Real Estate

How To Help Homebuyers Navigate New Home Construction

For the first time since 2005, buyers are paying more for a resale home than a new one. It’s a dynamic that reflects the fierce housing demand across the country as people are paying premiums for any home — not just new builds.

While there are pros and cons of new builds versus resale homes, there are very important differences every agent should know when working with a builder or developer.

The most obvious and important point is that builders are not homeowners. While homeowners are emotionally tied to the property, builders are professionals who are looking to sell homes as fast as possible to meet their internal KPIs and remain profitable.

Here are some tips for agents dealing with new construction.

1. Embrace your advocate role

Reassure your clients why they picked you and your firm’s expertise by understanding the new construction project details. Research which company is building the home. Tap into your network to check the builder’s reputation, and look up their current sales or rentals. Uncover any consistent problems from the builder, and with the buyer, check the home for any similar issues. 

Tell your clients you have a relationship with the sales center and will track any promises and how the center’s staff is accountable. Functioning as a passionate adviser shows your clients you’re not just looking for a sale but that their interests are your No. 1 priority. 

Agents should document everything. Take careful notes of anything the builder promises or says verbally or written over email. Advocating for your clients means being their chief negotiator in case the situation arises.

2. Negotiations are very different in today’s market

Clients need agents in their corner to facilitate a successful purchase, but negotiations with builders are much different than with homeowners. Are the units selling out quickly or not? Is the builder offering warranties, credits, upgrades or other incentives?

Remind clients that very large national builders leverage their positions in very tight markets and are unlikely to entertain negotiations. In today’s buyer-frenzy market, builders don’t need to negotiate or increase their offering to sell homes. In other words, what you see is what you get because there is always another offer.

Another reason why negotiations are often nonstarters with builders and developers is because they’re on the hook for any sudden supply chain disruption or building material cost increases.

Especially in today’s supply chain environment, cost overruns, expensive materials and delays are significant financial risks for builders, and they can’t afford to offer negotiations for each home. Explaining this is essential for any clients, especially if they’re not experienced in working with a developer.

Sometimes a builder will partner with experienced agents, but larger companies often hire internal sales teams. Agents representing buyers are likely to work with you to reach a deal while salespersons simply don’t have the expertise or experience to do so.

The job of sales teams is to sell homes, being present for tours, selecting individual homes with prospective buyers, finalizing purchase agreements and facilitate preclosing walkthrough and closings.

3. Discuss financial incentives

Dependent on inventory within the new development, there might be lender or builder incentives for purchase. Agents can streamline the incentives process by detailing the different options for using the funds, whether for upgrades or closing costs.

When walking through a new home, explain how builder credits work if they builder won’t allow customization.

Especially with larger builders, they may have internal mortgage financing subsidiaries or affiliates who are willing to compete with other lenders to facilitate a deal. Many builder-affiliated lenders can offer points, waive loan fees and lower interest rates to help finance settlement costs. 

4. Push for inspections

As is every buyer’s right, push for an inspection — even for new builds. Don’t assume the builder’s contractors didn’t cut corners; always hire a professional to check for the most common errors and missed steps.

As builders push their contractors to build homes as quickly as possible, it is likely corners were cut to save time and save on expensive building materials. Show your buyers any issues such as cracks in a patio, grading or drainage problems, poorly fitting appliances, or excess humidity and ventilation in the home. 

Leverage your relationships with independent inspectors who you trust to review new construction. Armed with an independent inspection report, you have far more leverage while under contract with the builder and requiring them to make needed repairs and replacements.

Builder warranties are major selling points for buyers. Builders must provide warranties that typically include permanent home feature defects that may appear throughout the home’s first year or so, depending on contract’s terms.

Builder warranties often include carpeting, flooring, windows, appliances, roofing, decking, paint, garage doors, plumbing, electrical work and more. Just be sure to check what is not covered under warranties. For example, “normal wear and tear” is a common clause in these warranties that builders aren’t obligated to cover. 

5. Relay the caveats

A quality agent will provide buyers with some potential downsides of a new home purchase compared to a resale. One is the need for patience. The process can be lengthy with frequent delays due to labor, code or materials issues. New builds often go under contract well before completion, and there is limited opportunity for negotiation.

Are your buyers a fit for the new development process, or do they want to live in an established community with restaurants and stores today? Developments can take years to complete, and they will likely be living next to noisy construction projects as new homes are built. Talk to them about how area commercial and retail developments are typically after the residential communities are built.

Jenny Usaj is the Employing Broker and Owner of Usaj Realty, a Denver, CO real estate brokerage. Jenny is a member of the Denver Metro Association of Realtors Market Trends Committee. 

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