How to Buy in New Construction

Five steps to owning a newly-built home

Buying "new construction" is a bit different from buying a previously-owned home. For one, because there is no previous homeowner, you don't have to deal with a seller's emotional tie to the property, which typically influences the negotiating process. Whether you're designing and building a custom home or buying a home that's built on spec in a new subdivision, you'll only have to work with the builder.

As with buying a previously-owned home, you have to figure out your budget and secure financing before you even begin house hunting. Get pre-approved by a bank or mortgage lender. Decide how much money you want to invest in a new home. And don't overlook the extras like property taxes, insurance, furniture, window treatments, landscaping costs and maintenance that can drain your bank account.

"It's absolutely critical for new homeowners to know what they can afford based on their income, debt and credit score," says Rosy Messina, vice president of sales and marketing for ICI Homes in Daytona Beach, Fla.

If you're considering buying a newly-constructed home, follow these five steps to guide you through the process:


Step 1: Weigh the Pros and Cons

Nothing beats the feeling of being the first person to live in a newly-built home. Everything is shiny and untouched.

You can buy a brand-new home in one of three ways: buying a house already built on spec; having a semicustom home built as part of a development (you can choose from a set palette of finishes and upgrades); or having a purely custom home designed and built to your specifications.

But before you get caught up in the sparkling new paint and granite countertops, evaluate your situation and see if new construction fits your lifestyle. Here are some questions to ask yourself, particularly if you fall within the first two methods of new-home buying:

  • New homes are typically far from the city center; will you mind the commute?
  • Are you willing to coax a new lawn into existence, and can you wait 20 years for sapling trees to mature?
  • Will the cookie-cutter nature of new subdivisions drive you bonkers?
  • New houses tend to be built right on top of each other. Do you mind the closeness and potential lack of privacy?


Step 2: Research Neighborhoods and Builders

When buying in a new subdivision, consider working with a buyer's agent who knows the area well, can set up home tours and walk you through the closing process. When researching real estate agents:

  • Remember, the listing agent works for the builder, not for you. They're trying to hit a quota, not help you make the right decision for you and your family.
  • Many states regulate how agents deal with new subdivisions. If you have your own agent, tell him up front that you're interested in looking at new homes. He must accompany you on your first visit to any new subdivision; if he doesn't, the builder's sales rep will get the full commission if you buy a home there.

When researching neighborhoods:

  • Look online for listings for new home construction.
  • Drive around the neighborhood and check out the amenities and the quality of the homes.
  • Walk the community. Ask homeowners about their experience.
  • Go to model open houses, keep a journal and take photographs. Don't try to cover every model house in the area in one day.
  • Check with the developer about potential homeowners' association (HOA) fees and rules; some are incredibly expensive -- and strict. They may not allow storage sheds, certain paint colors or finish materials, solar panels or even vegetable gardens. Be sure to find out if the HOA can assess penalties for infractions.
  • Ask whether cable and Internet are readily available and from what companies; your new house will be wired for cable but that does not mean the cable company offers service to your neighborhood.
  • If the development is still under construction, you'll be dodging giant contractor trucks and facing jackhammering at 7 a.m. for a while.
  • Research the zoning laws for the neighborhood, as they can change quickly.
  • Visit the city planner's office to see what's in store for a particular location.
  • Ask your agent about plans for the area.

Whether you're buying a new home that's being built or building a new home from the ground up, you can choose the builder you work with.

"The buyer is more educated today," says Rhonda Hoeft, area sales manager for The Estridge Collection in Carmel, Ind. "It's amazing how much they know as opposed to five years ago. At least 80 percent of prospective buyers who walk into our sales office have researched our homes and the builder."

In this uncertain economy, builders are feeling the pressure. To make certain you choose a financially-sound builder, Sharon Hanby-Robie, real estate agent and American Society of Interior Designers (ASID) in Lancaster, Pa., suggests, "Go to the courthouse to see if a lien's been filed against the builder, then go to the construction site. Talk to subcontractors to see if they're being paid."

When researching builders:

  • Make sure there are no Better Business Bureau complaints on file against your builder's company.
  • Ask local real estate agents if the builder has a good reputation in the community.
  • Visit your builder's previously constructed homes; ask the occupants whether the craftsmanship has stood up to time, use and weather.
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