Do you need an agent when buying a new home?
Some people think that they do not need a Realtor when buying a new home. The sales rep at the new home site works for the builder and represents the builder’s interest. When buying a home, you should have a professional looking out for your interests as well. Since nearly all builders offer to pay the real estate commission for Realtors, it is certainly better to have a Realtor representing you.
New homes sales conditions often reflect the local markets. When sales are slow, builders are more willing to negotiate and a good Realtor can help you getter a better price. If sales are going great, even if a Realtor can’t help you get a lower price, your agent can still assist you with the purchase process by explaining the builders’ contracts which will heavily favor the builder, by recommending a good home inspector, and by making sure that you have a pre drywall inspection option put into the contract. A Realtor can advise you as to what options will be best for you from a future resale stand point. And even if a price reduction is not an option, a Realtor might be able to help you reduce your option or closing costs. A Realtor can help you with lot selection and point out things to look out for such as poor drainage or nearby power lines. A realtor can help you with many other things like garages that are too small for your car or truck and considerations such as the view which may end up being different than what you expect when all of the homes are finally built. One of my clients bought a townhouse with a relatively short garage that would not accommodate his pickup truck which stuck out past the door by 2 feet. Since there was lots of open parking he bought the house anyway, but because I had him try to park in a model home garage before his unit was even started, he at least knew what to expect. I know of another individual who bought a house with a garage that had a lot of water flow under the door every time it rained because he was at the bottom of a hill. He bought without an agent who might have warned him of the potential danger. Depending on the situation, and experienced agent can help you in a lot of ways.
Make sure you take your agent with you when you first visit a new home site. Some builders will not work with an agent once you show up and register without one. When they can builders usually would like to save the commission and work with an unrepresented buyer.
News headlines and reports are usually national in nature. Thus recent stories about the greatly improving market, do not apply to Northern Virginia because the local market has been continually improving over the past four years and therefore is not playing catch up. It is a very good market, but not a greatly improved market compared to last year. Many homes that were under water a few years ago are now valued above their mortgage amount. Some homes have increased as much as $100,000 in value over the past 5 years. Back in March and April of this year (2014) many homes in good condition were getting multiple offers. Multiple offers of course help drive up prices. A high offer does not matter if a loan is needed and the house won’t appraise for the offer, so even though prices are going up, there are still controls in place. If you should find yourself trying to buy in a multiple bid situation, you may have to offer to pay in cash any amount over the appraisal. Three months later, the current market is not quite as good and a lot of homes are taking 3 or 4 weeks instead of 3 or 4 days to sell. The May average days on the Market for Fairfax County was 31 days. Interest rates are still very low and multiple loan products are coming back into the market. If you could not qualify for a home loan 6 months ago, you might want to check again.
When buying a home, it is almost always wise to get a professional home inspection. You should get an experienced inspector who has done at least 1000 inspections. In Virginia, there is no licensing requirement so anyone can call himself a home inspector. Most inspectors are trained and certified under the American Society of Home Inspectors (ASHI) or National Association of Home Inspectors (NAHI). Virginia also has a voluntary Home Inspector Certification that some home inspectors have obtained.
Most, but not all, home inspectors have a background in the home construction business. Thus if you have any particular areas of concern, such as plumbing, carpentry, or electrical, you can seek out an inspector with extensive experience in that area. Most inspectors have the experience and training to cover all areas of home construction. If problems are found you can always request a more detailed inspection from an expert such as a roofer or mold specialist who is currently working in that area of home construction. The home inspector will only check out things that he can readily see. The inspector will not move furniture or carpets, or cut holes in the wall unless you have permission and are paying for a special inspection for something like mold. The inspector will also likely require that you sign a document limiting his liability to the cost of the inspection. This is why you want to get a good experienced inspector, as you will likely have little recourse against the inspector or home owner for any missed problems. Your Realtor should be able to recommend a good home inspector to you.
You also want to be sure that your inspector carries insurance, as that is a generally a contract requirement in both New Home and resale home contracts. You will be expected to pay for the inspection at the time it is done. The cost can run between $350 and $700 depending on the size and price of the house. Most inspections run $400 to $450. There can be some variation as to what the inspectors charge for the same house with the more experienced inspectors generally charging a little more.
Once you have your report, you can use it to request additional repairs from the owner or builder, unless your contract states that you are buying the house AS Is and the inspection is for information only to let you decide if you want to proceed with the purchase. Builder contracts will state that the builder does not have to take care of any problems found by the inspector, but builders want to build a good product and will in fact address most of the items on the inspection list. Your inspection on a New Home should be just before the drywall is installed so that your inspector can see the plumbing and wiring in the walls.
If you are thinking about buying a New Home from a builder, there are a few things you should know about builders’ contracts. Unlike a resale contract, the builders’ contracts heavily favor the seller. For example, even though the builder sales rep may tell you that the home will be ready for you in four months, the contract most likely gives the builder two years to complete the home. Most new homes are ready on time or within a month of the promised delivery date, but you need to know that a lot of slippage in delivery date is available to the builder. To be fair to the builder, if there is a serious slippage it will almost certainly be because of things beyond his control like a natural disaster or a long term strike affecting an important aspect of construction such as delivery or manufacture of needed materials. Even so, you do not want to end up with a moving truck full of furniture and no place to move it to.
Another common issue with the contract is in the area of financing. The builder will require you to apply for financing within a short period of time, and as long as you are qualified and approved for financing you will have to proceed with the contract even if interest rates go up and increase your monthly payment beyond what you thought you would be paying. This is an issue because unless you are buying a quick delivery spec home, you can not lock in your rate until you are within a couple of months of delivery. You can pay extra for a long term rate lock, but that is not usually a good deal. Also if delivery slips beyond your lock date, you may have to pay an extra fee or lock in at an even higher rate. Even if rates go down after your lock expiration date, you will still be held to the higher original rate.
Another aspect of financing is the security deposit. New home builders will want a higher security deposit than is generally needed for resale contracts. The security deposit for a resale contract goes into an escrow account, for a new home it will go into an operating account and will not be available for refund should the builder go out of business. I recently sold a Stanley Martin home at Heritage Crossing in Manassas and could not find any place in the contract where it mentioned returning the security deposit should the buyer not qualify for the loan even though he can’t lock in the rate without a hefty payment until the home is close to completion.
A spec home is one that the builder has built on speculation that he will be able to find a buyer who accepts the builder option choices which may be already installed or mandated. Buying a spec home eliminates the long term rate lock problem, but your options such as flooring type have already been decided. If the home is not quite finished, you may be able to choose a few options, but they will be limited.