New Construction Homes in Seattle
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Truth About Buying Construction Property is Seattle
If you’ve been looking at those beautiful new homes and just dreaming about moving into something that is ready to go, never been lived in, looks amazing in the photos, then you might be wondering which new construction development is right for you. In this article, I’m going to break down some of the pros and cons or reasons that many people love new construction and some of the warning signs about what you might be missing out on behind the glitz and glamour to make sure that you are making the smart choice.
First, I want to acknowledge that new construction homes can be a beautiful fit for a lot of people and there are definitely some cases where they makes a lot of sense. One other reason that they’re so popular right now in today’s market is because we have a relatively few homes for sale. Inventory is down because of how low interest rates were during those Covid years. We have a lot of people sitting in homes longer because they are enjoying a very low interest payment, and they are not choosing to move because that would mean giving up that low interest rate and moving into something more expensive. Now, of course there are always people who are going to have to move, their family is growing, maybe they’re downsizing, maybe they have a new job, or they’re moving to be closer to family. People move all the time, but we’re just seeing fewer homes transacting in the market. What that means, is that it’s an opportunity for home builders, and new construction homes are making up a large percentage of overall sales right now. In some studies, I’ve seen as high as 30% of overall sales are going to new construction. That means that it is a very important and increasing part of overall home sale environment.
Giving Incentives
Now one thing to be aware of, is that home builders start building these homes years in advance. They’re always buying land, developing the land, getting all the permits that can take years and years and by the time they have prepared a home to sell to you, they have already invested quite a bit of money into it. They’re investing in this development process all the time and they have a certain amount of money that they’re looking to make, generally 20 to 30% of the overall price of the home. That being said, there’s also value to them in being consistent, keeping the flow of properties happening, keeping their crews busy just chunking along and sometimes they will sell homes at a discount if they feel that they need to reduce the price in order to move the property. So when you’re looking at new construction homes and especially if the market is slower, maybe it’s a bad time of year, winter, maybe interest rates have gone up or especially high, maybe for whatever reason the buying sentiment isn’t as strong. We often see things like that in election years. Whatever it is, if the homes are not selling as quickly as the builder thinks they should be, they may start to offer you incentives. So as your agent, when we go to these new construction properties, one of the things I’ll be digging into on your behalf is what incentives they’re offering. Frequently, this looks like a couple of different things: number one is reducing the interest rate of your loan, especially if you work with their on-site lender who they have a business relationship with, if you work with that lender the builder will often pay some amount of money to reduce your loan cost. For example, I’m involved in buying a property right now that I’m going to be using as an investment property, it’s a DR Horton home which is a big builder and they have offered to buy down my interest rate. As an investor, I normally pay more than the normal going rate. So if the normal going rate right now is about 6.5%, as an investor even with 25% down payment, I’d be expected to pay about 7.5% interest. What I’m looking at what they’re offering me is to get the interest rate down to 5.9% if I use their in-house lender. This allows me to lock in that lower price loan for the long term and makes the house much more affordable for me to hold on to as an investment because I can increase my cash flow by renting it out for more than I’m paying in the mortgage. That’s not easy to find right now because interest rates are higher. So number one, is we’re going to ask about how we can get those lower interest rates.
Number two, is closing costs, and we want to find out if we can get the closing costs down. Typically in a normal real estate transaction, the buyer and the seller are going to split traditional closing costs which could be document stamps, recording fees, they could be fees that go to your lender, they could be appraisals, escrow company fees, title insurance fees, those types of things. These are all paid at the time of the closing of the sale when the money all changes hands and that’s why it’s called closing costs. But builders will often have special deals because they do so much business with these title companies. They’ve negotiated discounted rates and they can pass some of those savings on to you. In addition, they may be willing to issue a you a credit like a $1,500 credit, which again I’m getting on this DR Horton house right now because they want to make it easier for you to get into the property.
One of their goals in a lot of cases, is to make homes affordable and approachable for first-time home buyers who have squeezed all the money that they could just to get their 3% or 5% down payment or even a 0% down payment if it’s a VA loan and they may not have thousands of additional dollars to put toward all of these other costs, so they’re trying to make it easy for you to get in the door and that’s why helping with financing and helping with closing costs can be really helpful.
Discount on the Price
The last thing you can ask about is getting a discount on the price, but this is more challenging because builders don’t like to see their prices go down because that affects the other sales in the development. Let’s say that there’s a new development going in with 100 properties, often these will be built in phases. Phase one, first 30 properties. Phase 2 next 30 properties and so on. And as they build and sell the homes, they usually start out less expensive and become more and more expensive over time and part of the reason is, based on how quickly things, sell they will bump up the prices 5000, 10000, 5%, 10% and see how much they can get the prices up. What’s the maximum price that the market will stand and still keep the houses selling quickly. But if they start dropping the prices then it makes people who already bought their home feel badly. They say “it’s the same property you sold it to that guy for 20,000 less than you sold it to me”, that makes them upset and also when they go to justify the higher cost of the homes at phase three, the appraiser is going to look and say “Ah you know buddy, your prices were were a little bit lower in phase two they’re not going to be that much higher in phase three”. So they’re their own comps and want to see high prices on the comps. If you do see prices starting to come down or offering discounts it’s usually for a short period of time. You have to buy within a one or two week window to take advantage of that discount and otherwise the deal is gone and you are not locked into anything.
