August 2009

New Homes in Northern Virginia

There’s nothing like a new home. No one has ever lived there and you’ll know everything about the home since the day it was built. If you buy it before construction begins you’ll even know what it looks like under the drywall and you may have some input into it’s design.

Approximately half of my business is helping people buy new homes, especially over the last couple of years. I’m asked questions from time to time and thought I’d share them here.

1. Are new home prices firm or are they negotiable?
2. Do builders offer any other incentives?
3. Can I work with a buyers agent on a new home too?
4. Why do I need a buyers agent?
5. Isn’t the new home sales rep an agent?
6. If the builder isn’t paying a REALTOR, why can’t I have that money?
7. What are the steps involved in a new home purchase?

1. Are new home prices firm or are they negotiable?
It depends on a variety of things. Once we get into the process and I can start asking some questions, I can help determine builder flexibility. I will say that generally, “spec homes” or homes that are already built on the speculation that a buyer will need a house quickly, are more negotiable than a house that needs to be built. The builder usually puts in popular options and has a set price but they will entertain offers that are less than full price. “To be built” homes are negotiable with some builders and are completely set in stone with others.

2. Do builders offer any other incentives?
Usually there are incentives. They will offer either free upgrades or money you can use towards upgrades or closing cost help and they’ll usually offer another cash incentive to use their lender. They make most of that money back in the cost of the loan.

3. Can I work with a buyers agent on a new home too?
Not only can you work with a buyers agent, you’d be foolish not to. Especially an agent with new home sales experience. If we’ve written offers for other buyers in the same development that you’re interested in, we can even provide information about what the builder may accept. We also have insight into other parts of the process.

4. Why do I need a buyers agent?
A buyers agent works in your best interests to get the best price and terms available for you. We’re also able to share with you both our experiences and the experiences of numerous buyers who’ve recently purchased new homes. Most people buy a new home once in a great while, we help people buy new homes several times each month. We know what the sales rep will say and can point out what he/she skims past or omits. Our service is invaluable.

5. Isn’t the new home sales rep an agent?
New home sales reps are not at all like career REALTORS. They are more like new car salespeople. They have inventory and are selling a product. Career real estate agents have a skill set and what we sell is our expertise. We won’t sell you something if you’re not ready or change your mind. We’ll wait and keep in touch until you do need us, our knowledge and our expertise.

6. If the builder isn’t paying a REALTOR, why can’t I have that money?
Reputable builders would never shoot themselves in the foot by trying to undercut a professional real estate agent. A vast majority of new home sales occur as a direct result of REALTORS. Builders rationalize it as spending money on a REALTOR or on advertising. If someone comes in and asks to save money because they don’t have a REALTOR the builder will not only say no but they’ll probably negotiate less knowing they are working with someone who is not experienced. A REALTORS commission is a normal cost of doing business and the beneficiary is you!

7. What are the steps involved in a new home purchase?

• I can’t express the importance of this enough. Especially the first time, ALWAYS visit the new home site WITH your real estate agent. If you don’t, it may still work out for you but sometimes, you may not get to enjoy the benefit of having a buyers agent. The builders want us there initially so agency is understood (who represents whom).
• Make an offer. This is usually done informally before paperwork is drawn up. We’ll lay out our what we want and we’ll be told, “well, I’ll bring it to the boss and see what they say” or “the builder never says no, they’ll say yes or counter with something that works for them” you get the idea. This is also the point at which you should start the loan process if you’ve decided to use the builders mortgage company. If you’ve decided to use your own lender, you should have already started the process before making an offer. Speaking with a lender is critical. You won’t know what to offer or how much cash you’ll need to close without doing this.
• Write the offer. This is after you’ve come to an agreement verbally. A verbal agreement isn’t worth the paper it isn’t written on so you’ll want to make sure everything is signed. You’ll also have to put an earnest money deposit down which goes towards your down payment or closing costs. Finish getting your loan if it’s not already finalized.
• Inspections. Depending on what stage of construction the home is in, you can opt to do a pre-drywall inspection. At a later point you’ll do another home inspection. You’ll have a final walk-through to see if anything still needs to be fixed and then you’ll go to settlement.

Earnest Money Deposit

What is it, is it required and how could I lose it?

During the process of crafting an offer, one of the things you’ll need to decide is how large a deposit you’d like to make. You want the “earnest money deposit” to be large enough to show the seller you’re serious, but not so large you’re risking a significant amount of money. The amount should be an amount that is substantial to you. If you wrote a $200 earnest money check, there’s not a lot holding you to a particular house. I recently had buyers who insisted on writing a $1,000. We were told the sellers didn’t consider ours a serious offer and decided to work with another.

During a hot market (Like the one we’re in!) there may be multiple offers on the house that interests you. A large deposit may impress a seller enough so they will accept your offer instead of someone else’s, even when your the competition is offering the same price or slightly higher. If it’s a buyers market the amount can be smaller but it should still be substantial for the offer to be taken seriously

What amount is substantial? I don’t have a good rule of thumb but I’ll give a couple of recent transaction examples. On a sale of about $300,000 people have written checks for $2,500 – $4,000. On a sale of $700K-$800K the checks have been $7,000 to $15,000. Several years ago in a hotter market, I had a buyer write a $25,000 check on a $600,000 home because he wanted to make sure his offer was noticed.

There are usually several contingencies that need to be removed before your money is at risk and your agent should make you aware of those deadlines. Contingencies may include:

• Financing
• Appraisal
• Home Owners Association or Condominium Document Review
• Home Inspection
• and possibly many more

After you’ve done a home inspection and you know you can borrow the money required, you’ll know that you comfortable with you choice so your money won’t really be at risk anymore, it’ll be going towards your new home. At settlement your earnest money deposit is given back to you in the form of a credit or a check.