THIS IS MY 64TH BLOG ON UNDERSTANDING MONEY TOOLS
In this blog we are going to cover purchasing a home, both
new and resale.
Let us first look at new home buying. Is it better to buy a
new home or used/resale home? That answer depends on you. I am going to use the
analogy here of is it best to buy a new car or used car? A new car costs more
but comes with warranties, probably little in need of repairs for the first few
years, better mileage and if you are not practical in fixing things yourself
maybe the way to go. The older car might cost half as much, but you may have to
buy tires, fix a leak and the looks of the car are dated and the finish not so
nice.
New home buying procedures and things to think about:
- Look
at all the homes in developments in the areas you have an interest.
- Check
out builder reputations and financial stability. In 2008 many builders went out
of business and with that all warranties. Many developments were left
unfinished and hurt prices for all.
- Look
at floor plans that suit your needs and are livable for you and your family.
- To
not waste your time or a real estate agent’s time, get pre-approved by a bank
or mortgage lender to determine what price range you will qualify for. Financing rate commitments are a tough
one. Banks will not lock in loans for more than 30-60 days. Be prepared to pay
a slightly higher interest rate. In warmer climates see if you can finance into
the mortgage a swimming pool, if desired. This is sometimes difficult with a
needed appraisal.
- Once
you believe you have the location and narrowed your selection of builders I
would recommend spending time with the on-site agent. The reason for this is
that you need to feel comfortable working with the builder and the people,
mainly the agent, design center people and the construction supervisor.
- Understand
the construction of the homes, and compare quality with other builders. Here
are some things to ask: R-factors for walls and ceilings, is exterior
construction using 2X4’s or 2X6’s, what is the energy rating of the windows, if
basement window wells meet code (any chance of basement flooding?), if there is
a basement what is water table in the area, if basement is foundation walls
concrete block or poured concrete, if floor is slab concrete is it post tension
and in colder climates is in floor heating available, is insulation bat or
blown in, are the air ducts wrapped to avoid heat/air loss, and on and on.
- Next
step is to see what lots are available for the type of floor plan you want. Do
you want an east/west exposure or a north/south exposure? In very hot climates a western exposure
to the great room or living area may not be what you want, or sunshades may
need to be down most of the day cutting out light. Visit the model and the lot
you have selected at different times of the day to see how the sun hits the lot
or model home, will car lights at night rake across your windows? Some builders will permit you to place
a hold on a favored lot for a certain amount of time, perhaps 90 days; some
require a refundable deposit, others do not.
- If
there is any question as to the area or development, for instance a flood plain
where additional insurance is needed, confirm this yourself with the city and
county departments.
- You
have been given the base price of the home, but option selections are next.
Some builders include many niceties, others use a low price point to lure
buyers in and you might need many options. Some builders want you to select
options so the home feels more custom. (Sometimes more options for a buyer make
it a little more difficult for the construction supervisor. Everything is
special ordered for a particular home.) Most of the time you meet with your
agent and go through the list of all options. This is coordinated with the
interior design people working for the company or a design center. Most agents are not compensated for
options up and above the base price so their advice should be sound. Ask what
the typical buyer is ordering, that is a good feel as to market. If you go too
far on options you may never see your money back, however if you are expecting
to live in the home many years you may want more options as the home will be
more livable to your standards.
- Each
development will have a range that most people order options up and above the
base point. Typically, a lower end price will result in lower amount of options
for the norm, perhaps 10%. Higher end homes have wealthier people buying so
money may not be an issue. The typical amount for options in this category may
be 25-35% above base price.
- With
large developments you may have construction going on for several years around
you, dust and noise. On a positive note if sales track schedule the prices of
the homes should keep increasing.
- Making
an offer. Many people don’t realize that when you are buying a new home or
builder spec home, you are entitled to make an offer. The builder can accept
the offer, reject it or counter. The offer can be verbal, but in most states
real estate contracts need to be in writing and bound by something of material value,
most of the time being money. The
sales agent can take the offer but will need to consult with the sales manager,
and the sales manger may need to consult with the company’s treasurer or
finance person. Many times the builder has incentives for the buyer offering
money toward closing costs, home options, landscaping or something else. This
is all related to how strong the market is in your area. Many times builders
are more flexible to offers on spec homes than new home builds. If the builder
has had a spec home on the market for several months, they want to get the
liability off their balance sheets and sell the home.
