Pros and Cons of New Construction Homes: What to Know Before Building

Thinking about buying a new construction home? Learn more about the advantages and disadvantages of new construction before making a decision.

Pros and Cons of New Construction Homes: What to Know Before Building Close
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Pros and Cons of New Construction Homes: What to Know Before Building

Posted by Gary Ashton RE/MAX on Wednesday, July 27th, 2022 at 9:40am.

Pros & Cons of Purchasing a New Construction Home

Buying a home that has never been lived in before can be a dream come true for many buyers. However, everything isn't as easy as it may seem, as the process varies when buying a new construction home or custom-built home versus buying a resale property. Keep reading to learn about the pros and cons of buying new construction homes and a few tips for avoiding the potential barriers and drawbacks of the process.

The Advantages of Buying a New Construction Home

Customizing a model home or having a ground-up custom-built home has many benefits. The fact that no one has lived there before minimizes the chances of shoddy repairs, unpermitted work, unsightly patches on walls, and worn-out appliances. Another bonus is that buyers know what they'll pay consistently for mortgage payments. Check out these perks of new construction homes more in-depth.

Buyers Can Customize New Homes

A full custom-built home gives buyers almost complete control concerning everything installed in their home from floor to ceiling and the exteriors. Architects and contractors design these homes to meet the specifications the buyer wants from the start. This is where investors can be bold and create a home full of luxury or modern features to ease everyday life and enhance comfort.

However, semi-custom homes may only have certain features that can be altered due to builder restrictions or with the idea that buyers could back out. Their goal is to have fluidity in the neighborhood by building homes that are desirable to a wide audience should the sale fall through.

Typically, buyers have options to remove non-load-bearing walls to create a more open living space. They can have walls added to establish separate bedrooms or office space, or have kitchens expanded or upgraded with smart appliances or built-in shelving for storage. Other upgrades and customization options for a new home construction include:

  • Light fixtures
  • Door handles
  • Cabinetry
  • Wood, tile or carpet flooring
  • Window upgrades & specialty treatments
  • Interior or exterior doors
  • Appliances
  • Countertops, cabinet handles and pulls

The Home is Brand New

Most contracts for new homes include set standards that ensure quality and also come with a warranty to cover any premature system or appliance failures after moving in. While it's uncommon for reputable builders to make errors, it can happen. However, they are generally amenable to making changes and repairs should a problem arise.

A brand new home means that no one else has lived there, so the property looks and feels fresh. There will be no signs of failed repairs of costly systems or indications of deferred maintenance by previous owners. Some owners may have bypassed professionals for expensive repairs to save on costs, leaving behind undocumented or un-permitted work that poses a hazard.

Another benefit of a brand new abode is that it often comes with smart appliances and systems that add convenience and help curb utility costs compared to older models. One more perk is that some resale homes may have lead paint or asbestos, which are harmful to pets and people, but new homes are clean.

What to Know Before Buying Brand New

What are the Advantages and Disadvantages of Buying New Construction Homes?

While the appeal of a new home is vast, there are a few things buyers need to be aware of before diving into the process. Here, we'll cover considerations when buying model homes, what to expect during the construction process, timeframes for the build, and negotiation tactics.

Model Homes Aren't the Advertised Homes

When touring a model home in a subdivision or master-planned community offering property, buyers should keep in mind that the homes they are seeing tend to have many of the available upgrades in place. Such upgrades are not included in the advertised base price for homes in the neighborhood and will cost extra when the contract is signed.

Be sure to talk with the sales agent during the tour about which features are standard, which are upgrades, and the cost difference between them. Those luxury floors, high-end appliances, window treatments, and high-end countertops or bath installations may be able to become part of the negotiations, as long as buyers walk in ready to strike a deal.

Negotiating New Construction is Different from Negotiating Resale Homes

The builders and agents that offer new construction homes in planned communities are very interested in keeping home values up. This makes them less likely to offer lower pricing on these homes, while those offering resale properties are often open to negotiation. Knowing this going in for the tour lets prospective buyers start eyeing upgrades and options that agents may be willing to include in the sale price, which appeases buyers while still keeping home and property values on par.

