What You Need To Know About Buying New
You have been spending some of the slower hours at work surfing realtor.com for condo and townhouses. You have even paraded through some of the open houses in your favorite neighborhoods. One Sunday when leaving brunch, you and your fiancé decide to stop by the sales office of a new development. Everything is brand new and you even get to choose some of your own options. For two more days, they are offering $20,000 in incentives if you use their preferred lender.
Are you planning to use a Realtor? Why should you, it all seems so easy and structured? Maybe they won't give you the great incentives if you use an agent? You get a good enough feeling from the friendly sales person and you decide to go for it alone. You even negotiate a flat screen TV into the deal.
Regardless of whether it is a "seller's market" or a "buyer's market" one thing remains true, the developer likes to hold all the power in the transaction. New home developer contracts are arguably the most one-sided contracts used in business. This is despite the fact that contracts are supposed to maintain mutuality.
Here are some key areas to consider:
WHEN -- They decide when you will close, often only giving you 10 days notice. I have seen less than a week. If you need more time, you can have it for the cost of $500 per day.
IF -- They decide if they will settle. I have seen would-be buyers put a healthy deposit down and then find out after three years of waiting that the condo is going to be used as an apartment instead. The buyer gets their deposit back and a letter saying the developer is sorry about the inconvenience.
HOW -- They bait you into using their "preferred lender". The ones that scare me the most are the preferred lenders that are owned by the developer. Don't you think it is a big deal to be able to choose a lender you feel comfortable with and who is able to provide the most competitive mortgage program?
WHAT -- What you see in the floorplan is considered "marketing material". In most cases they are allowed to vary from this at their discretion. If they wanted to leave out the kitchen or a patio, they could.
WHO – Who is your point of contact if the sales person who sold you the home leaves the company during the time you are waiting for your home to be built? There might be a replacement, but they have no incentives to provide you with a favorable experience. Who are you going to go to with questions, concerns and problems with the above-mentioned items?
A savvy agent should not only act as your negotiator, he or she needs to also act as a consultant throughout the process and manage all the important details so you can live a normal life.
NEGOTIATION – Nothing is set in stone. There is always more, sometimes a lot more you can get out of the developers. Whenever possible, it is important to detach the incentives from the preferred lender(s). You want the cake with the leverage to make sure you are getting the best mortgage available. This is a big deal, not a little one. The target price should not only be based on how desperate the developer is, but also on detailed market analysis. You are not likely to get the developer to remove what they have in writing, but you can often add to it. If there is something you want or expect, it is imperative that it is included in the contract before you sign. I have added five pages of addendums to the contract to make sure everything is delivered exactly how my clients expects it to be. If it is not in writing, you are at the mercy of their kindness. I would say that 99 times out of 100 I am able to negotiate a better overall deal for buyers then they would get if they purchased a new construction home on their own, even though the developer does not have to pay a commission if I am not part of the transaction.
CONSULTANT – You are not going to become a local real estate expert by reading the newspaper and Home Buying For Dummies. It is important to have a trusted advisor with expertise in the local market. I couldn't begin to help you buy real estate in Virginia Beach, but I have an intimate knowledge of the neighborhoods and condominiums in Arlington, VA. An agent can add tremendous value by explaining the advantages of different construction materials used, upcoming development that may make your new home more or less enticing and advising you on the appreciation potential of the home you are interested in. He or she may even be able to help you choose options based on their experiences. They know what you should look for at the walk-through and what you should expect the builder to include on their punch-list. Your agent should also be actively involved in helping you find the right lender and program to fit your needs.
MANAGER OF THE DETAILS -- It is important that your agent be able to guide you through the entire buying process. Mistakes along the way can be costly, and there is no reason to take chances. In most home purchases there are hundreds of phone calls and dozens of people to manage. Isn't it nice to know you have an expert managing all the countless details for you? The first home I ever purchased was a conversion condominium. The purchase process was much like buying a new construction property. I remember looking at the HUD1 at settlement with hundreds of line items all representing dollars being exchanged and I did not know whether I was getting taken or not. They never even gave me a chance to walk-through the property before settlement, let alone a home inspection. [Yes, I do recommend home inspections with new homes.] I had no one to consult with and couldn't stand the sales person at this point. I had already invested so much time during this process and I didn't want to loose my deposit. It could have been worse, but it also could have been a lot better. I realized soon after that I was advised into a foolish loan that I had to spend more money on to refinance. After this experience I would never have considered buying another home without an agent. It wasn't long after that I started studying how to become an agent so that I could help buyers like myself.
Whether you use a real estate agent or not, PLEASE READ THE CONTRACT! You should also use this time to review the contract thoroughly, preferably with an attorney.
By Diane Tuman
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