In today’s post: Building a new home is both incredibly exciting and incredibly stressful! Make sure you do things right by avoiding these 9 mistakes.
Just over three years ago we moved into our brand new home (and I shared the pros and cons of building new vs. buying existing). Today I want to share some of the things we now know about building a new home that we wish we’d known four years ago when we started considering a build. For anyone considering building a new home in the future, here are 9 mistakes you don’t want to make!
NOTE: These tips are more applicable to the semi-custom build process, where you choose a builder supplied floorplan, as opposed to the custom build process.
9 mistakes you don’t want to make when building a new home
1. Don’t confuse the base price with the actual price of the home. Realize you will be quoted a cost for the home itself, but that you will need to plan on plenty of upgrade costs as well. The upgrade cost will depend on the choices you make about the design of your home, but the cost to get roughly the same upgrades varies widely from builder to builder. A sales agent such with in with the amazing “base price” of the home, and then you to choose a lot and put down a deposit before you have any idea how much the upgrades will add to the price of the home.
2. Don’t assume that anything you see in a builder’s model home comes standard. We visited a builder in our area that advertises low home prices, and were shocked to find out how much of what we saw in the model was an upgrade. I knew that the granite countertops would be an upgrade, but the entire kitchen layout was an upgrade costing $10,000, and the master bathroom layout was another upgrade costing nearly as much. Window sills were an upgrade. A garage door opener was an upgrade. Central air was an upgrade. Any light fixtures other than fluorescent bar lights in the kitchen were an upgrade. Not to mention 2-tone paint, the trim, the doorknobs, all the fixtures, the carpet, the tile, etc. There were even upgrades on the outside of the home that were required by the CC&Rs in the neighborhood that we weren’t told about until AFTER we’d signed and put down a deposit on a lot. On the other hand, most of these items DO come standard with the builder we eventually chose, meaning we didn’t need to spend nearly as much money upgrading it to get what we wanted. Turns out the “budget” house wasn’t much of a deal after all.
3. Don’t take the sales agent’s word for it on upgrade prices without verification. We dealt with three different agents at three different builders. All of them could tell us up front what the base price of the home we were interested in was, but they varied widely in how much they could tell us about upgrade costs and how accurate what they told us was. One agent gave us an estimate of “what most people pay” in upgrades that ended up being only about half of what the upgrades we wanted would have cost. Another agent promised costs that turned out to be nowhere near true. The agent we ended up working with gave us good estimates the first time we talked to him, then verified them in writing the next day, adjusting the few things he was off on. He also offered to meet with us at the builder’s design center so we could get a very accurate idea of how much the specific things we were interested in would cost BEFORE we committed to a floorplan. Remember, the sales agent works for the builder, not for you, and he or she will likely earn a commission based on how much you spend. This doesn’t mean you can’t trust any of them, but it does mean you should verify costs in writing early on in the process if you don’t want a disappointing surprise later on.
4. Don’t forget to ask for incentives. Your sales agent may be able to offer “incentives” that will reduce the total cost of the home. Ask about current promotions on the base price of the home, possible design center credit toward upgrades, and the preferred lender incentive. (And ask more than once. All they can do is say no, right? And you might be surprised when they say yes.) All three builders we looked at offered an incentive, or credit, if we would use their preferred lender, but the incentive amounts varied widely.
5. Don’t ignore a builder’s reputation. Ask around about the builder you’re interested in BEFORE you begin the process. As I mentioned above, we were very impressed with the initial information we received from one of the first builders we visited – it seemed like we’d be able to build a beautiful house for even less than we’d expected. We spent weeks working with an agent, choosing a lot, picking upgrades, etc., and got pretty emotionally invested. We finally realized that the upgrades required to build on the lot we’d chosen were much, much more expensive than the sales agent had led us to believe, and we decided to walk away. Once we did so, people started sharing all the horrible experiences they, their family and friends had had with this builder – things they were too polite to tell us once we’d already signed. Ask around and google your builder before you get emotionally invested in the homes they offer. All home builders will likely have some bad reviews due to how complicated the process is, but if you talk to people in your area and no one seems to recommend a builder, just save yourself that hassle and find a different builder.