Building a New Home Takes Time

Building a home from the ground up, investing in one with several customized options, or making structural changes to a pre-fabricated floor plan model can take time. When discussing the timeline with the builder and contractor, ask them for an estimated completion date. This should include potential delays due to weather, material shortages, or any issues in obtaining construction permits—checking their transparency about the timeline and delays is one way to find a home builder.

While most new construction home builds can take months to finish, it's not unusual for complex builds or those in diverse climates or rural locations to take up to two years before being ready to move in. Also factor in additional time for such incidences, and have a plan for where to live until the home is built as well as a plan to sell a current residence, if applicable.

There are many pros and cons of new construction homes to consider, but to get your dream home, it's worth putting in the time and research.

What's the Process For Buying a New Construction Home?

Buying a pre-construction home may seem like uncharted territory when compared to buying a prebuilt home. When do you pay for a new construction home—upfront or after the work is done? Is making an offer on a new construction home different from making an offer on a pre-existing home? Do you still need to use a real estate agent when buying a pre-construction home? Here are a few answers to shed some light on the new construction buying process.

Making an offer on a new construction home: The offer letter will almost certainly take into account different considerations than most homebuyers are used to. Assuming that the home is a production home or a semi-custom home—that is, the buyer is making an offer on a new build that's already constructed or is in progress with a predefined end goal—the timeline will depend on the build being completed. The proposed closing date is generally more vulnerable to delays. In addition, the party being negotiated with will be the builder, not a previous owner. (With fully custom homes, the buyer essentially reaches out to the builder with a job offer.)

It may be tempting to make an offer without the home inspection contingency, but it's still not wise. Despite everything being new, builders can still make mistakes, and the inspection report gives you a tangible record of the home's condition.

Using a real estate agent to buy new construction: Some new construction developments outright require that interested parties arrive with their agent in tow! It's a good idea to ask around to find an agent or team that has experience with new construction developments specifically.

This question is murkier when you're building a fully custom home on a lot you already own. However, it can still be a good idea to hire a real estate agent when building a home. An agent will be familiar with the paperwork involved, can assist you in negotiating with the builder, and know the potential resale value of designs and upgrades for the area.

Buying a lot and building a house: In this case, buyers will want to search for a real estate agent who has experience in buying land, particularly if the chosen lot is undeveloped land. Raw land has an extra layer of legalities and potential complications that not all buyers or agents may be aware of. Building details can then be discussed with a local builder.

Pros and cons of building a house: New construction homes come in several states of completion: production homes, semi-custom homes, and fully custom homes. Production homes get all the benefits of newness and have no wait time, but they also have no customization since they're fully complete when the buyer enters the equation. Semi-custom homes can be customized to a degree and have a corresponding degree of wait time, particularly if they're bought pre-construction. Fully custom homes built from the ground up take the longest—sometimes years—since the builder isn't going by a neighborhood template but by the buyer's and architect's custom design. The best choice for the type of new construction depends on what the buyer prioritizes.

Paying timeline for a new construction home: Several scenarios are possible here, but for the most part, buyers only pay for a new construction home after the home has been completed. When the builder finances construction, the down payment for a new construction home is due at closing, just as with resale homes. If the buyer is taking out a new construction loan to finance construction, the lender will pay out the loan in stages as the builder reaches construction milestones. Usually, these loans have higher down payment requirements (20–30%) and a higher interest rate than a conventional mortgage. When the build is complete, a mortgage then pays off the construction loan.

Earnest money, on the other hand, is due when you sign the purchase agreement and is applied toward the down payment, also as with resale homes. However, it's also called the builder's deposit when buying new construction, and it's usually a higher amount than earnest money on a pre-existing home. A general rule of thumb would be to expect to pay 5–10% of the home's value and 25–50% of any upgrades' value upfront as the builder's deposit.

Buy New and Create a Dream Home

Having and decorating a new construction home allows buyers to realize their dreams with all the touches and finishes they've always wanted to wake up to each day. Going in prepared for the process will ease stress and help buyers get the home they truly desire with fewer hindrances and perhaps even at less expense.

 

Gary Ashton

The Ashton Real Estate Group of RE/MAX Advantage

The #1 RE/MAX team in the World!

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