Three Costly Mistakes with New Construction

Buying a new home is an exhilarating venture. The prospect of owning a pristine, untouched abode is undeniably appealing. With new construction, there's the promise of minimal maintenance, repairs, or replacements for a considerable stretch of time. It's your dream come true, right? However, before you get too carried away, it's crucial to acknowledge that even in the realm of new homes, there exist some recurring issues that can sneakily dent your budget. In today's blog, we'll delve into three of these persistent problems I've encountered time and time again.

New Construction is GREAT!

New Construction can be costly… you need to be aware of these things.

As a real estate professional with 15 years of experience under my belt, I've seen a significant shift in the market over the past five years. A growing number of buyers are opting for new homes, and I've had the privilege of assisting many of them. Throughout these transactions, I've noticed a set of challenges that are nearly inevitable when dealing with new construction. While these issues can't be entirely avoided, being well-prepared can make all the difference in preserving your budget. So, let's explore the top three concerns and, as a bonus, I'll also share one additional point towards the end.

 Navigating New Construction: The First Hurdle - Delays

New home construction is undoubtedly a thrilling journey, but it often comes with its fair share of unexpected twists and turns. The first major roadblock to be aware of is delays.

Builders typically provide a broad timeframe for your home's anticipated completion, something like "between May and July next year." As the date approaches, you might expect them to narrow it down, but in reality, it's a rarity to see a closing happen within that initial timeframe. Even if they offer a revised estimate six months down the line, let's say, "sometime between July and September," it's still quite common for them to miss the mark. It often feels like you're on the brink of closing and moving in any day, only to be met with yet another obstacle. It could be a shortage of certain materials, or the county discovers something that needs a rework. The critical factor here is that you can't close the deal until all permits are secured and you have that coveted Certificate of Occupancy (CO) in hand.

So, what does this mean for you? Well, if you're looking to buy a new home, you need to ensure you have a place to live during this uncertain period. Some folks need to sell their current home before they can buy a new one, which adds another layer of complexity. It's tempting to sell your home early for peace of mind, but you'll then need to secure a rental or potentially stay with family. The builder gives you a deadline that appears realistic, but last-minute issues can crop up, preventing you from closing on time.

Here's my suggestion: have your rental property lined up for a month or two longer than what the builder is telling you. You might be thinking, "But Jill, I don't want to pay rent and a mortgage at the same time." The good news is, you probably won't have to. When you close on a property, your first mortgage payment isn't due until 30 days later. For instance, if you close in the middle of August, your first mortgage payment won't be until October 1. This eases the burden of making two payments in a single month.

Think of it this way: consider the costs of moving out of your rental, potentially storing your belongings, and then finding another rental for a month or staying in a hotel if you can't find one in time. Having the peace of mind that you won't be left homeless is well worth having that rental lined up for a bit longer.

It's essential to note that these considerations apply to move-in ready homes or quick move-ins. Even though the terms may imply a shorter wait, unforeseen delays can still arise. So, in the face of these common pitfalls, it's crucial to prepare and anticipate delays extending beyond what's initially projected.

 The Second Challenge - House Completion Uncertainties

While many builders strive for excellence, it's crucial to acknowledge that not every new home will be 100% complete when you close the deal. Yes, you read that right. You're essentially moving into a house that's complete enough to obtain the coveted Certificate of Occupancy (CO), but there may still be missing parts or repairs and replacements on the to-do list. Common culprits often include bathroom or kitchen cabinets, and sometimes even the appliances you purchased might be substituted temporarily.

I've seen new homeowners close the deal and eagerly move into their homes, only to find window sills in disarray, dented appliances, or subpar interior doors, among other issues. The list of potential hiccups can seem endless.

Here's how the process usually unfolds: at the closing, the buyer and the builder sign a form listing everything that remains incomplete or in need of repair. However, here's the catch – don't expect these issues to be addressed in the first week or two. Builders often take their time to rectify these matters, which can be frustrating if you're eager to have the house in perfect shape for a grand celebration or event immediately after closing.

So, if you're envisioning a perfectly polished house ready for hosting a big celebration right after moving in, it might not align with reality. It's essential to be prepared for these potential imperfections and be patient as the builder works through the final touches.

 Beware the Interest Rate Rollercoaster

A few years back, interest rates were relatively stable, and buyers didn't have to contend with the rollercoaster ride we're seeing today. But fast forward to 2022, and many who went under contract had one set of expectations for interest rates, only to see a significant spike when their new home was finally ready. Here's the catch – the builder isn't concerned about your interest rate predicament, and you're typically locked into the rate specified in your contract.

Here's another aspect to consider. When you lock in your interest rate, it's usually because everyone is convinced that the house will be completed within a short timeframe, often around 30 days. You're excited and can't wait to move in. But when the house isn't ready as anticipated, your rate lock is at risk of expiring. To keep that rate lock, you'll need to shell out additional money, and these extensions can cost you anywhere from $1,500 to $3,000, depending on various factors. It's something I don't often see or hear about until buyers become understandably frustrated.

So, here's a word of caution: be mindful of when you lock in your interest rate. Locking in too early might lead to additional costs that can weigh heavily on your budget. It's crucial to navigate this challenge with foresight and awareness.

Join us in the next section, where we'll dive into a valuable bonus point that can make all the difference in your new home buying experience.

 Bonus Point - Contract Favoritism Towards the Builder

You might be thinking, "Jill, I would never sign a contract with such vague terms for a closing date, nor would I accept an incomplete house, or let the builder get away with making me pay for my rate lock." Your concerns are valid, and I completely understand where you're coming from.

However, here's the crux of the matter – each builder has their own contract, and these contracts are typically designed to favor them, not you. If you want to embark on the journey of new construction, this is the reality you face. It's true; you may incur additional expenses due to delays in closing or incomplete work, but the builder doesn't lose sleep over these inconveniences. They won't reimburse you for extra costs, and yes, it can indeed cost you thousands more for your rate lock.

Furthermore, when it comes to closing, you'll do so when the builder tells you it's time, and your options are limited. If you decide to walk away from the contract, you risk losing your deposit, which, incidentally, tends to be a substantial amount, often in the range of $30,000 to $40,000 or even more.

And to add another layer of complexity, this could be deemed as Point #4 - builders are increasingly including clauses in their contracts that require buyers to proceed with the purchase even if the home doesn't appraise at the agreed-upon price. In such cases, you'd be on the hook to come up with the extra cash to close the deal. For example, if the home is priced at $650,000 but appraises at $630,000, you'd need to bring an additional $20,000 to the closing table.

It's essential to be well-informed and prepared when entering into a contract for new construction, as the terms are heavily weighted in favor of the builder, and making the wrong decision could have significant financial implications.

In Conclusion - The Resilience of New Construction

Despite the potential challenges and pitfalls that come with new construction, it's remarkable to see that many people still opt for this exciting journey. The allure of a brand-new home often overshadows the issues that can crop up, and it's a sentiment I completely understand. It's human nature to believe that these complications won't happen to us, yet, as I've stressed, these issues are recurring and persistent.

My intention here is not to dissuade you from exploring new construction, but rather to empower you with knowledge and insight. By being well-informed and taking a smart, proactive approach, you can navigate these challenges with confidence and minimize their impact on your budget and peace of mind.

If you're considering new construction or have any questions about real estate, whether it's new construction or resale properties, please don't hesitate to reach out to me. I'm here to assist you and provide guidance to make your real estate journey as smooth as possible. Your dream home is within reach, and I'm here to help you realize it.