Thinking of buying a new construction home? Read this first

Buying a new construction home can be an exciting adventure, but the buying process is much different than if you were buying an existing home. With that in mind, we've brought you a guide to the new construction process below. Keep reading to get a sense of the pros and cons of buying a new construction home, the steps you'll take from start to finish, and questions that you should ask any builder before signing on the dotted line.

Is buying a new construction home right for you?

New construction homes are a savvy option for first-time and seasoned homebuyers alike, especially in the low-inventory seller’s market of the last several years. Buying a new construction home can help you skirt bidding wars for existing homes while giving you the opportunity to construct your dream home. 

On the other hand, these homes come with some caveats, like construction delays and complications, that can intimidate homebuyers. If you’re thinking about buying new construction, weigh the pros and cons to help decide what’s best for you:

Pros of buying a new construction home

• More customization options: Perhaps the biggest advantage of buying a new construction home is that you can play a prominent role in the design. (And it's cheaper than building a custom-home from scratch.) In most cases, you’ll have the option to select different finishes and add on various upgrades and amenities. Ultimately, it is much easier to customize the home to fit your tastes than it would be if you bought a resale home. 
• Less maintenance: Because everything from the structure to the appliances is new, your new construction home will need less maintenance than an older home.
• More energy-efficient: Newly built homes are typically more energy-efficient, with eco-friendly innovations in windows, insulation, cooling and heating, and appliances. That can mean big savings on utility bills and maintenance costs.
• Warranties: When you buy new construction, the appliances, major systems, and in many cases, even the structure is under warranty. Any issues you have within the first year (or more, depending on the terms of the warranty) may be covered.

Cons of buying a new construction home

• More expensive than resale homes: The biggest disadvantage of buying a new construction home is that its customization and newness often comes with a bigger price tag than resale homes. A new construction home costs as much as $452,000 (not including the land) on average to build, as compared to the national median sale price of existing homes of $370,700 (which does include the land).
• Hidden costs: Additionally, small, forgotten expenses can add up with new construction homes. Costs for things like TV mounts, shelving, even fencing might not be included in the initial purchase price of the home, and homeowners will need to shoulder these costs after the huge expense of funding the home’s construction.
• Longer timeline: It can take much longer to buy a new construction home because the house has to be built before you get the keys. While your typical existing home can close in as little as 47 days, new construction will take several months to complete.
• Builder quality highly varies: Finding a builder that is reliable and produces high-quality homes will take time. Because new construction is a longer, riskier process, you’ll also want to find a builder who will be responsive at every step.

Common mistakes when buying a new construction home

An important step with buying any home is familiarizing yourself with common mistakes, but it’s even more important when buying a new construction home. The new construction homebuying process is less documented than the conventional route of buying an existing home. As such, there’s more opportunity for new construction homebuyers to run into problems in the process.

Choosing the wrong builder

Choosing the wrong builder is one of the top-cited mistakes of new construction homebuyers, and perhaps the blunder you most want to avoid. You can’t change a builder after signing a contract, and you may have to make do with poor-quality work, subpar finishes, and even unresponsiveness during the building process.

Avoid this mistake by:

• Spending time getting to know the builder, their history in the community, and seeing multiple samples of their work.
• Attending open houses to get a sense of the interior finishes of homes.
• Getting references and calling to hear about past clients’ experiences.

→ Here's what to ask the home builder

Not negotiating

While it is harder to negotiate the price of a new construction home, there are still ways to get a better deal. For example, while the builder may be unwilling to reduce the sales price, they may be open to including complimentary upgrades. 

Avoid this mistake by:

• Working with an experienced agent prepared to negotiate with your builder.
• Familiarizing yourself with common seller concessions.

Skipping a third-party inspection

Don’t assume that a brand new home comes without imperfections or significant issues. Getting a third-party inspection will ensure that everything is up to code and helps you identify issues upfront.

Avoid this mistake by:

• Familiarizing yourself with the inspection and appraisal processes.
• Planning on a third-party inspection from the start.

The new construction homebuying process in 8 steps

You’ve weighed the pros and cons, you’ve acquainted yourself with the most common mistakes, the last step in knowing if a new construction home is right for you is to understand the new construction homebuying process. This will give you an idea of what to expect and help you prepare for the road ahead.

Step 1: Find a real estate agent

Finding an expert real estate agent is always a crucial step to buying any house, but it’s especially important when buying a new construction home, says Kari Gordon, an Orchard Home Advisor based in Seattle. 

Builder contracts differ from existing home sale contracts, and they even differ builder to builder. An experienced agents’ eye is crucial for going through these contracts and ensuring that your best interests are represented.

