lenders offer no PMI, but higher interest rates, the extra money goes to PMI or to self insurance that does the same thing. Some are willing to risk their capital in order to sell their homes quickly. If they will continue to manage the project, they can usually take and sell the home quickly if you default. Some have groups of investors willing to take bigger risk for a better return. The bottom line is they are in business to make money. If you are a substantial risk, you are going to pay for that one way or another. Get quotes from some credit unions and/or some big mortgage place like Quicken. However, be careful about how many credit checks you have done. Each hard pull lowers your credit score by a few points.

[Kelticroam]

This is IHHO from my experiences. This may not be for you right now but I advise many people when looking at homes especially families to see if you can build or turn a section of your home into in-law living at some point in time. It could be a walk out basement that you can finish over time. The biggest challenge in buying a home is thinking of the "What ifs" . We tend to think of the here and now and the excitement of home buying (stress too ). The What If's 1) You hit hard times financially, How will you take care of yourself 1. Roommate, Is the home set up to accommodate this B. Some type of in-law sq footage that could accommodate a renter. 2) If you or someone you love becomes incapacitated, does the home have some wide doorways, 1st floor bedroom and possibilities 3) Unexpected Expenses e.g. Medical, Child's schooling etc extra living space can add cash when you need it.

[davecj]

Originally Posted by zhelder

I am a first time home buyer (of above average first time home buying age) that is in the very early stages of getting ready to plan to buy my first home. Next week, I am going to look at a new townhome construction complex, and I have some questions about the process should I want to purchase a home there...

- Should I deal with a real estate agent and/or a real estate attorney automatically, or is it possible to have a successful transaction on your own? What's the best way to start contact with these people? It is possible to negotiate a slightly better deal without the expense of a real estate agent but I would still recommend using one that is experienced in new home sales for your first purchase. The attorney wouldn't get involved until you are read to move forward. Most builders have a standard purchase and sale agreement. An attorney would be more useful to help you understand what you are signing

- Is there a possibility of negotiating on the actual price of the unit? It seems builders are far more likely to negotiate on upgrades or closing costs rather than the actual price, but since even the base price of the unit might be a bit of a stretch for me, I'd like to know if there is any chance to work on the price. Pricing is typically fixed for appraisals. Builders would rather give up more incentives or options than reduce pricing. Of course everything again is negotiable in real estate.

- The units are likely a year or more away from completion. Is the full down payment required as soon as you sign on the dotted line? If not, how much is usually due immediately? Depends on the builder.

- Are builders/lenders willing to "hold" the property for a period of time for you? For example, if I'm in the middle of a lease, would builders and/or lenders give me some time to fulfill my lease before closing or is immediate closing/mortgage payments upon completion of the home more the norm? Depends on the builder.

- The builder is also a lender, and they claim they have a no PMI program for people with smaller down payments. Does anyone know exactly how these programs work? Depends on the builder.

Thank you all for any information or tips.

Answers in red.

[Jkgourmet]

Originally Posted by zhelder

I am a first time home buyer (of above average first time home buying age) that is in the very early stages of getting ready to plan to buy my first home. Next week, I am going to look at a new townhome construction complex, and I have some questions about the process should I want to purchase a home there...

- Should I deal with a real estate agent and/or a real estate attorney automatically, or is it possible to have a successful transaction on your own? What's the best way to start contact with these people?

I cannot urge you strongly enough to get your own realtor! You need their experience and expertise. I've bought (and sold) several homes, and I used to be a mortgage salesperson, so I'm familiar with the process. But buying a home from a builder was an entirely different animal.

Don't set foot in the model home until you have your own representation. The builder will pay thier commission. And I would say that any builder that tells you that if you don't use your own realtor they will drop the price is a builder that I wouldn't trust.

In some areas, you don't ever even need a real estate attorney. In the case of new construction, be aware the most national builders will refuse to change their standard contract one iota. I asked my long time family law firm to review the builder contract for me, and they suggested that I save my money since the builder wouldn't agree to any changes anyway. Their recommendation was that I read the contract and call them with any questions. My realtor was also helpful with interpreting the contract.

I'll also add that the builder sales person was awful. She lied to us about several items saying they were included when, in fact, they were options. Our realtor, luckily, had gotten her to confirm this stuff in an email, so the builder gave them to us without extra charge. Total savings were close to $20K in structural upgrades and changes.

- Is there a possibility of negotiating on the actual price of the unit? It seems builders are far more likely to negotiate on upgrades or closing costs rather than the actual price, but since even the base price of the unit might be a bit of a stretch for me, I'd like to know if there is any chance to work on the price.

Usually, no. They want to keep the comps and appraisals high, so they will negotiate the upgrades, lot premiums, etc. Just so you are aware, the average buyer of new construction goes over the base price by 15-20% (based on what I've read). So if the base price is already a stretch for you, this probably won't work.

- The units are likely a year or more away from completion. Is the full down payment required as soon as you sign on the dotted line? If not, how much is usually due immediately?

Depends on the builder.

- Are builders/lenders willing to "hold" the property for a period of time for you? For example, if I'm in the middle of a lease, would builders and/or lenders give me some time to fulfill my lease before closing or is immediate closing/mortgage payments upon completion of the home more the norm?

Not for long. Maybe a month or so, but that's about it. At least, in my neck of the woods.

- The builder is also a lender, and they claim they have a no PMI program for people with smaller down payments. Does anyone know exactly how these programs work?

Depends on the builder. However, absolutely compare what the builder is offering to what a good, independent mortgage broker offers you and maybe even get a quote from your credit union.

Thank you all for any information or tips.

Answers in red.

[johngolf]

Originally Posted by zhelder

I am a first time home buyer (of above average first time home buying age) that is in the very early stages of getting ready to plan to buy my first home. Next week, I am going to look at a new townhome construction complex, and I have some questions about the process should I want to purchase a home there...

- Should I deal with a real estate agent and/or a real estate attorney automatically, or is it possible to have a successful transaction on your own? What's the best way to start contact with these people?

I say no need for a real estate agent but I would have a lawyer and not sign anything until they look it over. I say a better deal can be negotiated without an agent as the builder does not have to pay real estate commissions.

- Is there a possibility of negotiating on the actual price of the unit? It seems builders are far more likely to negotiate on upgrades or closing costs rather than the actual price, but since even the base price of the unit might be a bit of a stretch for me, I'd like to know if there is any chance to work on the price.

Builders try and hold the base price line. You can wheel and deal on options. Get the options you want installed during construction and wheel and deal on prices.

- The units are likely a year or more away from completion. Is the full down payment required as soon as you sign on the dotted line? If not, how much is usually due immediately?

This can vary but most do not require much down. My last one was $500 to hold the unit. Be sure the deposit is refundable. Good thing for the lawyer to look over.

- Are builders/lenders willing to "hold" the property for a period of time for you? For example, if I'm in the middle of a lease, would builders and/or lenders give me some time to fulfill my lease before closing or is immediate closing/mortgage payments upon completion of the home more the norm?

Typically they want a close when ready. In one case we had to move into a temporary 120 day rental until our home was complete.

- The builder is also a lender, and they claim they have a no PMI program for people with smaller down payments. Does anyone know exactly how these programs work?

I expect the builder is not personally financing it but if their rates are as good as any and no PMI than consider it. Do mortgage shop on your own to be sure their rates are good.

Thank you all for any information or tips.

My last two home purchases and an earlier one were new (one townhome, two standalone homes), in small developments (120 homes) so I have been down this road a few times.