6. Don’t assume your current house will sell during the build without a backup plan. You may be able to get financing to build a new home before you’ve sold your current home, but no matter what your realtor tells you there’s always a chance your home won’t sell before the new home is done (slow market, appraisal problems, buyers with financing issues, etc.) That doesn’t mean you must sell your house before you even start the home building process; it just means you should have a plan in place. If your current home doesn’t sell in time, will you: 1) try to rent it? 2) make both house payments until it does sell? 3) walk away from the new home (losing deposit money in the process)? Make sure you have a plan.
7. Don’t expect everything to go smoothly. As the supervisor on our build put it: “No home is ever built perfectly start to finish.” You can be pretty well assured that something will go wrong at some point while you are building your new home, and expecting those hiccups will help avoid frustration when they happen. Visit the home as often as you can during construction and pay attention to make sure things are going up as planned. It’s ok to take a tape measure and measure to make sure rooms are the right size, cabinets are in the right place, etc. Make sure you know who you need to talk to if something goes wrong, because you likely won’t get anywhere trying to talk to the subcontractors who are actually doing the work.
8. Don’t forget that the interest rate may change between now and then. When you start the home buying process, you’ll get a quote on what your monthly payment will be for the cost of your home, but that quote will come with today’s interest rate. The actual interest rate you pay will likely not get locked in until 30 days before the house is done, which means it could change in the time it takes to build, affecting your payment amount. Luckily, rates have been low and steady for the past few years, but as the economy and the housing market continue to recover it’s possible they will go up. Ask your lender to give you a couple of estimates, one with today’s rate and a few more with slightly higher rates to make sure you’ll still be comfortable with your payment if things change.
9. Don’t rush the process. Building a new home is not only a lot of work, it’s a huge investment. Take it slow so you can be sure the home you end up with is one you’ll be happy with. I’m not saying everything about your new home needs to be absolutely perfect – because that probably won’t ever happen – but you do want your new home to be something you can picture your family being happy with in the long term. That might mean you visit multiple builders and many different model homes before you choose a floorplan, or it might mean you wait a year or two to make sure you end up with the home you want, not the one you can afford right now. Remember to consider what will be best for your family 10 years from now, not just what seems best today.
Lauma says
Such a nice blog! Thanks for sharing! 🙂
Mark Murphy says
I really appreciate your tip to work with an agent. My wife and I have been thinking of building a new house. If we do build a house, I will be sure to work with a realtor!
Scott McGregor says
Perfectly described! These mistakes are truly eye opener especially for those that are considering to build a new home for the first time. I will keep this in mind and use this tips in the future. Thanks a lot!
Jackie says
I sold Real Estate for many, many years before I retired. Have helped several clients through many new build jobs. As this article states….there’s always going to be something go wrong and never go into building a brand new home thinking that nothing will go wrong. I always told my clients to check the site at least once or twice a week. After the home is finished make sure you have in your contract that the builder will come back after 6 months to fix things such as paint that needs touched up because they missed an area around the trim or possibly on the wall, fix any nail pops, fix a door hinge that’s not quite right, etc. a builder should give you at least a year warranty on his work. Some give a 2/10 warranty which is even better. If you use a realtor during the building process make sure he or she has a lot of experience of working with a new build rather than selling existing homes because there’s such a huge difference in their knowledge. Remember if you’re in a subdivision that has a realtor on site that the realtor sitting on a model home is representing the best interest of the builder/developer and not your best interest so if you want your realtor working in your best interest you should have your own separate realtor….it normally costs you nothing to have your own realtor…most people don’t realize that. Make sure you go into the building process with knowledge.
Courtney says
Great tips! I never even though to ask about incentives! We have met with 2 different builders and are currently in the process of starting to build our own house! It is definitely an overwhelming process for sure. I will have to tell my husband about asking for incentives 🙂