Tag Archives: real estate contract

New Construction vs. A Resale: Pros and Cons

Hello again friends, followers, readers and such—

It’s been a while since my last blog post and I thought now would be as good of a time as any to discuss the pros and cons of buying a new home in the Austin market…as I have 6 clients under contract for new homes…crazy. Some close next month, some as far out as 2018.

First off, when I say “new” I am referring to a brand new build, no one has lived in prior. And when I say “resale” I am referring to homes that have had at least one owner {example: a resale home is like a used car}.

NEW CONSTRUCTION-The Pros and Cons:

Timing Pro: If you have no lease and time is not of the essence for you, then perhaps waiting for your home to finish up works out nicely. How long can a new home take? Totally depends on the builder and complexity of the home and when you entered in on a contract.

Some builders already have pre-chosen floorplans, finishes etc, which makes the build process slower and some builders let you pick everything from start to finish. Always add on time from the builder’s original date of completion, there are always delays to account for! Always!

Timing Con: Almost always does a new home take longer than the originally projected date at contract to completion. I have had some instances where past clients have slept on different Air Bnb’s, had to pay exorbitant month to month fees on their lease due to delayed construction. It is something to be aware of, and it is honestly something that is not in the buyer’s control (which can be even more frustrating). Rainfall and labor shortage are often the biggest reasons for delays in this market….or so we are told. For example, I have clients building a DR Horton Express home. In late January we were told the completion date would be late March, then next update was mid April and now it is May 17. Be prepared to be flexible when building a new home!

Brand New Feels Pro: Having something move in ready and clean and just how YOU want it certainly has its perks. You picked the backsplash and the layout and maybe even the lot. You don’t have to put up with someone’s lack of maintenance to the outside, old windows, an HVAC that’s about to break, etc.

Brand New Feels Con: If you are one of those people who like more charm and character, a new home may not be the one for you. Or perhaps if you prefer to be “closer in” and within budget–a resale just may be the way to go to get both of those check boxes, but you will sacrifice in this instance maybe your desired finishes or taste. Some funky flooring you would have never chosen or an odd master bedroom layout. But again no home is perfect! You want to aim for a home that has 85% of the things you desire.

Warranties-New Construction: New homes usually have a pretty decent warranty. They will vary among builder, however the most common for production builders is called a 1-2-10. Which means the first year they’ll come in and do touch up’s, cosmetic issues, address things that may have broken or chipped away etc. The 2yr part of the warranty covers systems-HVAC, dishwasher etc (and most the time you can register for an extended warranty on your new home appliances). And lastly the ten year covers structural–if anything happens to the foundation/exterior the first ten years it falls back on the builder to fix.

Warranties-Resale: Resale homes also offer a home warranty. In the contract the seller pays for a one year home warranty for the buyer. You can put anywhere from $0 to $450 (about average) in the contract and the buyer chooses the home warranty they’d like coverage from. Some feel that home warranties are a “rip off.” And I will admit, sometimes they don’t have the best situations: Let’s say the HVAC goes out–well, often times the home warranty company covers all of the HVAC with the exception of a few parts. It just so happens that the parts that aren’t covered by the home warranty are traditionally the most expensive and parts that go out the most. However! There are many times when my clients have purchased a home warranty and had dishwashers fixed, leaky faucets repaired, among other items and that’s nice to have that covered right after moving into a home.

CONTRACTS for New Construction: The main point I tell my clients when they buy a new home is that builders have all the rights in a new home contract (for the most part). If you read most builder’s contracts it basically states–we can take as long as we want to build your home. If we finish early, you have to close that month, if we close late, we aren’t paying your late fees your apartment changes and you are still under contract with us. There is usually no right to rescind in a new home contract and no option period or 48hr policy to get your money back once you have put in the deposit and signed. In most cases the contract states– in the 6mo you are under contract with a builder and you lost your job and could no longer get financing–the builder has the right to keep your deposit. Some builder contracts state if the property doesn’t appraise, the buyer must make up the difference. This is important and something you should know before signing on the dotted line, it can be risky. Now, do the builders want to take forever to build your home or keep your money if something were to happen to your family? I’d like to say no, but I have seen specific situations with my clients and they can go either way.

