California new home purchases are the choice of many home buyers. It's a different process. Hire an agent to deal for you.
Navigating the waters of a new home purchase means getting intensely curious about what the purchase entails. You don’t know what you don’t know until you ask. It’s a Saturday afternoon and as you drive down the freeway you notice billboards advertising a new home subdivision at the next exit. You take that exit and find yourself driving past empty home sites, some with little sticks in the ground, and you follow directional signs and flags to a model home complex.
You realize you’re not in Kansas any more when walking into a sales office that takes the place of a home’s three-car garage. A friendly, well-dressed salesperson greets you, guiding you over to a center island graphic set-up meant to give you an overview of the neighborhood. As you gaze into its depths, you see tiny, meandering streets and colored shapes representing homes.
The salesperson asks you a few questions, hands you a slick brochure and a price sheet, and encourages you to take your time as you wander through their five model homes, all prototypes of one you can order up if a match is made, and all fenced in so you MUST exit through the sales office again before getting into your car. It's a well engineered, time tested home sales process.
So how is the purchase of new construction so different from buying a home with experience, and what should you know when you walk in? Home buyers new to this experience are generally not aware of the subtleties of this type of home purchase, since no one really sits them down to explain it unless, of course, they were guided there by their own Realtors. Thing is, some home builders “cooperate” with outside real estate agents (pay them a commission as procuring cause for the sale) and others may not, depending on the area. But be aware that if you are working with a real estate consultant, they must accompany you there on your initial visit.
We strongly advise that you hire an agent to purchase your new home. The builder will pay their commission and you will benefit from an objective point of view and skilled third party negotiator. Our broker has prior experience as a new home construction lender for builders in sub-divisions giving us an understanding of the inside sales operation.
Otherwise, the builder will assume you simply found them from that billboard, following those flags, all on your own. So the first thing to know is that the agent who just greeted you represents the seller — in other words, the builder itself. Their job is to explain what a purchase of one of their homes entails, detailing the amenities they offer that are included in the price, the options you can add to make it look more like the highly-decorated model home you may have fallen in love with, and to sit down and pre-qualify you for a loan if you haven’t already walked in with a loan pre-approval.
Many buyers, mesmerized by the new home smell and the decked-out models don’t realize they can still try to negotiate on the price or what is included in that price. The agent is required by real estate law to take your requests to the builder and come back with answers and/or compromises. In the current seller’s market, however, be aware that a builder will be more motivated to make deals on home that are already under construction or completed (standing inventory homes) than ones where they are starting from dirt, since the monthly carry on those structures are a major concern to them. Builders may also “sweeten the pot,” so to speak, offering incentive monies if you use their preferred or in-house lender. Those dollars can be used to cover some or all personalized upgrades at their design center or be used toward financing, such as closing costs or a temporary loan rate buy-down for the first few years, when you have hole-in-the-pocket syndrome getting your back yard finished.
The agent will explain how all this works, but realize their job is to try keep your loan “in-house” — reasons for which we will not detail here. Just know that you have the option of passing up the play money if you have a lender and are pre-approved on a rate that suits you. Depending where the home you selected is in the process of being built (dirt, foundation, walls are up, drywall is complete, etc.) you will either have a plethora of choices to make or just a few. If the home is at its inception, then prepare yourself for a visit to a “design center theme park” — in other words, you’ll spend hours with the builder’s design consultant choosing electrical and plumbing options, colors, surfaces, and other amenities.
By this time, you should have studied the brochure and asked the builder’s agent about what is included in the sales price itself. Upgrades, such as hardwood floors where carpet is included, or gourmet appliances where simpler varieties are offered, will be represented to you in terms of the difference in price between them. Only you can do the research to determine if the pricing is in line with what you can buy elsewhere. Including the upgrades in your purchase price, however, will simply mean you will be paying for it over the course of your mortgage loan unless you add more to your down payment to cover them. While there are advantages and disadvantages to buying new construction we won’t go into here, know that there are no questions you can ask the builder’s salesperson that are out of line. You don’t know what you don’t know until you ask. And if a builder does offer a commission to outside agents, you may want to make sure you procure a Realtor before looking, so that you feel your own interests are more protected and represented. Just like the purchase of a pre-owned home in a conventional purchase, however, the day comes when your new home is complete, and you get the phone call telling you are officially “on record” as the owner of the home. Time to pop the bubbly. You've earned it.
Source: D. Kouremetis, TBWS