The Denver real estate market continues to be a hot market. Some buyers are looking at a new construction home as an option to avoid bidding wars and the hyper competitive real estate market in Denver. This article is about buying a new construction home and some helpful tips to navigate the process. Below are some tips and points to consider when buying a new construction home.
Financing
Many builders have an in-house mortgage company or a preferred lender that they work with. Oftentimes, the builder will offer incentives for using their in-house or preferred lender. Sometimes these lenders will offer to pay a portion of closing costs or free upgrades to a certain dollar amount. Make sure you shop around to make sure you get the best rate with other lenders. Some lenders will match the builder's preferred lenders rate and/or incentives.
Dirt Start or Spec Home
Homebuyers have many options to choose from when they start shopping for a home. First, make sure you want a new construction home. We recommend that you look at the resale market, then look at new construction options. In the new construction realm you can buy a spec home or do a dirt start. There are pros and cons to both options. The spec home has all the options and upgrades already picked for homebuyers. This is the quickest way to get into a home, as the construction process has already begun.
The other option is to do a dirt start where you get to pick the lot and the options that go into the home. If you want to customize your home, then this probably is a better option, unless you want to do the upgrades after you purchase the home. We will talk more about this later.
One of the pros to doing a dirt start is that you can pick the lot location. In a new development, the lot location is very important because the builder will typically build several of the same mode in a new development. Picking your lot can add value to the home if it is near a park, pool, or other community amenities. Some lots may be closer to busy streets or have a smaller lot, which will impact the property value.
Location
When you start shopping for new construction take the time to look at several new developments in neighborhoods and towns that you are interested in. Keep in mind the schools, shopping, and access to major highways to name a few things to consider.
The location of the lot in the neighborhood is another key factor to consider. Do you want to spend the extra money on the lot premium for mountain views, on a park, or near a community pool? I have heard builders will charge up to $150,000 in Denver’s Central Park neighborhood for lots that back up to the wildlife preserve. Be sure to ask the builder what lot premiums are for each lot. In today's hot market in Denver, every lot has a premium, even if there is no added value to the lot.
Builder Warranty
Learn more about what the builder warranty covers and the term. Many builders will offer a 1 year warranty for major items in the home, such as: electrical, plumbing, and major mechanical systems. Be sure to read the fine print, as you may have to contact the manufacturer directly. We recommend that you work with the builders warranty department on all issues with the home.
We also recommend that homeowners do an inspection around the 11 month mark (if there is a 12-month warranty) to get their evaluation of the home, so you can give the builder a punch list to work through. While doing the inspection, we suggest having a sewer scope and the roof inspected. A sewer line is very expensive to repair and/or replace, so spending $125 to $150 to get a professional opinion is well worth the cost.
Builder Incentives
Check with builders to see if there are any incentives being offered. As mentioned before, many builders will offer to pay a portion of closing costs if you use their lender. I have also worked with builders that will offer a certain dollar amount at the design center. Here a homebuyer can use that money to upgrade cabinets, flooring, countertops or some other feature of the home.
Structural Options & Upgrades
There are some builders that will offer structural options for their homes that are dirt starts. This is something to contemplate when deciding on what options and upgrades you want to go into the home. For example, some builders will offer a home with or without a basement, and some will finish the basement for you. You may want to budget for the basement and decide to get your dream cabinets and countertops in a couple of years. You can’t really dig a basement after a home is finished, so evaluate your needs and discuss with your real estate agent the pros and cons of the basement.
Another popular option in Denver and the metro area is the rooftop deck. This is another structural option that you need to decide on before you sign the contract. Your real estate agent can give you an idea on the resale implications of doing a rooftop deck versus a home without one.
The sky's the limit on the amount of money you can spend on upgrades. Remember, kitchens and master bathrooms have a huge impact on the value of a home and salability. Model homes are typically decked out with tens of thousands of dollars in upgrades and options. A designer makes the house a home, as builders and real estate agents say.
We recommend having your real estate agent help you at the design center. We offer our clients a designer to join you at the design center to help with options, color choices, bounce ideas off of, and keep you on budget. Designers have a great eye for picking options and how cabinets tie in with countertops, for instance.
Have your Realtor review your design choices to make sure you are choosing upgrades that positively impact the value of your home. In the contract, most builders have a clause that if you put too many upgrades in the home where it doesn’t appraise, then the homebuyer has to bring additional funds to cover the gap between the appraised value and the sale price. For example, if you put in a luxury granite from Italy and handcrafted cabinets from a high-end manufacturer that the appraiser doesn’t account for in his/her evaluation, then you have to cover the additional cost. Again, your Realtor can help you make these decisions.
Evaluate Your Lifestyle
Many new developments have amenities that are attractive to homeowners. Are you a social person and/or your family? Some new neighborhoods have community pools and parks where people can meet their neighbors and people in the community. In Central Park where I live, there are community events like concerts, movie nights in the park, beer festivals, farmers markets, and many other fun social events.
While other communities, the development has larger lots and community spaces that have open space or walking trails. There are less community events and more focus on keeping the landscaping and the community looking pristine.
Do you want to be close to the mountains? Then you may prefer a new construction home site that you can buy the lot and have a local builder customize a home for you. This option may require you to hire an architect and then shop for builders. Ask your Realtor for their recommendation. We will talk more about this in a separate article.
Do you want to be able to walk, bike or a short drive to shopping and restaurants? Then you may want to look for more urban new developments. Ask for a copy of the master plan to learn about new shopping centers, office buildings, public transportation, and other community amenities planned for the new development. Ask your Realtor to help you finding out more about the master plan and if there are any confirmed leases signed by large retailers or businesses. Will there be local entertainment like movie theaters, concert venues, Top Golf, etc.
In conclusion, take the time to evaluate your needs versus wish list. Many Realtors will have a buyer checklist or questionnaire to help you answer some of the questions above. Utilizing professionals in the industry like interior designers, contractors, inspectors, Realtors, attorneys, and other industry experts will help you ask yourself important questions and make good decisions. Below are some sources that you can review as well.
Sources:
- https://www.bankrate.com/mortgages/buying-new-construction-avoid-these-mistakes/
- https://www.thebalance.com/buying-new-home-construction-from-builders-1798334
- https://www.har.com/blog_82182_buying-new-construction-home-process--role-of-realtor-in-new-construction
- https://www.rochesterrealestateblog.com/top-10-new-construction-home-buying-tips/
