Buying New Construction in Reno NV - What You Need to Know!
In today’s low inventory real estate market, I find a lot of my clients are beginning to look at buying a new home versus a resale. New homes are a great option. With a new home, you can have a lot of flexibility with regards to where the home is located, what model you want, and what upgrades you’ll need. When it comes to your list of wants and needs, you can most likely get everything you need as well as most of your wants, as long as you’re willing to pay for it. New home communities also provide a lot peace of mind, to you as a buyer. It is helps knowing that any issues with the property will be taken care of by the developer. Also, depending on the developer and on the market, there might be buyer incentives and/or discounts that will help with financing, upgrades, etc. a lot of my clients have found new homes as a good option that was able to fulfill their needs, and it might be the right move for you as well. But, before scheduling an appointment at your new home community of choice, there are a few things that I have learned over the years that you may want to be aware of. Things that, if my clients and I would have known sooner, we would have approached the transaction very differently. So, here are a few things to look out for when buying a new home.
High-Pressure Sales Environment
New home sales is a high-pressure sales environment, and this is why. The developer doesn’t have a pot of money that they use to build all the homes in the development, they actually need to borrow the money. They go to the bank and get a construction loan. In general, these loans are short-term with high interest rates, and are very expensive for the developer. So, once they sell a home, they immediately use the proceeds to pay down the loan, all while racking up new debt to build the next house. This business model puts developers under a lot of pressure to get homes sold, so they can get out from underneath the bank. They will pass this pressure along to you in the form of sales.
Since the developer has a lot of motivation to sell their properties, they impress upon their sales people that same motivation. So, while in the sales office, it is not uncommon for the person behind the desk representing the builder to steer you towards homes that are more advantageous for them to sell. For instance, the house on the corner is the one you like, but they may give you a “special deal” on the one with the smaller lot located a few doors down. And the reason they are doing this is because they have had a hard time getting that home sold, and the loan for it is coming due in the next month.
These salespeople have been trained and are excellent at creating urgency. They’ll tell you stories of a home that just fell out of escrow and needs a new buyer, or one that is almost complete and they have to sell at a discount, or that the specific model you’re interested is very popular, and won’t be available for long, and so on and so forth. Although these statements may be true, they imply that there is a line of buyers standing out the door, and if you don’t act right away, you will miss out. Take it from me, who has represented many clients in new home sales. These stories always come up at every visit with every client, and without an agent there to help you sift through their high-pressured sales pitches, you can find yourself experiencing a lot of pressure to buy, and in some cases even worse, you may experience buyer’s remorse.
Developers Write the Rules
In addition to the high-pressure sales reps, the developer has created an environment that gives them the upper hand at every turn. Their lawyers write the contracts with their interests in mind. This means that everything in the contract favors the builder over you. For instance, a lot of builders use the excuse of construction delays, and can have up to two years to finish a home. If you’re tired of waiting and decide to cancel the contract, you’ll lose your deposits. Another way builders protect themselves is through the appraisal. Let’s say you have a home built, and by the time it’s finished, the market may have leveled out a bit, maybe went down, or the cost of the upgrades pushed it to a point where it doesn’t appraise; the builder is not required to renegotiate the price, and even worse, in most cases you either need to come up with the difference or back out of the deal, in which case you’ll lose all your deposit money. Many times, the sales reps in the office just gloss over these nuances when going over the contract, and most consumers are aware of these potential pitfalls. This is why, having an agent with you when going through the contract is extremely important.
Developers Have a Home Court Advantage
the moment when you get your keys, every person you’ve interacted with works for the developer. The sales agent works for them. The preferred lender works for them, and is usually a subsidiary of the developer’s parent company. The title and escrow company (who is supposed to be neutral third-party) is all picked by the developer, and is likely a company owned by them as well. The design center is hired by the builder to push the upgrades they want you buy. It’s very similar to a car dealership when you have to go through the salesperson, then the finance officer, and then the extended warranty rep before being able to drive off the lot. Everybody there is trying to sell you something.
It’s for these reasons that having an agent represent you is so important, and the builder knows that. That is why they require agents to be present at a buyers first visit. If an agent isn’t there at the beginning, they’ll refuse to pay that agent a commission putting the buyer in a position to either pay their agent on their own, or proceed without any representation. Which brings me to my biggest piece of advice when it comes to buying a new home. Always have your agent present. Whether it’s your first visit or your seventeenth visit, have your representation present. This way your agent can ask all the right questions, take extensive notes, keep the sales agents accountable, and make sure any promises made by the sales team are put into writing, ensuring you have a smooth transaction.
Key Point
Again, new homes are a great option for many, and having something that is built to your liking is unmatched. It’s just important to know what you are walking into before you do.
