New Construction: Three Traps to Look Out For When Buying a Newly Constructed Home.

Have you SEEN the new homes they're building out here in Loudoun County?  They're stunning!  And they have that new-home smell!  They have master bedrooms with walk-in closets that you could play basketball in and the kitchens look like something out of a magazine...  These dazzling, glorious monuments to suburbia are tempting, indeed.  But before you go running out to buy one, here are some things to keep in mind:

1. The Agent on Site Doesn't Represent you.

Home builders typically hire an agent to sit on site to sell the homes in their new developments.  These folks are incredibly nice and often greet you with a warm smile and a plate of cookies.  They have a wealth of information about the development, the homes, the available options, etc.  But you need to remember that they represent the builder, NOT YOU!  They earn a commission on each home that they sell, and the higher the price, the larger their commission.  There's nothing wrong with that - that's standard practice in the real estate industry.  What most people don't know is that, if you're the buyer, you don't pay your own agent anything - the agent for the builder has to split their commission with the buyer's agent.  In other words, having an agent represent you when you buy a home costs you nothing.  You're going to want an agent representing you because...

2. New Construction Contracts are Heavily Skewed in Favor of the Builder. 

When you decide to buy from a builder, the builder's agent will first quote you a price for the base model house.  That comes with linoleum floors, laminate counters and an unfinished basement.  To get the finished master suite, the marble counter tops, the wood floors, etc., you'll have to agree to buy upgrades.  Under almost all new construction contracts, you'll have to pay extra for those up front.  These can add up quickly - $40-80,000.00 is a conservative estimate.  But what happens if the deal doesn't go through?  Under most contracts, the builder keeps your money and then re-sells the house, plus the options upgrades to the next customer. 

But it doesn't stop there - the contracts are chock full of terms that you probably wouldn't agree to if you weren't so busy salivating over the two story foyer and the four-car garage.  Terms such as: requiring you to go through the builder's lender or to use their settlement agents don't sound that bad (they are and you should never agree to them), but what about terms that require you to pay all sorts of penalties if there is a delay in closing, or terms that allow the builder to change the materials used in construction at their discretion, regardless of which options you actually paid for?  They can get away with those terms because...

3. They are Selling a House to You, Not Building a House for You.

Almost all new construction contracts make clear that they are NOT your builder, but that they are selling you a finished home.  That might sound like a very fine distinction, but it makes all of the difference in the world.  Essentially, you own nothing until the finished house is delivered.  That means that the house and the property it sits on belongs to them and that you have agreed, in advance - sight unseen, to purchase whatever they throw up on the lot.  It also means that they are not your contractor and that will severely limit the types of warranties that are available to you should something go wrong with the house after you move in. 

It also results in some legal quirks that may cause you trouble down the road.  For example, the builder's sales rep might tell you that you'll be able to add a large deck later on or that nothing is planned to be built behind your property, leaving you with a wonder wooded view.  Of course, neither the builder nor the sales rep can be held to account if it turns out that the local zoning ordinance forbids you from building a deck or if a convenience store is erected outside your back gate.  Remember, they didn't agree to build a house for you - they sold you the house they built on the property and the responsibility for checking out what you can do with it or what's going in around it is up to you!


I like to say that they best way to buy a newly constructed home is to let someone ELSE buy it from the builder, and then buy it from them a year later.  But I will freely admit that the new homes are truly stunning and buying from a builder may be your best chance to get a custom home that meets your specific needs/desires.  If you're going to do it, get yourself an agent!  It costs you nothing but it may save you tens of thousands.  And, as always, if you don't understand a contract or have questions about it, DON'T SIGN!  Have a legal professional go over it with you.  There is no such thing as "standard language that you don't need to worry about."  The minute someone says that to you, your radar should go on high alert.