“You can’t just blindly sign a new construction contract,” says Gordon. “Let your agent make contact for you, help you get all the information you need from each of the builders you're considering, and then let them go through those contracts with a fine-tooth comb.” 

And if you’re thinking of making contact with builders first (even casually), don’t: Many builders require potential buyers to register their agent during their first visit and will not allow you to bring your own representation later in the process.

→ Learn more about real estate agents for new construction homes

Furthermore, if you need to buy a house and sell at the same time, it’s a good idea to find an agent who can represent you for both sides of the transaction.

When you work with Orchard to buy your new home, we’ll match you to an experienced licensed real estate agent. Not only will they help you negotiate the best terms for your new build, but they’ll also help you sell your existing home and give you a guaranteed offer. Below is an overview of Orchard’s new build process:

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Step 2: Finance your new build

Financing a new construction home is very similar to buying an existing home. However, you have to be more mindful of the timing. Your lender will not allow you to close on a new construction home until its construction is fully complete. If you already have a family, it can be challenging to line up the closing of your new home with the sale of your existing home.

You have a few options if you want to finance a new build house but still have a mortgage on your existing home: 

• Bridge loan: A bridge loan is a temporary loan that helps you access your existing home’s equity before it sells. A lender advances you money for a predetermined amount of time, typically six to nine months, after which time you have to start repaying with interest. However, qualifying for a bridge loan is tricky, and you could end up balancing a mortgage as well as your bridge loan payments if your home doesn’t sell within the predetermined timeline.
• Construction loan: A construction loan provides short-term funds to use on the cost to build your new home. This type of loan is more common among custom builders, and requires a 20 to 25% down payment and higher interest rates than other more typical types of financing. 
• Builder financing: Many builders have relationships with lenders who finance new construction homes. Sometimes there may be financial incentives for using the builder's preferred lender, but proceed with caution and vet other alternatives as well. These days you can even find lenders who will shop rates for you to make sure you’re getting the best terms possible. 

None of these options is ideal, and they can put you in a riskier position if you’re also selling your existing home. One alternative is Orchard’s new build program.

Orchard guarantees the sale of your current home and grants you an interest-free equity advance to use towards purchasing your new house. Once you’re moved into your new home, we’ll handle listing your home (including all of the preparations — photography, marketing, home showings, even completing repairs and minor renovations at no upfront cost to you) on the open market to get top dollar. And if it doesn’t sell within 120 days, we’ll buy it from you.

Step 3: Choose the right type of builder

You have an agent and lender on your side, now it’s time to find the right builder. Start by narrowing down the type of house you want to find a local builder who’s a good fit for the job. Here are the four most common types of home builders:

• Tract or production home builders: These builders buy large tracts of land to build subdivisions. Typically, they only offer a few different floor plans for buyers to choose from, and there's not much opportunity for true customization. However, this type of new construction home is often the most affordable and is built on the quickest timeline.
• Spec home builders: A spec, or speculative, home builder usually builds one or two homes before eventually putting them up for sale. Spec builders often have more potential for flexibility than tract builders, so you may be able to get some customization at a lower price point.
• Semi-custom home builders: A semi-custom home is often thought of as a middle ground between a pre-built house and a custom build. Usually, with this type of new build, the homebuyer will pick the lot’s location but will choose from a selection of pre-made floor plans that the builder offers.
• Custom home builders: A custom home is often thought of as a true "dream home." A custom build allows the buyer to design every element of the house from scratch. As you may guess, this option is often the most expensive and takes the longest.

After you've zeroed in on the right type of builder for you, it's essential to do your research. Look up appropriate builders in your area, dig into each builder's reputation, and get a sense of their current or past projects.

Step 4: Make smart design and upgrade decisions

Typically, when you see a price advertised for a new construction property, it is simply the base price including builder-grade flooring and finishes, but the model home you might have toured has thousands of dollars worth of upgrades.

“What you see is not necessarily what you get,” says Gordon. If you want higher-end finishes or selections beyond what is included in the base price, those features will be considered upgrades, and they will likely come at an extra cost.

After you choose your builder, they will schedule a design consultation to walk you through your options. You'll need to plan your selections carefully, so you'll make sure to stay within your budget. Here are a few choices you’ll make: 

• Location of the lot (interior lot, corner, cul de sac, etc.)
• Basic home characteristics like exterior style, floor plan, square footage
• Stylistic choices like paint color, type of flooring, and light fixtures
• Feature upgrades like wood flooring, granite countertops, heated flooring, etc. 