When you purchase a resale–the buyer has many rights to cancel the contract, but the term is on average a 30 day process. The buyer has a deposit to pay (earnest money), however if they should cancel the contract post inspection or for ANY reason within the option period–which can be anywhere from 5-10 days, that money is returned to the buyer. There are several “outs” for a buyer on a resale contract that pertain to documents getting to the buyer in a timely fashion, etc.

INSTANT EQUITY?-New Construction Pros: For many people who buy in a neighborhood early enough, where there is projected growth {lots of plans for more homes i.e phases 2 & 3, projected job growth nearby or a new school coming in, commercial space coming or already existing up the road etc.} the perk often times are prices usually only rise in a new home community in Austin. There are lots of incentives that come into play when you purchase early and at the right time. Incentives vary, but being the first home on the block, staying put for a few years, you will definitely see value and equity fairly quickly, especially in the Austin market. I have seen it with several clients in a little as two years. My clients purchased, the neighborhood built up, opened a second phase and my clients didn’t have to do any particular upgrades and still ended up profiting after fees when the sold their home. This does not ALWAYS happen, but buying early has its advantages.

“Top of the Market”-New Construction Cons: This isn’t as common, but at times when you are the last person to purchase a new home in a neighborhood that has been building for a while you may be paying more than the other homes sold, naturally with market demand. That is due to new homes starting competitive and low, and as demand picks up, pricing increases sometimes weekly and incentives are given and taken away depending on how many contracts a builder has, etc. Usually one of the last homes to sell in a community is the model, and those are more expensive because they are decked out with upgrades. Appraisal issues can arise in new home subdivisions as well For example–when you are one of the first large homes with upgrades being built, if not enough homes have sold before yours, an appraiser doesn’t have much to compare yours to, therefore the value comes in lower than what you are paying–despite future floorplans selling for higher. I have seen this happen several times with new construction–they typically occur with VA loans (who have more strict appraisers) as well as those who use a credit union or lender not familiar with the community, unfortunately.

PRICING PROS and CONS: In real estate there are always some sacrifices you have to make. Price, location and size/layout are typically the big three. Some see new home’s pricing as a great deal due to the space you get, the fact everything is brand new, yet typically sacrifice location if you are moving further out where Austin is expanding. For a brand new home in a popular Central Austin neighborhood, for example 78704’s Travis Heights or East Riverside next to Lady Bird Lake, you are getting a fantastic desired location or an area with projected growth, but some sacrifices may be size or price–but again, you are getting a brand new home, so typically the cost per square foot will be much higher than something built thirty years ago. My main advise to all my clients who are looking to buy is to first get pre-approved and know what you want to spend. Secondly, start looking online, visit open houses, then perhaps visit new home models. From there, you can make a decision of what you like the most.

Now, I got this question the other day, so I thought I would clarify a few myths/misconceptions:

1. In Tx an agent doesn’t help you buy new construction homes, right? No. Clearly, like I stated above, I have helped many people purchase brand new homes. The ones who usually are not licensed are the sales agents who work for a model home. Some do have a Tx real estate license, but most are trained by the builder to sell the homes they are building. Just note, in Tx if you don’t sign a buyer’s representation agreement with a real estate agent, then technically the Seller is represented.

2. If I don’t use an agent to help me buy new construction, can I save on the sales price since now there is no commission to be paid to an agent? No. A builder has already set in their budget their cost of building, marketing fees and cost of doing business. I have quite a few friends who work for builders and sell new homes, they told me–in a town like Austin with over 5k agents, the last thing a builder wants to do is gain the reputation for cutting Realtors out of deals. BUT the most important thing to note is that if you purchase a new home with the sales agents who works for the builder, you now have NO representation. No one to go to bat for you when things are delayed or you are trying to get your money back or something was installed incorrectly in your home.

Here are some great communities where you can find my clients have a contract with a new home builder:

East Shore by David Weekley

Woodland Park (Georgetown) By Century Builders

Pioneer Crossing by DR Horton

Edgewaters (Pflugerville) by KB Homes

South Shore Pointe by InTown Homes

Colorado Crossing by Lennar Homes