Representing a Buyer in New Construction
Why can’t real estate ever be simple? We constantly hear from the people around us just how easy and glamorous our profession is. We sell one home a year and we’re set for life; because that’s how it works, right? Well if it truly was that easy and glamorous, then everyone and their Uncle Larry would be selling real estate. And if your Uncle Larry is anything like mine, he shouldn’t even be allowed inside a house, let alone sell one. But the truth is that our profession is seldom, if ever, simple. And it doesn’t get much more complicated then when you’re representing a buyer in new construction.
On paper it sounds like it should be simple. You pick a plot of land, tell the builder what you want them to build, then throw a bunch of money at them until you have a house. Oh boy, if only that was the case. So why is new construction so complicated? I’m glad you asked . . . because you did ask, right?
To begin with, a lot of planning has to be done before construction can even begin. You need to get pre-approved, find a lot, select interior and exterior options, finalize and sign off on home plans, execute the construction agreement, make your mortgage application and settle on the lot. That’s all before a single brick can even be placed.
But before we talk about what you can do to help your buyer through the process, we should first take a look in more detail at some of the complexities associated with building a home.
Site location and condition
Location can have a huge impact on home construction, and site conditions can vary widely. Wooded areas, for example, can increase the cost of spending significantly if trees need to be cut down. And don’t just assume that building on a clear, flat surface means that everything will be peaches and punch. It is often what lies beneath the surface that causes the most problems. You can have a beautiful, flat parcel of land picked out only to quickly find out that you’re digging through solid rock. To protect themselves, builders will have allowances for certain conditions. For example, a builder may have a rock clause in place where they will pay up to a certain amount for having to dig up rock; but once that allowance is met, it will be up to the buyer to pay for anything more. Location can also affect your utilities. Is the parcel located near an existing sewer or water line? Or will you have to install a well and septic system? What about electricity? And don’t forget that stormwater runoff has to be accounted for as well. Buyers need to be aware of all of this.
Financing
Construction loans could be an entire article on their own, and I don’t feel like putting myself to sleep trying to write one. When getting approved it is important to understand what type of loan it will be. How will the buyer get paid? Will they get paid in draws where they get portions throughout construction? Or will they get paid at final settlement with an end loan? Every lender has their own process and idiosyncrasies, and buyers should understand the type of loan they are getting.
Municipal Approvals
Permits, permits and more permits. Nowadays you can’t pierce a shovel through dirt without getting executive approval. Ok . . . it’s not that bad, but you get what I’m saying. So before construction can even begin, proper permits need to be acquired; and permits cost money. Whether it’s a building permit or a certificate of occupancy, everything needs to meet code and be approved by the local municipality. Inspections need to be done on a regular basis to ensure that everything is being done correctly and, most importantly, safely.
The Builder
Believe it or not, all builders are not the same. I know . . . I know . . . I couldn’t believe it either. And each one has their own style, options and procedures. Buyers should understand how a builder operates and conducts their business so that they can better choose who they feel comfortable with and who better suits their style and budget. No matter how good the builder is, sometimes they will face issues of their own as material shortages and weather occurrences can delay a project by several weeks. Not to mention, there are a lot of people involved in building a home and as such, mistakes are not uncommon. We are only human after all.
Change Orders
This one deserves its own category. Change orders are a foe of every builder and listing agent. Buyer picks out everything they want only to change their mind on 20 different things from floor finish to paint colors to light fixtures. But in order to change something, a change order needs to be filled out; and builders charge for change orders. Agents need to emphasize just how important it is that the buyer is 100 percent positive they are satisfied with their selections before signing anything.
Final Walkthrough
Sometimes everything can be going great . . . that is until walkthrough. Buyer finds a speck of paint missing that is so small you would need a Hubble Telescope to see it, yet they managed to find it as if it was lit up like Times Square. Builders strive for perfection, and at the end of the day that’s all they can really do. However, there’s usually going to be something to critique. Buyers need to be realistic and understand that it’s a new home, not a perfect home.
So what can you as an agent do to help better represent your buyer and make the entire process easier for them?
The first thing you should do is manage your buyers’ expectations. Buying a home is stressful enough, but building one is even more so. We tend to act on emotion rather than logic. So it’s imperative that you sit with your buyers and explain to them the entire process in detail from start to finish. Let them know what’s standard and what’s an upgrade. Let them know there are going to be bumps in the road. Help them understand that there is no such thing as a perfect home, and trying to achieve perfection will only drive them crazy. We need to act as a buffer for our buyers and be the voice of reason.
You should also understand the builders’ expectations as well. This will help you help your buyer to better manage their own expectations. Then when a surprise does crop up, you and your buyer will be better equipped to handle it. Know the builder’s visitation policy and be present during all visits with your buyer.
You should also take notes . . . lots and lots of notes. It’s a long process, and diligent note taking is crucial. Sometimes the smallest details are the most important, so having a reference is important.
And last but not least, communicate. Be in constant communication with the builder and your buyer so everyone is on the same page at all times.
I’m sure there is a lot more that could be said, but this should help give you some things to consider and some general ideas on how to approach and represent your buyer in new construction.
Richard Boas, III, Berkshire Hathaway HomeServices HomeSale Realty
Facts, opinions and information expressed in the Closing Comments Blog represent the work of the author and are believed to be accurate, but are not guaranteed. The Lancaster County Association of Realtors® is not liable for any potential errors, omissions or outdated information. If errors are noted within a post, please notify the Association. Posts represent the author’s opinion and are not necessarily the opinion of the Association.
