Buying a House Before It Is Built

Buying a home before it is built carries its own potential price savings. In the real-estate section of your local paper, you will often see advertisements with headlines like “Preconstruction Prices Through September 15,” “Preconstruction Prices for Phase II of Pheasant Run,” or “Special Preview Offer.” What does all of that mean? Is it good for you, or is it just another sales pitch?

As the name suggests, a preconstruction price is the first price at which a home in a new development is offered. At that stage, the lot being developed is probably still no more than a sea of mud and a sales trailer. Developers concede they underprice a little at the beginning to get the ball rolling. Nothing brings in customers more than seeing other people buy.

How much can you save at this stage? Houses sold when development is complete can cost 20–30 percent more than the price of preconstruction homes! Thus, assuming you can wait for your home to be built and the builder is reputable, buying early can be a very good deal indeed. You are locking in a lower price likely to be unavailable later when the homes have been built. Additionally, you will have a say in choosing the tiles, flooring, and paint colors for the home as it is being built. Buying early also gives you a choice of location; you do not have to take what is left.

One drawback is accepting there will be some uncertainty about when you will actually have the house. Sometimes there are construction delays and delivery snags. If you need to get into your new home right away, you may not have the luxury of being able to wait.

It is important you know your builder. It is best to go with someone who has done similar construction and has completed such jobs satisfactorily. Look for a builder with a record of other single-family home projects, not someone who has built shopping centers, for instance, and who is just now dipping into the residential area.

Drive around your potential builder's other projects, even if you have to head thirty miles out of town. Talk to those homeowners if you can, too, and ask them if they are satisfied with their houses. If this is the builder's first job, you cannot know if he will finish. What if the builder disappears with your deposit and leaves the community awash in unpaved roads, half-built homes, and unlandscaped yards? Alas, that has been known to happen — more often than one would like to think.

If you are one of the early residents in a development, will you feel comfortable living virtually alone until more people move in? Maybe you will be the first buyer or perhaps the fifth. In any event, you are likely to be living in a fairly unfinished neighborhood for some time. What about the safety factor? Can children play in the area without the danger of running into construction materials, or worse, machinery? Will you mind the noise of construction?

Once a contract is signed, the sales figure — preconstruction or not — is usually protected, no matter how many times a developer later raises the cost of other homes in the development. If you are concerned about a delivery delay, ask for a clause in the contract requiring the builder to notify you two months in advance of the completion date; thus, you will establish a timeframe for changing residence.

If you are buying a small home and are already considering expanding it in the future, be sure you can do so following local regulations. Also, check the covenants of the new-home community.

Saving on a New-Development Home

Here are some ways to save money when you are buying a home that is not yet built:

  • Buy at preconstruction prices. If you won't mind not having a house for a while, and it won't matter that you will be one of the pioneering families in the development, you can save substantially.

  • Select a model home. You may have to wait until a development is almost sold out, but you will probably have a home with all the bells and whistles — put in to entice buyers — at a discounted price. Of course, you'll have to take the model as it comes, and you won't have any choice about options, upgrades, or design features.

  • Speaking of options and upgrades — skip some of them. Select standard features and fixtures and save the upgrades for later. You don't really need top-of-the-line kitchen cabinets — at least not right away.

  • Leave a portion of the house unfinished for now. If you can wait a while for that third bath or fourth bedroom, you can save money by having it framed out, then finishing it later.

  • Don't automatically take the developer's mortgage package. It might be good, but maybe you can do better by shopping around. Check at least three other lenders in your area and compare interest rates and other terms. For a first-time buyer, often the bank you have your accounts with is the easiest lender for you to use.

  • Financing Help from the Developer

    In some new-home communities, the developer will do all he can to help you buy, including shaving down payment requirements, sometimes to 5 percent (or even requiring nothing down), and offering financing at attractive rates. Developers are able to do this through their relationships with the banks or other lenders who are handling the financing for their projects.

    By all means, jot down all of the information the developer provides about mortgages and interest rates. But then do some comparison shopping.

    His rate might not be the best, and it is likely to be short term. Discount financing programs are apt to be in force for no longer than three years. After that, they convert to current market rates. So bring out the calculator again to determine how much you can save with what is offered.

    What exactly should you check when walking through a newly built house?

    Check both the things on the punch list and anything that it does not cover. Inspect everything from the attic for ventilation to the stairs for creaks to the walls to be sure they are straight.

    Checking Out the Place Before You Move In

    You might be allowed one inspection of your home after it is framed up (so you can see what is going up behind the walls) and then another inspection after the drywall is installed (to avert any problems during the final inspection). Last comes your final walk-through, which will be followed by one by your lender. At the last look at the house before closing, you have the opportunity to assure yourself the builder has completed the job to your satisfaction. Anything that has not been completed or is not up to standard should be jotted down on what is known as a punch list, a sheet prepared for buyers for just that reason.

    Do not be so taken with how marvelous the house looks that you do not check every detail. This is your chance to have things set right. Ask the builder to fix any points you ticked off on your punch list before the closing. Then make a final inspection to see that those problems have indeed been corrected.

    Sometimes a builder will contest your complaint. If a problem remains unsolved as closing nears, you can delay the closing until all of the questionable points have been cleared up. If the builder offers you cash instead of repairs, decline and ask for the repairs — they could cost more than the builder's cash allowance.

    If you have any concerns about the house after it is built, hire a home inspector to take a look at your new home. Inspectors are not only for resale homes!

    Be sure that you take walk-throughs. This is not something you want to rush — you will have to live with any unreported faults or pay to have them corrected. Remember that you hold all the cards before the closing. If ever there is a time to get the corrections you want, this is it. Your leverage drops significantly after you take title to the house.

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