Buying a Newly Built Home? Buyer Beware
Recently a friend of mine decided to purchase a new home…as in a newly built home. This brings me to the subject of new home builders and the risks involved when purchasing a home without a Realtor.
It seems easy enough, drive through the new home community and find the Model home…walk in, haggle over which amenities you can afford and Viola! You have a new home.
If only it were that easy.
Let me first state that there are several quality home builders out there and this does not apply to all home builders, however, their interests are not always your interests. I cannot stress enough the value of a Realtor when purchasing a home through a builder. The builder’s job is to sell homes with the least amount of monetary loss to their company. A Realtor’s job is to protect you against over paying for a property and negotiating fair market value. Several Buyers who purchase their home directly from the builder often find themselves “upside down” in their loan. This means they owe more money than the home is actually worth.
How does this happen? When you purchase a home, the builder is charging you for everything…all the way down to the kitchen sink. Often times they will offer enticing mortgage rates, but these come at a much greater cost to you later down the road. That low interest rate is bought down and wrapped into the tail end of the mortgage. Meaning, you pay a low interest rate for approximately 5 years and after that it doubles! You can find yourself paying 9-11% interest on your home.
Since new home communities often take several years to complete, it is common for existing homes to already be on the market. In the case of my friend, I pulled up several recent sales and active listings in her new home community. By doing this, she was quick to realize the builder was charging her over $18,000 more than the same home at resale value! Therefore, it was better to place an offer on an existing home which the seller only lived in for a few months than to be upside down in the exact home through the builder.
I cannot stress enough how valuable a Realtor is when working with builders. Make sure you have your agent with you BEFORE you ever speak with the builder. Realtors cannot help buyers who have had any prior contact with a builder, unless you state that your real estate agent will be representing you.
It seems easy enough, drive through the new home community and find the Model home…walk in, haggle over which amenities you can afford and Viola! You have a new home.
If only it were that easy.
Let me first state that there are several quality home builders out there and this does not apply to all home builders, however, their interests are not always your interests. I cannot stress enough the value of a Realtor when purchasing a home through a builder. The builder’s job is to sell homes with the least amount of monetary loss to their company. A Realtor’s job is to protect you against over paying for a property and negotiating fair market value. Several Buyers who purchase their home directly from the builder often find themselves “upside down” in their loan. This means they owe more money than the home is actually worth.
How does this happen? When you purchase a home, the builder is charging you for everything…all the way down to the kitchen sink. Often times they will offer enticing mortgage rates, but these come at a much greater cost to you later down the road. That low interest rate is bought down and wrapped into the tail end of the mortgage. Meaning, you pay a low interest rate for approximately 5 years and after that it doubles! You can find yourself paying 9-11% interest on your home.
Since new home communities often take several years to complete, it is common for existing homes to already be on the market. In the case of my friend, I pulled up several recent sales and active listings in her new home community. By doing this, she was quick to realize the builder was charging her over $18,000 more than the same home at resale value! Therefore, it was better to place an offer on an existing home which the seller only lived in for a few months than to be upside down in the exact home through the builder.
I cannot stress enough how valuable a Realtor is when working with builders. Make sure you have your agent with you BEFORE you ever speak with the builder. Realtors cannot help buyers who have had any prior contact with a builder, unless you state that your real estate agent will be representing you.
posted by Christina at 9:53 PM
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