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Tips for Buying a New Construction Home

January 22, 2021 · 8 minute read

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Tips for Buying a New Construction Home

New homebuyers often look for a way to put a personal stamp on that just-purchased property. From choosing a bright paint color to pruning a backyard rose garden, there are plenty of ways to perk up an existing property.

Still, for some homebuyers, a new coat of paint (or fresh bed of flowers) isn’t the dream house they have in mind. Instead, they may be hunting for a home that already meets their must-include list–whether that’s a kitchen with marble counters or a house with a wrap-around porch.

For homebuyers wanting to personalize their property, buying a new construction or having a modern home built to order can afford a greater degree of customization.

According to Trading Economics, newly constructed single family homes across the US rose 17.2% in June, 2020 compared to the previous month. That’s a notable short-term increase, indicating the continued draw of a new home for many American homebuyers.

Understanding the Pros and Cons of New Constructions

So, with the new construction home buying process, what are the pros and cons? As with any residential real estate purchase, there are advantages and challenges associated with buying a new construction home.

On the upside, newly constructed homes can come with brand-new amenities, warranty-backed electronics, and custom-chosen features.

However, new constructions aren’t without potential complications–including navigating higher purchase prices vs. used homes, construction red tape, advice from realtors, and the intricacies of local zoning and building regulations.

Newly-constructed homes can come with certain risks and certain perks that future homebuyers may want to weigh when deciding what sort of house to purchase.

Taking a Closer Look at New Construction Homes

What is a newly constructed home? Well, a newly constructed home is simply a private residence where the homebuyer is the first person (along with any family) to reside in the property.

Usually, newly constructed homes get built in one of two ways:

•   The homebuyer purchases a plot of land and builds the home there from scratch (either with a professional construction firm or by themselves).
•   The homebuyer purchases a recently constructed house, becoming the first resident.
•   Now, if the home is built on a plot of land from scratch, the future homeowner typically has some level of say in what sort of house will eventually be constructed. Typically, from-scratch new constructions fall into the following three options:
•   The home’s already been constructed and is bought on an “as-is” basis.
•   The home is partially constructed, but is customizable based on a buyer’s preference and guidance (i.e., a marble counter is added, a guest house is erected, or a full completed basement is added to the construction model.)
•   The property is bare bones and the new home is constructed strictly as the buyer dictates–down to the last nail and screw.

While timelines vary due to factors like cost, size of the home, custom features, and labor, most newly constructed homes are completed within seven months. That said, if enough delays occur, the new construction home buying process may take longer.

Figuring Out the Costs of New Construction Homes

Cost is a big difference between purchasing a newly constructed home and one that’s already been lived in. On average, a custom constructed home costs $315,154 to complete. And, according to the US Census, the median price of new single-family houses that got sold in 2019 was $321,500.

Furthermore, according to Home Advisor, a $2,800-square-foot-home can cost anywhere from $280,000 to $560,000 to construct. Of that amount, labor comprises 40% of the home cost, with building materials, architectural designs, pricing differences in various parts of the US, and local ordinance (fee) costs making up the bulk of the remaining costs.

If the buyer fully custom-builds a new home, the price can rise significantly. New custom and luxury homes can cost between $200 and $500 per-foot to build. In 2019 alone, 124,000 new single-family homes were begun by contractors.

Pros and Cons of Building a Newly Constructed Home

Buying or custom-building a new construction home will be a unique experience for each homebuyer. There are some “pro and con” considerations that commonly arise with a newly built home.

Below is an overview of the advantages and risks that may influence homebuyers’ decisions whether (or not) to pursue buying a newly constructed home:

Understanding the Pros of Buying a New Construction Home

Newly constructed homes are, by definition, more modern than their previously built neighbors. Some notable advantages to a new construction home include:

New Homes Are Brand New

When something is new, its novelty can be a lure all of its own. Practically, new items are generally in better condition or covered by manufacturer warranties.

Everything in a newly constructed home–including, floors, doors, fixtures, windows, roofing, pipes, wiring, and siding–is brand new. Homeowners get to be the first to live in a home with new construction amenities. From a homeowner’s perspective, modern reliability may be worth the higher purchase price upfront.

Additionally, with a from-scratch property, homebuyers may also be able to custom-construct their house on the precise lot of land that they want. Buying an existing home could mean having more neighbors nearby or less choice about the size or borders of the property lot.

Warranties Can Protect the Home Investment

When buying a newly constructed home, most major features and components come fully guaranteed for a specific period of time–with warranties to protect the homeowner’s investment.

In practice, warranties can mean that big-ticket home items–such as, HVAC units, lighting fixtures, kitchen appliances, and electric garage doors–are covered for replacement or repairs during their first years in the home. (Naturally, the timetable will vary depending on the items’ specific warranties.)

Buying a home that comes with warranty-covered items could save a homeowner repair or replacement costs. Homes that were built many years ago may not come with appliances that are still covered under warranty.

Building in Energy Efficiency

One recent trend in homebuilding is the move toward energy efficiency or green architecture. Features like solar panels, treated windows, efficient lighting, and energy-saving appliances could curb home energy expenses over the life of owning a home–all while helping to make the planet a cleaner, more sustainable place.

