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Should I buy a new build home? New Builds Part 1

July 29, 2022
Posted in Programs
July 29, 2022 derekevansteam

The low inventory in the real estate market has people exploring options outside of the traditional existing home purchase. Not to mention, a lot of the homes becoming available on the market are new builds that have been ordered by development companies to satiate the need for increased housing inventory in multiple quickly growing cities. Oftentimes, people think a new home = higher cost than the existing homes in the area. But these days with home values having skyrocketed the way they have, that new build down the street might actually be similarly priced to the existing property you’re looking at. In this article, we’ll weigh the pros and cons of purchasing a new build home so you can decide if this is the best route for you.

What is a “new build” home?

A new build home basically refers to any newly constructed home that is planned to be built or has been built and ready to move into. In other words, the person who comes to own that home will be the very first owner and person to ever live in that home. Pretty exciting! 

Now, this could be an instance where an individual purchases a plot of land and contracts a builder to construct a fully custom home, or where an investor has purchased a large parcel of land for a large-scale community development and you’re purchasing a home within that development. It could be a number of things in between as well, but these are the two most common scenarios. 

New build pros and cons

You may be wondering, is it worth it to buy a new build? How is it better (or worse) than an existing home? Here are some of the pros and cons of buying a new build home for your consideration: 

PROS

  • You will likely have the option to customize your home. Even if you’ve decided to purchase a home in a development, you will likely have a range of customization options to choose from. These little things can go a long way in making the house feel more like your own.
  • You’ll be moving into a brand new, never lived in space. One of the best things about a new build is that everything is squeaky clean and brand new! Everything from the flooring, to the walls, to the appliances – it’s all in peak condition. 
  • More energy efficiency. A lot of new build homes are designed to be as energy efficient as possible, saving you hundreds on your utility bills. 
  • Less maintenance needed. Because everything is brand new, you likely won’t have to shell out money for costly repairs for many years. This will save you time, money, and headache.
  • Home builder warranties. Most home builders offer warranties on their new builds, which means if anything breaks or goes wrong with your new home, they will fix it for you free of charge if it occurs within a certain time frame (usually 1-2 years). 

CONS

  • Could still be more expensive. While rising home prices have caused the gap in price between existing homes and new builds to narrow in many areas, in other cases, a new build might still be more expensive. This is why it’s important to work with a knowledgeable and trustworthy realtor who can help you determine which option is better for you. 
  • Cookie-cutter copy of surrounding homes. If you custom-build a home on your own land, this won’t apply to you. But if you’re purchasing a home within a development (the more common scenario), then you can expect your home to look almost exactly like all the other houses in the neighborhood. If this is your jam, then this isn’t a con! But since the term “new build” is often associated with customization, this is something you should be aware of. 
  • Construction timing. The timing of new build construction can be tricky. It could be months before your new home is finished, and delays can happen. Most homebuyers have to figure out some form of temporary housing while they’re waiting.
  • Financing issues. Financing for new builds can be tricky, because you don’t actually get to purchase the home until it’s completed. You may sign a purchase agreement for that home, but that agreement will be based on your current pre-approval. You may end up signing a purchase agreement for a home you get priced out of if interest rates go up. We’re seeing that a lot in 2022, where buyers entered purchase agreements for new builds while rates were low (in the 2’s and 3’s), but are now unable to afford the purchase after rates doubled. This is why we highly recommend a rate lock, which we will go into later in the article.
  • Higher taxes. Your property taxes may be higher on a new build than they would with an existing home. This is because the tax assessor for your area may need more data before landing on an equitable tax bill. And your taxes are still subject to change significantly year over year as developments and property values change, so keep this in mind. 

Other things to be aware of with new build homes

Finally, before you dive into the new build home search, there are a few final things to note that you should keep in mind during your search.

  • Financing from the builder’s preferred lender may look like a great deal on the surface, but it may not be the best option. In order to entice you to go with their preferred lender, builders may offer incentives, longer rate locks, and/or a lower interest rate than competitors. But you shouldn’t just take them at their word. Savvy homebuyers should always shop beyond a builder’s recommended lender because you never know where you could find a better deal with an outside lender. 
  • You will need to put down an earnest money deposit  to “reserve” the home. Since you can’t actually purchase the home until it’s completed, the way to reserve the home is to sign a purchase deal. In order to do this, you will need to put down an earnest money deposit. This deposit protects the builder in case you back out of the deal and they have to then do the legwork to try and sell the completed and customized home to someone else. However, if the deal does go through, the earnest money deposit will go towards the value of the home.
  • You will still want to get an inspection. Even though logically there shouldn’t be anything wrong with a brand new home, an inspection is still very much needed. In fact, it’s also in your best interest to order two inspections: one before the drywall goes up, and the second after the house is completed as a contingency for purchase.

Ready to buy a new build?

If you’ve decided that a new build is for you, check out the second part of this series, ‘How do I buy a new build?’ which will walk you through what the process is like and offer tips!