Challenges of Buying a New Construction Home Today

May 30, 2016

Challenges of Buying a New Construction Home Today

Buying New Homes in San Diego County

It’s been a challenging time to buy a home in the San Diego area for the past 6 months and where it used to be that you would show up at a new home community and have your pick of homes at competitive prices and builder incentives, times have changed.  Buying a new construction home, unlike buying and existing home in today’s market it’s not the quality of your offer that’s important instead it is your due diligence, determination and persistence that will get you in your new home.  Here are some observations on what is going on in the new home market that a new construction home buyer in North County San Diego should be prepared for.

Interest lists.  Each builder will maintain an interest list or priority list of interested buyers giving them priority positions in making their home and lot selection. What many builders require to be placed on the list as a serious buyer is that you get pre-qualified by their preferred lender to determine your purchasing power. Once you are pre-qualified you will have the opportunity to purchase when your position on the list come up.  It is important that even if you are not sure you are ready to buy when your number comes up or the home you desire will not be available in the current phase of new homes that you maintain yourself on the list. If you are looking for a certain floor plan or lot, stay current and continue to show interest by calling, visiting the sale office regularly or if you are working with a Realtor make sure they continue to demonstrate your interest and stay on top of any future releases, pricing and any changes in their sale process.  If you are looking at alternate communities do the same for all. It may be in your best interest to pursue more them one community.

Changing Prices.  Prices for new construction homes have been a moving target lately. You can visit a new home community one week and return 2 weeks later to find the prices have risen.  Since the first of the year while the market was heating up, weekly updates to pricing seemed to be the standard procedure for builders.  In the past 6 months new homes prices at many communities in North County have risen approximately 20%.  In the past month or so it appears that there has been some resistance to pricing especially at the $800,000 or more price range driving more demand to homes priced between $500,000 and $800,000.  If the interest rate remains at their historical lows I would expect prices could rise gradually through the year. The sales price should not always be the deciding factor in purchasing a new construction home. If you are planning to live in the home for a long period of time, two other deciding factors to consider will be:Mortgage Rates

  • What your monthly payment will be including mortgage payments, insurance, HOA fees, taxes, Mello Roos if they apply and any CFD (Community Facilities District) bonds.
  • How much you will need to spend in addition to the cost of the home to make improvements such as decorating, landscaping that is usually not included in the base price for the rear yards or sometimes the entire lot, window coverings and appliances if they are not all included.

Delivery Times.  With the activity in the market and a shortage of homes for sale it will be difficult to find a new construction home in the San Diego area that will be ready for closing and move-in in fewer than 3 months.  Most builders will release their next phase of homes prior to any construction starting on the home anticipating that they will sell the phase and begin construction meaning that the home could be 4-6 months from competition. This is all dependent on the availability of materials and labor as well as continued demand.

If timing is not critical to your buying decision it does put considerable control in your hands. Being able to have the home built the way you want by making all the structural change decisions such as picking the exterior design, adding bedrooms, bathrooms, decks, doors and electrical depending on the builder’s flexibility to do so. Also the freedom to make the design selections yourself, picking the interior colors, materials, appliances, plumbing fixtures and flooring instead of settling for whatever was added by the builder.

Incentives. Incentives offered by the home builders have gone away, although many still offer some incentive if you finance your home with their preferred lender. I am currently seeing about a $10,000 incentive that can be applied towards closing costs or options and upgrades. This could be a good benefit to help with the closing costs and many loans offered by the preferred lenders are competitive. Another advantage of the preferred lender is that they work with the builder regularly and understand the community, new construction, requirements to get their loans funded and the home closed.

Lot Premiums.  Premiums are coming back in the North County new home market as the demand for new construction homes has increased.  This means that often the base pricing for the home you desire has an added lot premium above the cost of the home.  Some builders are adding the premium into the published prices and others keep the premium as a standalone cost.  You can expect to pay a lot premium which varies for lot sizes, location, and views.   Currently in Oceanside one builder is charging up to $70,000 for the lot premiums and at other locations throughout the county you may find premiums over $100,000 for views, especially of the ocean.  I am also seeing premiums on condominium and townhomes where the premiums will apply for unit orientation, views, proximity to open space or community amenities.

The challenge for the typical buyer is with literally no standing inventory in the market and smaller releases of homes in each phase that the builder puts on the market is that the home or floor plan you may desire may have limited availability and your buying decision may be altered by waiting for a lower lot premium, no premium or paying for the premium.

So be prepared when shopping for a new construction home and be sure to ask the questions as to what lot premiums may apply.  If you desire that perfect lot with a view or for the lower cost lot, either way you may have to wait a little longer for availability during future releases with a hope that the cost of the home and the premiums do not increase during that time.

One thing to keep in mind if are waiting for you home to be built is that by the time you close on the home 4-6 months down the road is if prices continue to rise your home may be worth more at the time you close.

Don’t Do It Alone.

Buying a newly constructed home typically entails considerably more steps and decisions than most existing-home transactions. It’s hard enough to keep up with all the details, much less know how to make the best decisions. Your new home buying experience will be more successful and enjoyable if someone is looking out for your interests.

Builders and their representatives may be searching for buyers to purchase their product, but only a buyer’s representative will be 100 percent loyal to you, providing advice and guidance.

The new home onsite sales person’s goal is to sell you on the best home that you can qualify for and sell you upgrades and options.

Schedule a Free Consultation. Call me at 760-517-6087 to schedule a free consultation on the new home buying process and discuss the benefits of working with an Accredited Buyer’s Rep for a new construction home.

Best of all there is no cost to hire me as your Buyer’s Rep. Builders pay Buyer’s Reps directly and my service does not affect the purchase price of your home. With years of experience as a Buyer’s Rep as well as an insider in the new home industry I can help you navigate the new home purchase process and accomplish your goals. FIND OUT HOW I CAN HELP.

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