9 Steps to Getting The Best Deal on a New Home

About a quarter of all homebuyers choose to buy a new home rather than a resale. Will you be one?
Of course, there are advantages and disadvantages in buying new or “used.” If you’re building your own home, you get to choose all of the options and upgrades – from carpet and cabinetry to bathrooms and bedrooms. On the other hand, resale homes are often located in established neighborhoods with mature landscaping and proven schools. Before you decide whether you’ll buy new or resale, think about the disadvantages and advantages of each, and compare them to your own unique needs and wants.

If you do decide to buy a new home, whether you’re building your own or buying a builder’s spec or model home, there are nine steps you need to take to get the best deal.

Step 1: Decide the price of house that you can comfortably afford

Work with your lender to decide how much home you can comfortably afford. If you’re a first-time buyer, compare your income to your current debts and see what’s left over for a mortgage payment. Then analyze financing possibilities to see what kind of monthly payment you could expect on various loan amounts.

If you’re selling your current home to buy a new one, work with your real estate agent to determine what you can realistically expect to sell your current home for, and what your net proceeds will be from the sale (how much money is left over after you pay off your existing mortgage and any associated selling fees).

Once you know how much cash you’ll have left after you sell your current home, decide what kind of monthly mortgage payment you can comfortably afford. Based on your down payment, loan terms, and interest rate, you’ll be able to figure out how much you can afford to pay for a new home.

Whether you’re a first-time buyer or selling your old home, remember to think carefully about how much you can comfortably afford to pay each month for the mortgage. Comfortably means that if the car breaks down or you need a new dishwasher, you can take care of those items and still have enough money to pay the mortgage.

Your dream home can quickly become a nightmare if you take out a mortgage loan that you really can’t afford. So sit down and be honest with yourself – you’ll be glad you did.

Step 2: Know who’s representing you – and who’s not

A seller’s agent works exclusively for the seller – whether that is an individual homeowner or a builder. A buyer’s agent works exclusively for the buyer – at no cost to you (because the seller always pays the buyer’s agent commission). When you visit a builder’s model home, the sales agent there works exclusively for the builder – he’s a seller’s agent. To make sure your interests are represented in the deal, find a real estate agent to work with you as the buyer. And, when you visit your new home site for the first time, make sure your agent goes with you (failing to do so could cost you the opportunity to have that expert on your side).

Step 3: Get to know your builder

When you purchase a resale home, you don’t necessarily need to check out the background of the family you’re buying the home from. Unless they trashed the house or made shoddy repairs (which an inspector will tell you), it doesn’t really matter who they are or what they’re like.

When you’re buying a new home from the builder, it’s a different story. The builder’s reputation matters a lot. Does the builder give good customer service to homeowners with warranty requests? Is the builder honest in sales transactions? Are the homes constructed well, built to last? If a builder has been in business for a while, these are all questions you can find the answer to. Your real estate agent will be able to help. You can also check out your local Better Business Bureau or the contractor’s board to see if any complaints have been filed against the builder and how they were resolved.

Ask the builder for references – homeowners you can contact to hear their experience with the builder. Or, walk around the neighborhood and knock on some doors – you’ll get a more honest sense that way of how homeowners feel about the builder.

Also learn about what kind of warranty the builder offers. A 1-year “fit and finish” warranty, which covers everything, is standard. Some builders offer more.

Step 4: Get to know your neighborhood

Of course it’s important to find a home with all of the features you need and – hopefully – many of the ones you want, too. But unless you plan to never come out of your house, your neighborhood is important too.

If you have school-age kids, are the neighborhood schools well-rated? Are there other kids for your children to play with? Are the other families in the neighborhood similar to yours? Are there parks for your kids to play in?

If you’re older, are there other older people in your neighborhood? If there is a homeowners association, does it offer activities for older folks?

If you’re moving into a neighborhood where there’s still a lot of vacant land, find out what that land will be used for. You don’t want to move next door to what you think will become a golf course to find out that it’s actually going to be a Wal-Mart!

If your neighborhood has a homeowners association, learn the community rules, and make sure you can live by them. Find out how much the monthly dues are. And what amenities you’ll get in return.

And think about your neighborhood in proximity to the places you frequent for work and leisure. Will your move change what was a short commute into a long one? Is that okay with you?

Step 5: Meet at the negotiating table

Some homebuyers mistakenly think that if they’re buying a new home from a builder, they have no room to negotiate. That’s not true. As with a resale home, there is room to negotiate a better deal when buying from a builder.

Often, builders will have homes in inventory that are complete but not under contract. Sometimes they’re spec homes that the builder built on speculation for sale, other times they’re homes that fell out of contract. You can often find great deals on these homes, especially when builders are feeling pressured to sell them, like at the end of a fiscal year or when the builder has finished building in that area.

