NEW HOMES: The Shrewd Homebuying Guide

10 Tips When Buying from a Builder

1. Be wary of promotional materials. Promotional literature is just that; it's designed to entice you to purchase. It presents the builder, the homes, and the neighborhood in the best possible manner. Negative information isn't included, so it's your job and that of your agent to find out anything that could present an unpleasant surprise at closing or after the sale. READ EVERYTHING THOROUGHLY. Look for vague or ambiguous statements, and make certain you understand what you are purchasing.
   
   
2. Check out the builder contract. Larger builders often have their own sales force and their own contract form. Such contracts are always written in the builder's favor. Read the contract and get explanations for anything you don't understand. Does the builder limit your ability to have the property inspected or the people who may accompany you at the walk-through?
   
   
3. Be careful about giving too much information to a builder's agent. They will relay it to the builder which could damage your negotiating position. It's best to leave the site and discuss your offer with your agent in private. He or she can then return with your signed offer.
   
   
4. Make certain your purchase offer includes everything you want. Remember, if it's important, write it in the contract. Anything not in the contract will not be considered. Don't be mislead by verbal promises from the builder's agent. While the agent may not knowingly attempt to deceive you, the builder's obligation is to meet only those terms and conditions that are written in the contract. Put everything in writing.
   
   
5. Ask for a copy of the builder's warranty. If the builder has a written warranty, read it. Understand what is covered and what may be excluded. Be careful of builders who have no formal warranty. They may defer to their state's guidelines which are usually vague and difficult to enforce on minor issues.
   
   
6. Understand the amenities package. If the community includes and amenity package-pool, tennis court, playground, etc.-make certain you understand how the facilities are to be maintained. Is the builder involved in the process? Is there a possibility of future assessments to homeowners when the builder is no longer involved? If the facility isn't complete is there a written commitment for completion? Is the builder financially sound so that completion will not be delayed or cancelled?
   
   
7. Does the builder offer special financing? If so, is it competitive with what is available in the market? Sometimes such offers come with low up-front rates that can escalate beyond the purchaser's ability to pay. If you are using an agent have them compare the builder's financing package with those from their preferred lenders. Remember, someone pays for everything; there are no "free lunches" in the mortgage business. With builder profit margins generally low, the cost of a lower interest rate may just be added back into the price.
   
   
8. Building a home? If you're having a home built from scratch, ask the builder to attach a copy of the plans and specifications to your contract. This will give you a written record of exactly how your home will be constructed and will help you avoid future disagreements on design, materials, and equipment. If your builder is unwilling to include a specifications sheet, be especially certain that everything is spelled out in the contract.
   
   
9. Who holds the earnest money? Some builders specify that they are to hold the deposit or earnest money. Be careful, for this clause is specifically designed to keep you from cancelling the contract should something go wrong with the process. Builders who are unwilling to allow a Realtor® or other third party to hold the earnest money do so to maintain control and can use it as leverage if problems arise. If there is a disagreement or if such builders declare bankruptcy, the money may be lost. I recommend having a third party hold the funds.
   
   
10. Understanding the closing. Make certain you fully understand the options for scheduling your closing. Can the builder force you to close earlier than you wish if the house is completed? Does the contract specify that closing must take place upon the issuance of a certificate of occupancy by the local building authority? If so, you could be forced to close sooner than you wish, in some cases prior to the completion of the punch list. Can the builder delay closing-perhaps causing you to lose your preferred interest rate-without penalty? Read this section of the documents and understand what is specified.