On the other side of the spectrum when homes are selling with multiple offers and selling very quickly, it can be frustrating for home buyers who have a lot of uncertainty about whether they will get the home that they want. Typically, these developments have four or five different floor plans. Maybe a 2,000ft2 floor plan, a 2500ft2 floor plan, three-bedroom, four bedroom, primary bedroom suite on the main floor, different things like that that might be important to certain buyers so they’re only looking at one or two floor plans that really meet their needs. And if that floor plan is popular, which oftentimes there’s one that seems especially popular to everybody, then they’re already spoken for and the builder will have a wait list and they’ll say “hey when we build another one of this particular floor plan we’ll call you”, and then you’ll need to make a decision very quickly. You’ll need to decide within a 12 to 24 hour period whether you’re going to take that or else we’re going to move to the next guy on the list. So you might be waiting and waiting for weeks or months to get a call and be asked to make what feels like a very rushed decision.
That can be one way to get your foot into the door into some of these more popular developments, but also stressful especially since prices tend to go up over time. They say “hey you know the last house we have was the model home it has a lot of upgrades, we put in granite countertops and did everything fancy”, so it’s going to cost even more than the one that you looked at plus values are going up all the time. It’s more expensive, so when you started off looking at a $700,000 home, now it’s become an $800,000 home and you’re looking at it at a different period of time. Sometimes it’s hard to make that decision and it can feel like it’s not the good deal it initially seemed to be when you first fell in love with the property.
Another thing to be aware of when you’re looking at new construction homes, is the schedule of buildout is somewhat flexible and can be disrupted. Typically slowed down by problems in the supply chain, problems with contractors not showing up on time, weather issues and so forth. For example, if you’re building a townhouse you might put an offer on it when it’s almost done, when it’s already complete and pretty closely to when you can move in. Or they might be doing what’s called a pre-sale, which is “hey we haven’t even broken ground for this yet it’s not going to be ready for six to nine months, you put in a $10,000 deposit now and in nine months your home will be ready and will sell it to you”, but that nine months could turn into twelve months it could turn into two years, according to some of these contracts that I’ve seen with the builders. It can be stressful especially if you’re making plans to end your lease or to sell your current home to not know with clarity when your new property will be ready for you.
It’s very important when you’re evaluating new construction property to bring your agent with you. Number one: you need to bring them with you to the site the first time you visit. Don’t be tempted to just pop in when you see those cute pink flags as you’re driving around the neighborhood. If you register yourself and give your name and email without your agent present, your agent will be completely cut out of the transaction, you will be unrepresented and you will have a very sharp and experienced salesperson as the only person who’s talking to you and they represent the builder not you. So make sure that you have an agent who’s representing your interests it does not cost you any extra and make sure that you bring them with you when you first register to the site. Some people say “I don’t want to get called and harassed”, if you guys don’t want to get called and harassed put down my name and number and just let me know like “Hey, we’re listing you as our agent when we go visit these sites because we don’t want to get called and harassed by the salesperson”, that’s fine you’re welcome to do that. I would appreciate if you would do that and I would be more than happy to represent you whether or not we have a chance to meet before that happens so please do feel free to do that. But for best results, bring your agent with you or have your agent call ahead and say “Hey my client is coming over and I’d like to register them”, it becomes very territorial between the agent, I mean it’s kind of sad but that’s the business and it’s it sucks for your agent especially if they’ve been driving you around looking at all these homes and then you end up registering and buying without them, without intending to burn them and and cut them out like that. But that would be what would happen to them and it’s frustrating for everybody.
That being said, your agent is going to help you with a couple of different things, number one is not getting snookered by the on-site agent. But number two, when we’re going over the contract there are actually non-standard contracts here. Typically everybody, real estate agents representing buyers and sellers, use the same contracts that have been written and reviewed by lawyers who work for the Northwest Multiple MLS. They’re compliant with all of the Washington State laws and everybody is very familiar with how they work so that they can advise you well on them. These builders however, are horse of a different color. They’ve had their own attorneys, write their own contracts and who do you think the contracts favor? Yes the builder. You need to have your real estate agent and you need to choose a real estate agent who’s actually going to read the contract and advise you on what it says because with these things you often lose access to protections that you would normally have a big one for people is the financing contingency so you want to understand you know if I sign up for this and I can’t get the loan like what do I do do I get my $10,000 earnest money back or not if I sign up for this and the Builder doesn’t complete the house on time what do I do this happened to a colleague of mine recently who had a a client who was buying new construction it was not ready on the date of closing they were supposed to be making some updates and repairs after closing that didn’t get done they were supposed to release $220,000 that was held in escro when the repairs did not get done on time that hasn’t been released yet it can really become a kettle of fish worms anyway a yucky stew kettle of problems and you don’t want that to happen when you’re so excited about buying your house everything looks great but you still need to have someone to represent you especially when things go
15:29wrong it all seems great at the outset but if and when things go wrong you need
