5 Pitfalls of New Construction
I teach weekly real estate classes for agents. We recently talked about new construction. There are builder specific contracts and State contracts. I think some real estate agents assume certain things, based on experience with our typical, residential sale. You need to be careful when building or buying a brand new home because it’s not necessarily the same process as buying an existing home. We have a ton of experience with representing both Sellers and Buyers and thought it would be wise to share some pitfalls of new construction.
- Read the contract.
You must read every line of the contract. Realtors are accustomed to the standard state contract for residential properties. Builder specific contracts differ from builder to builder and they can change at any time so just because you bought a home from a particular builder before, does not mean that the contract or their process is the same. Make sure you understand the deposits, any fees, when you are allowed to visit the property, and the timeline of construction and deadlines.
2. Buyers have to meet deadlines – Sellers don’t.
Builder specific contracts are geared toward the builder. The Buyer will have some protection but most are very lenient for the Seller. Depending on the property, there may be selections that the Buyer is allowed to make. A Buyer must make their selections within a specific timeframe, otherwise, there will likely be fees and possibly even delays. Builders have internal deadlines but will not necessarily adhere to all of those. Weather, material availability, vendor and subcontractor schedules are all variables that can move a builder’s deadline.
3. Make sure you inspect.
I hear it all the time. “You don’t need to get an inspection, it’s a brand new house.” “Codes inspected and approved it so it’s fine.” Please, please, please get an inspection. I have never, I repeat NEVER had a client inspect a new construction home where the inspector didn’t find multiple items that needed to be resolved and I have had many that have had major issues. If you are building from scratch, I suggest progress inspections. This is where an inspector will come out at different phases/stages of construction. For instance, they may come out after the footings are in, prior to drywall, and then lastly at completion. This allows the inspector to see the “guts” and the “bones” of the house and might save you in the long run by finding issues that never would have been visible once the house was complete.
4. Will it appraise?
First of all, make sure the contract allows for an appraisal contingency. Realize that most new construction contracts (if they allow for the contingency) only require the house to appraise for the base price of the home, prior to any change orders and/or upgrades. Most change orders will have to be paid for immediately and that money will not be refunded if the house does not meet the required appraised value.
5. A closing date is not set in stone.
As stated in #2, there are a lot of reasons that a Seller/builder may be delayed with the completion of the house. This is important to know because as a Buyer, you will likely be planning a move. You need to go into the process knowing and expecting there may be delays. Be flexible and understand that most of the time, you will not be able to “punish” the Seller for not closing on the specified closing date.
For these reasons, and MANY others, I suggest Buyers use a Realtor to help them through the new construction process. It can be confusing and frustrating and you do not want to be taken advantage of. A Realtor can often times fight for you and help keep the Seller/builder on track more than an individual Buyer can or even knows they are able to. This is a good guide but nothing takes the place of a professional representative on your side.
Michelle Froedge is a residential Realtor and Principal Broker in the Greater Nashville and Williamson County areas of Tennessee. “Mom” to four-legged fur baby, Tyler, Auntie to Zelamie, she is a vegetarian and sings in her spare time. Michelle has lived in Nashville and Franklin since 1997 and has been selling homes since 2004.