- The
purchase contract. This contract will be an amended form of the State approved
real estate contract meeting State law. Addendums will be added to include your
options and any other requirements. You will need a certain amount of money
down for earnest money related to the base price of the home, and then in many
cases a larger percentage down on options. The reason for this is that the
builder is ordering options for your home and individual tastes. If anything
goes wrong and you can’t perform on the purchase they want to be protected.
- Building
of a new home can take 3 months to a year or more. Ask your agent on the time
frame. Smaller, less expensive homes should take less time to build than larger
homes.
- Do
you have a home to sell? Some
builders will take a contract with “contingency of sale” of your home. Some
builders work with independent outside agents to handle the sale of your existing
home for you. Bridge loans from banks are next to impossible to get these days.
- Get
to know and like the construction supervisor, he can be your best friend. Give
him a small present now and then, it pays off, sometimes they will do extra
favors for you. If you have issues
see the agent and supervisor immediately. When under construction visit the
site often and measure things. If something is incorrect, you want it fixed. If
you wait, it may be too late or very expensive to remedy. Find out the hours it
is permitted to be on site. If workers are around you will need a hardhat to
meet city code.
- After
closing on the home most builders offer a one-year complete builder warranty.
You also will get extended warranties on material items such as a roof.
- There
are normally “walk through” dates, during the construction phase and after the
closing. At the one-year warranty period most builder warranties expire. I
recommend you engage an independent home inspector working on your behalf at
this point to go through everything completely. The construction supervisor
works for the company, you need someone on your side. A home inspector will go up on the roof, check
flashing, check all electrical and give you a report you can keep for when you
sell your home. Currently, this type of inspection runs about $350. and is well
worth the money.
Bottom line on new home builds,
it’s new, less to go wrong, warranties on materials and appliances, and a home
that is more energy efficient than an old one.
Re-sale or used homes and things
to think about:
- You can buy a used home with or without a real estate
agent.
-
Because of location and land value this type of
purchase may be just as expensive or your only option, as in parts of
California or New York City. Normally, a resale home may be less expensive than
a new home, depending on age. For many parts of the country that experienced a
boom period between 2003 and 2007 construction and quality may not be as good
as it is today in a more competitive market. That was a period when we could
not find enough trained laborers and craftsmen.
-
Let’s assume you find the right location and a home
that meets your floor plan and elevation requirements. Most of the time when
you buy a used home you should expect to put money into it to meet your wants
after you close. The norm for the least expensive updating would be paint, new
carpet and tile. The next outlay of money would probably be to update kitchens
and baths that can be expensive with new cabinets, baths/showers, and appliances.
After these rooms and items it would probably be new windows for energy
efficiency, plumbing and electrical.
- With or without the assistance of a
lawyer you need to fill out an offer to purchase a property on a State approved
form. These can be purchased on line, through office supply retailers and many
times at a title insurance company. As in all offers the offer will be
accepted, rejected or countered upon. Perhaps addendums to the contract are
needed. All pages should be initialed or signed and attached to the offer.
- With
any used home it is highly recommended to have an independent inspector do a
report on the property. This
inspection includes not only construction defects but also infestation from
insects such as termites. If you use a respected real estate agent they should
be able to guide you through the process, and have a stable of sources to go to
for inspections. Each State is different in the time frame permitted for
inspections and this will be stated in your contract.
- A
place and time will be agreed upon for closing. Generally, this may be a title
company, law office or real estate company.
It is always advisable to get a
lawyer if in question on legalities, such as contracts, easements, water
rights, setback requirements, etc.
I hope this has given you thought
to both types of purchase. As with most things I write about it only touches
the surface and books can be written on the subject matter. I write to hit
salient points and get your mind working.
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