What to Expect when Buying New Construction (in an Austin seller’s market)

Mar. 04. 2014

Hello again!

I’ve had a few clients in the past few years buy new. Meaning from a home builder or custom builder or condo developer. And being that I now have gained some experience on “the other side” (meaning, representing new projects/the listing agent) I wanted to take some time to write a blog on what to expect when purchasing a new home (in a seller’s market). I add the parentheses because when the market is “bad” or a buyer’s market, builder’s are offering incentives, upgrades, decorating allowances, raffles for a new car. BUT in Austin Tx currently we are in a seller’s market, with this inventory being low, what can you expect as a buyer now that housing is in demand? Well..read on!

Since every builder contract is different (and none of them are the standard TREC <Texas Real Estate Commission> promulgated form) I am not going to go through the nitty gritty details, but basically give you a sum up of what to expect in that contract and when building a new home (or buying one from a builder that is a “spec” home). A spec home is a homet hat has already been started by the builder-lot, floorplan and decor already chosen. Most the time when you choose to use a builder to buy you pick the lot, floorplan and then go to a design center for upgrades etc.

(and use some real life examples!)

Below: Jordan at the closing table-yes, he sent me a selfie, because I couldn’t make closing! Bought his new place in Edgewick, stand alone condo with detached garage!

This is a photo of Ashley, below-just closed on her home with Milsetone Builders off Riverside that was built from the ground up-with her input! That area has blown up, she is so happy she bought there when she did!

#1–A Builder’s contract will state that they are allowed to make changes to the property as they deem necessary.

This is important to know, because recently I had some clients (ok, pickier than normal clients) who were very angry that the developer said there would be 4 trees (according to the brochure) and there were only 3 actually planted. These things happen. Does a builder try to purposefully deceive a customer? Of course not, but often times what “they thought” would work, doesn’t once they cross that bridge.

#2–a Builder’s contract is going to cover THEIR butt, not yours. Basically it will state things (in legal jargon) like: the builders have up to xx amount of years to complete the project.

I have another client who was supposed to close in October, ok November, ok late December….well you get the idea, it is March 2014 and we are still not closed.  This definitely has put a cramp in her lifestyle (and wallet, as rent continues to increase-especially when you go month to month)

Now, does a developer or home builder purposefully try to deceit people or make unrealistic timelines? Absolutely not. Do they want to sell the homes as quickly as possible? Of course. But it happens quite often that inspections hold up, Texas has freeze days??, labor shortages, City inspection hold ups (again), permits expire (or they don’t really but some dummy in the office doesn’t know what he is doing) and so on and so forth. Delays are constant. I wish they weren’t, but I have NEVER had a builder complete in the amount of time they said they were originally going to finish a home in. I promise. I wish it wasn’t so, but just the way things go.

So the #1 characteristic you have to possess (in my opinion) going into a new build is PATIENCE. Projects always take longer than anticipated, possibly a few changes along the way. I have been telling my clients (in this busy seller’s market) it is easier to sign a six month lease while your home is being built and break it/sub lease it later in this hot renter market, than to continue to pay increased rent prices month to month.

#3 A Builder almost NEVER pays Title Policy.

If you have bought a home before, more often than not a seller will pay for the buyer’s title policy. Now, in this hot seller’s market, there have been times when I have advised buyer’s to pay for the title policy to have the edge over another offer, which has worked to our advantage. I have only seen a builder for a new home/project pay for a title policy (which usually equates to a little less than 1% of the purchase price) maybe twice. Have I tried to negotiate this almost every time? Of course! But the advantage a new home builder has is that his product is rare and if it is in a buyer’s price range and they REALLY like it, they will pay the title policy vs back out completely. In the times the seller has paid for a title policy, I will add– the buyer didn’t ask for any other concessions, appliances, had strong financing and was at the asking price. So there ya have it.

Above: finishes the buyer’s get to choose at a project I am listing (Towns on Cumberland)

#4 A Builder will have little to no incentives for you as a buyer.

I say rule #4 with the intent of someone understanding the current market state, especially in Central Austin. As housing becomes scarce, pricing has increased and incentives to get people to buy have decreased. Why? Because a builder doesn’t have to offer allowances and upgrades when his product is in demand. I am not saying it doesn’t happen at all, it does, but usually at the start of a project. Asking price is usually final unless a builder is at the tail end of his inventory and ready to close up the project.

Some examples: I had a buyer purchase from Pulte up in North Austin. If he signed by the end of the week he would receive $2000 extra in his upgrades. Done.

Another builder (and most builders, honestly) will have a preferred lender. Do you have to use this lender? No. But most likely the builder will have established a working relationship and the lender is already familiar with the project, the people and have solidified a routine to get the loan done. For using their preferred lender the builder will most likely pay title policy or offer some kind of closing costs paid for at the close of the loan, etc.

Progress (this home finished months after it’s projected date–it happens).

But buyers are super happy with the finished project (couldn’t even fit the whole house in my wide angle lens): Teravista, Round Rock by Partners in Building

However, neighborhoods perhaps farther out in a VERY newly developing area that may take years to grow etc. could possibly be offering more incentives and bonuses for your extra long commute and factor incentives for you. The fact you will be living in a construction zone for the next few years–you deserve a few upgrades. There are pros, however to buying further out– If you can hang tight in this busy market, you will be happy with the equity you start to acquire in your new home. You need to make sure you want to be there for a while, though, because often times if someone tries to sell a year later the home is worth just as much as a new home down the street. Be sure you pay attention to “what is to come” and what “can’t” be put next to you, too!

I hope this blurb about what to expect doesn’t sound like a “crappy deal” or like I am being pessimistic. I consider myself a realist, ha. I also hate when I don’t fully explain to buyers what they may run into when buying a new project. This isn’t to discourage one of NOT buying new, but just educate one on how it can be different from purchasing from a seller. Buying new can be great! Modern finishes, the ONLY one that has lived in a place, your own finishes (tile, backsplash, flooring, constructed floorplan) all picked by you. A new community with like-minded people in an up and coming (or already established, hip) area. Do what is best for you, but know what you are getting into!

Some buyers prefer to buy old charm and fix up (Heidi and Brian above)…

And some prefer starting their family in a new home (Jennifer and Travis above).

But whatever you decide, be happy with your new home!

Start your home search here and register! Read more about Ashley here and how she can help you with your real estate needs!

Happy house hunting, let me know if I can be of help and as always, thanks for reading!

-Ashley