What upgrades are worth it in a new house?

It’s easy to get caught up in the details and drive up the cost of your home, but Gordon recommends selecting features that will add to the value of your home.

Lean on your agent to pull comparable homes from the MLS to see what features they have — if you want marble countertops but all of the comps near you have granite, consider sticking with the norm. Prioritize high-impact spaces, like the kitchen or master bathroom. Future home buyers will care more about these spaces than guest rooms or bathrooms.

And be wary of spending money on these low-ROI features: 

• Lighting fixtures: Builders have a limited selection of lighting options. Since it’s easy to change out light fixtures, wait to find more affordable options that better suit your tastes.
• Appliances: Once again, you’ll be limited to the options and prices your builder provides. Buy the appliances on your own and take advantage of local sales.
• Outdoor patios: New homes settle and if you build outdoor spaces right away, you may end up with cracks in your patio. 

Step 5: Put in an offer and negotiating terms

When you're ready, you'll put together an offer on the home. In new construction, you'll usually sign a builder contract rather than the standard purchase agreement. A builder contract outlines the terms between the builder and the buyer, including what will be built, how much you’ll pay, and the completion date.

This step is where your real estate agent will be the most valuable to you. They will be able to negotiate on your behalf and to advocate for your interests. In particular, one thing that you should negotiate is the builder warranty. A builder warranty will help cover the cost of anything that breaks or malfunctions after your house has been built. Specifically, you'll want to ask questions about the scope of the warranty that your builder offers, as well as how long it lasts.

Step 6: Start the construction process

After negotiations are done, you will hand in your earnest money deposit and will officially start the construction process.

Usually, this step will be broken down into several phases, and you will get a chance to see the progress after each phase is complete. Depending on the type of mortgage you are getting, your lender may also require performing an inspection at the end of each stage.

At this point, you may be wondering how long it’ll take to build a new home. According to the Census Bureau, building a new single-family home takes about 7 months, though the timing will vary depending on the type of home you’ve purchased. You should expect a custom home to take at least 9 months, while a semi-custom home will take around 6 months. 

Step 7: Inspect your newly built home

Once construction is complete, you will be given a chance to do a home inspection. Just like with a resale home, the home inspector will walk through your new house and look for any apparent issues. Then, they will write up a report with their findings, and you will be given a chance to work through any necessary repairs with the builder.

Next, you will do your final walk-through. Again, just like with an existing home, this is your chance to see if you notice any problems with the property before you go to closing. Make sure to test everything out, including turning on all your appliances and flushing the toilets. If you notice any problems with your new home, be sure to speak up about them before you head to the closing table.

→ Learn more about why new home inspections are important

Step 8: Close and moving in

At closing, you will go over all the paperwork with your real estate agent and sign on the dotted line. The final funds for your mortgage will be disbursed, and you will be asked to bring a check to cover your closing cost. However, once everything has been signed and the money has changed hands, you will officially be a homeowner.

→ Read more about what NOT to do at closing

4 questions to ask when buying a new construction home

Now that you have a better idea of how the new construction process works, here are some questions to ask when negotiating with your builder. Keep them in mind so that you can go into the building process feeling informed.

Can I see references and examples of previous projects?

As a home buyer, it is crucial to ask to see examples of a builder's previous work. They will likely offer to show you the model home for their current project, but you should insist on seeing previous projects as well — doing so will give you a better idea of how the builder's work holds up over time.

Also, it's in your best interest to ask to speak to a few references. Ask them what it was like to work with the builder and what they thought about the construction process to get an idea if the builder is someone you can work with.

Who will be in contact with me during the building process?

Believe it or not, after contract negotiations, you probably won't interact with the builder very often. Instead, you will likely work with one of their project managers. In any case, ask for their contact information, so you know who to go to if you have a problem.

Which features are standard and which are upgrades?

Picking out features and finishes is often one of the hardest parts of buying a newly built home. Upgrades may be tempting, but they can also become expensive fast. Builders will typically show you a model home, so don’t be afraid to ask questions to learn what’s a basic feature and what’s extra. 

To that end, when you're negotiating, also ask to see a future sheet before you sign anything. That will give you an idea of what is included with your base price and which features will cost extra.

How do you handle change orders during the building process?

It's not uncommon for homebuyers to change their mind during the construction process. However, you should know how any change orders will be handled upfront. Be sure to ask what paperwork you will receive documenting the change and how you will be charged for any extra materials and labor.

This guide can provide a starting point for your new construction homebuying process, but working with Orchard is the best way to ensure you get expert advice from start to finish. Get started with a free home valuation today.