New Construction Buyers Show More Interest, but Cite More Challenges

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Builder confidence is running high as new construction not only finds its footing after an anemic decade but blows past sales expectations — even during a pandemic.

A shortage of for-sale inventory, historically low mortgage rates and heightened concerns around safety seem to be turning more heads toward new construction at a time when a new generation of buyers is hitting their peak home-buying years.

That’s all good news for builders, who now have an opportunity to grow new construction as a first-choice preference by improving the experience for more buyers.

According to the Zillow New Construction Consumer Housing Trends Report 2020, 40% of households who bought a newly built home in the past two years* say they were only interested in looking at new construction homes, an increase of 8 percentage points over 2019. And fewer of those who bought new construction were willing to consider or preferred buying an existing home during their search (68% were at least open to considering existing homes last year; only 60% are this year).

Yet the report shows there is still work to do to remove challenges households experienced when buying a newly built home. 

In nearly every aspect of the process we asked about, new construction (NC) buyers say they experience more difficulties related to comprehension, coordination, planning and finances this year than last, with 80% of NC buyers saying they find some part of the purchase process challenging, an increase of 6 percentage points over last year.

What buyers struggle with

The uptick in the number of NC buyers who struggle during the process — and the shifts in the types of things they find challenging — are likely due in part to changing demographics. Nearly half (45%) of NC buyers are under age 40, and 70% of those buyers are purchasing their first home. In fact, 36% of NC buyers are newbies undertaking a transaction that requires layers of decision-making around things they’ve never had to manage or consider before.

Among the top challenges NC buyers say they faced during the purchase process:

• Determining a fair price for the home. Last year, 30% of NC buyers said determining a fair price was a challenge. This year, 37% cite it. The reason may have to do with COVID-19; our survey was conducted as the coronavirus was gaining a foothold in the U.S. and safety measures were being put in place. Prospective buyers, perhaps recalling the Great Recession’s effect on housing prices, may have searched for answers on whether now was a good time to buy. Those concerns also may be affected by the housing shortage, which can make it difficult to find comparable homes on which to gauge pricing.
• Coordinating the completion of their new home with the sale of a previous home is challenging for 36% of buyers, an increase of 5 percentage points from last year.
• About the same percentage (35%) say they feel uncertain or overwhelmed about the process of either building or buying a brand new home. That’s up from 28% a year ago.

The percentage of NC buyers who thought their home took too long to build or ran beyond the estimated completion date stayed about the same: 35% this year, and 36% last year. Likewise for the 36% who say it’s a challenge to figure plans and customizations and to coordinate the various parties to ensure tasks are completed on time.

Visualization, education could increase buyer confidence

Some of the pain points facing buyers of newly built homes seem to stem from a lack of transparency, a lack of comprehension, and friction between builders and agents — whom new construction buyers overwhelmingly say they want to work with. 

Last year, 84% of NC buyers who worked with both an agent and a builder or sales center wanted their agent or broker to handle some or all communication with the builder or sales center. Now, it’s 90% — and 51% say they want their representatives to handle all communications with the builder or sales center, a 17 point increase over last year.

It may be that the buyers started out looking for any home with an agent, and opted to keep working with them once they found a brand new home to buy. It also may be due to Gen Z and Millennial buyers aging into the New Construction consumer base; both generations are more likely to prefer that their agent handle this communication. Or buyers may feel they lack the knowledge to buy new construction.

Here’s how you can help.

Takeaways

• Adopt radical transparency in pricing and financing. Don’t assume prior knowledge or that buyers won’t do their own research. Provide information using plain, clear language rather than leaning into sales pitches.
• Examine your processes for interacting with agents. Buyers overwhelmingly want to work with agents, and builders who chafe at that relationship are injecting friction into a process that is already challenging for 80% of their buyers.
• Communicate timelines and delays as if you were managing a construction project. Buyers are preparing to uproot their lives. They’re purging and packing, setting up utilities, getting kids enrolled in new schools and working with landlords on exit plans. They need to know where things stand so they can keep chaos to a minimum.
• Show how you’re putting safety first. Give buyers opportunities to tour homes online and on their own; 64% say it would be easier for them to unlock properties with their phone to tour in person on their own time, and 60% say they wish more listings had 3D tours available. 
• Ask happy customers to post reviews online, and be sure to respond to any negative ones in a timely manner. The newest buyers are more likely to be seeking information about you online, and you want to be sure to tell them all the ways you can make their dreams come true as smoothly as possible.

* “New construction” is defined as a home that was built in the past two years and has not been previously occupied. “NC buyers” are households who have bought and moved into their newly built home in the past two years. “Buyers” are households who have purchased a home in the past year.