Many of the large builders also have arrangements set up with mortgage lenders (or they actually own their own mortgage companies) which may offer you special financing deals. Be wary, though, when a builder offers a reduced price or free upgrades on a home in exchange for a very costly mortgage with its lender. In that deal, you may get a good price on the house but you lose on the mortgage.

Step 6: Choose your options and upgrades

Unless you’re buying a new spec home that’s already complete, you’ll be able to choose the options and upgrades that go into your new home. This is the best part!

When choosing options and upgrades, keep the bottom line in mind so that you don’t end up with a price that’s far above what you decided you could comfortably pay (see Step 1). Also, you don’t want to have a fully-loaded $300,000 home in a neighborhood where the average home price is $220,000 (you’ll have a hard time reselling later). The best idea is to come down in the middle of home prices in your area.

Options are modifications that a builder can make during construction – adding additional bathrooms, converting a garage into a guest house, adding a deck, or extending the kitchen. These are the add-ons that will add the most resale value to your house, because they’re much harder to do later.

Upgrades are features that are of higher quality than builder standards. For example, standard may be basic carpeting in the bedrooms; the upgrade would be Berber. Or standard may be linoleum in the kitchen; the upgrade would be tile. Upgrades are largely what will make your house feel like your home. But they add less resale value because they’re based largely on individual taste (you may just love granite countertops, but someone else may prefer Corian).

When you think about which options and upgrades to choose, think about what you could add later. Room additions, for example, are very expensive to make after-the-fact, while upgrading carpets can be done fairly easily a few years down the road.

Step 7: Ensure that the contract provides adequate protection

Just as it’s important to protect yourself with a contract when buying a resale home, it’s important to have a contract that works in your favor when buying from a builder. Make sure that you get all agreements in writing – including purchase price, options, and upgrades. Get – and read – all fine print on builder’s and manufacturer’s warranties. Ask to have access to the construction site to check on the progress of your home and to have inspections at each stage of construction (once the frame has been put up, once drywall is completed, before finishing touches are made).

Your real estate agent will help you understand the fine print of the contract, and make sure that all of the important provisions are included. The most important sections of the contract include:

• Addenda Incorporated – including HOA rules and regulations
• Fixtures and personal property , which describes which fixtures and personal property will be sold with the house (usually all fixtures and appliances such as dishwashers and ovens are included while refrigerators, washers, and dryers are not)
• Loan contingency , which means that the buyer must make a good faith attempt to secure a loan before the close of escrow date, but if the buyer is unable to qualify for a loan, he can have his earnest deposit money back
• Loan requirements , including a completed Loan Status Report with information about the buyer’s proposed loan, a completed loan application within 5 days after Contract acceptance, and signed loan documents 3 days prior to the close of escrow date
• Title commitment and title insurance , including copies of any recorded documents as well as any restrictions on title insurance
• Seller property disclosure statement (SPDS)/Inspections/Walkthroughs , which specifies that the seller must submit a SPDS within 5 days of Contract acceptance and that the buyer has a right to inspect the property and conduct a walkthrough to ensure that any agreed-upon repairs were satisfactorily made
• Buyer disapproval , which allows the buyer to get his earnest deposit refunded if he disapproves of the title insurance, the SPDS, or the inspection and the seller refuses to remedy the problem
• Cure period , which provides the seller or the buyer a three-day window to cure any non-compliance issues
• Alternative dispute resolution and exclusions provides for arbitration and mediation of disputes
• Agency confirmation lists the buyer’s real estate agent.

Step 8: Consider builder – and non-builder – financing

Many builders have their own mortgage companies, or have agreements with external lenders. Sometimes, the builder will offer a deal on the home if you take a mortgage from its company or its partner. That kind of deal isn’t always a bad one, but be wary. Make sure that you’re not getting a great deal on the house in exchange for an awful deal on the mortgage. As always, shop around with at least 3 mortgage lenders to find the best mortgage for you. And remember, you can negotiate terms and rates with lenders.

Step 9: Get the home inspected

A new home builder will probably tell you that you don’t need to have the home inspected for two reasons: 1) because you have a warranty if problems arise; and 2) the builder conducts its own inspection after construction is completed. But still, it’s best to hire an independent home inspector to check the house after construction is complete – no builder should deny you that.

Go with the inspector when he visits the house. Ask questions when you don’t understand how something should look, or work. And have the inspector give you a copy of the checklist noting all of the problems – however minor. Then, before you close on the home purchase, walk through the house with the builder pointing out all of the repairs that need to be made. Once the builder has completed the repairs, walk through again with your checklist to make sure everything has been completed.

The real estate experts at MyPhoenixMLS.com can help you negotiate the new home buying process. Call us today at 602-318-1114 or 1-866-249-1678 or e-mail info@myphoenixmls.com.