Reducing the Homebuyer Competition

If a buyer opts to build a new home on an undeveloped tract of land, chances are low that a competing homeowner wants to build in that exact location at the same time. This can be especially true in more rural or remote areas, where the demand may be lower as well.

Since fewer homebuyers are generally looking for a new construction purchase on new land, there may be a lower likelihood of a bidding war erupting with other house hunters.

Buying discounts

Working with a professional contractor, as many new homebuilding companies do, can be an advantage for a homebuyer.

For example, a local contractor may have close ties to building supply companies and hardware stores. In practice, these local business-to-business connections could translate into lower construction, installation or appliance costs.

Those who are debating whether to buy a new construction home may want to compare the bulk pricing available to companies (aka contractor-built) vs. the costs charged to individuals (aka self-built).

Understanding the “Cons” of Buying a Newly Construction

Buying a new home can certainly come with some advantages. And yet, buying a new construction home isn’t without potential complications, including:

Figuring Out a New Home’s Location

The denser a community–think a big city or large suburb– the harder it may be to build a new home. Many newly-constructed homes are built on vacant lots. Undeveloped land may be harder to come by in a dense city or popular suburb.

Moreover, local zoning regulations often regulate the size and type of new homes that can be built in residential lots. Homeowners interested in a specific city or town might want to contact the local zoning board. They can advise which rules or laws might affect the sorts of homes that can (and cannot) be built in a given community or neighborhood.

Factoring in Potential Building Delays

If a new construction home is not yet built, it’ll need to get pieced together before the homebuyers can move in. And, when it comes to building a house from the ground up, construction delays can be a common pain point.

Inclimate weather, labor delays, and obtaining building permits can all drag along how long it takes to build a new home. These delays, if they last months and months, can incur additional costs beyond the home’s listed price.

For instance, if a homebuyer needs to rent while their future house is being constructed, any delays in the construction timeline could mean extra housing expenses.

Negotiating Price May Be Harder

Building a new construction home isn’t the same as purchasing an already existing house. With the latter option, potential homebuyers can negotiate on pricing, with the expectation the seller understands there may be some wheeling and dealing.

When working with a homebuilding company, negotiating the cost of a new house may not be possible. Many builders attach a minimum price to the construction of a new home and often do not want to slide down on pricing.

Upgrades Might Add Up

While there is usually a starting-from price attached to newly constructed homes, upgrades and add-ons are another story. Sometimes, they’re literally a whole other story added on to the home!

Adding features like wood floors or an extra suite can make a new home feel cozier or roomier. But, such items are frequently priced on top of the original model’s “starting from” list price. Extra features can add substantial additional costs to the buying of a new construction home.

Buying Tips for Newly Built Homes

The new construction home buying process can be complicated and confusing. Here are some tips to help navigating the purchase of a newly constructed home:

Going with Your Own Realtor

Homebuyers who want to find a dream home that matches their vision may want to partner with a professional real estate broker or agent. How might working with a professional realtor help when buying a new construction home?

Here’s one big reason: The sales contact from the home construction company is hired to represent the seller (i.e., the builder or developer).

To even out the seller-plus-buyer equation, homebuyers may want to work with a real estate professional who can champion their interests and expectations.

Asking for Builder Concessions

In most cases with new constructions, the homebuyer isn’t likely to get the builder to slash the new home’s sales price.

Generally, builders or developers attach a minimum selling price to their new constructions. And, consequently, they’re often less prone to budging on sales price.

What a homebuyer might be able to do is to gain some concessions from the builder. For example, some developers or builders may offer upgrades or add-ons at a reduced price to incentivize a homebuyer to buy.

Upgrades may come in the form of a higher grade of carpet, granite countertops, a more advanced HVAC unit, or higher-end kitchen appliances. One way to try to secure these amenities is to ask.

Builders may want to entice homebuyers by negotiating around the extras.

Preparing for the Unknown

With a new home construction, unforeseen obstacles can pop up during the building process. Sometimes, builders run out of specific materials or can’t get the particular type of kitchen flooring that had been promised.

One way to prepare for unexpected changes is to tour similar, finished homes in the community. Homebuyers can research the builder’s reputation, speaking to people who’ve already purchased homes in the community.

It’s also possible to directly speak with the builder about common construction delays or predictably unpredictable costs.

Financing a New Home

Whether a homebuyer wants to purchase a newly constructed house or a gently lived-in property, it can be hard to navigate the financing of a home. Between saving up for a mortgage down payment and calculating closing costs, there are details to prepare for in advance of buying a home.

Some common costs when buying a new construction home might include:

•   Saving up for a mortgage down payment (if not paying in full for the house)
•   Setting aside money for closing costs or agents’ fees
•   Budgeting for unexpected or seasonal construction delays
•   Calculating the price of wanted upgrades or amenities

While some future homebuyers opt to pay for a house in cash all upfront, others may want to work with a lender to secure a home loan.

The Takeaway

With ample research and professional partners, it’s possible to navigate the ins and outs of buying or building a new construction home.

Private lenders may be able to help eligible homebuyers to pay for the cost of buying a newly constructed or existing home. SoFi’s dedicated mortgage loan officers (MLOs) can walk interested buyers through every step of the home loan application process.

SoFi’s home mortgage loans come with low rates and terms that fit different budgets.

Learn more about SoFi’s mortgage loans today.

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