Have the inspector examine various systems as they are completed, including the walls, roof, plumbing, electrical, and insulation systems.
If the home is finished when you buy it, hire a home inspector to give it a thorough examination. Really. Plenty of stories exist of homeowners who lit their first fire only to discover that the chimney was sealed over, drew a bath that sent a flood of water through the ceiling to the floor below, and so on. And these are just the obvious problems that appear within the warranty period. Other problems, like improperly applied stucco, may only become visible years later, after moisture has accumulated and the stucco starts falling off the walls.
For information on hiring an inspector, see Nolo’s article Home Inspections: A Crucial Step.
Be Wary of Optional Add-Ons
Many developers advertise houses at comparatively low prices to get you to come out and have a look. Once there, commissioned salespeople show you models loaded with expensive extras such as a spa, fireplace, granite countertops, and giant bathrooms. If you become seriously interested, the advertised price will rise as you decide that certain extras are essential or irresistible.
Buying extras lets you semi-custom design your home. But ask yourself what you really need and how much it will cost. Upgrades often add 5% to 20% to the cost of a new home. To get the most for your money, follow these steps:
- Take care of essentials first. Be practical, both for your own sake and for the sake of your home’s resale value. A fenced yard (especially if you have children or pets), more electrical outlets, wiring for high-speed Internet access, and, in many areas, air conditioning are day-to-day necessities. A hot tub and wine cellar are not.
- Make sure prices are fair. Some developers are less ethical in pricing extras than others. Steer clear of those who deliberately use poor-quality materials in highly visible spots in their models, almost forcing you to upgrade to over-priced substitutes.
- Watch out for compromises on function or quality. Developers have found clever ways to make a house look good for a lower price — such as having windows that don’t open or decorative beams made of styrofoam. Look for such compromises, and don’t be wowed by looks alone. Ask questions like, “Is that real?” or “Does that work?”
- Negotiate. Ask for one free extra for every two you buy. For example, if you pay top dollar for good carpets and kitchen cabinets, ask the developer to throw in a better stove at no charge. And don’t be afraid to ask for the right to buy and install extras on your own instead of paying high prices for the developer’s.
- Read the fine print. Many new house contracts contain a clause saying that the model’s features, such as carpets and appliances, are not necessarily the same brands you’ll receive. You are guaranteed only the functional equivalent of what you see, which is typically different and costs the builder far less. Make a list of the precise features you’re concerned about (with brands or makes and models) and include it in your contract. If one developer won’t accommodate you, shop elsewhere.
- Get it in writing. When dealing with a developer’s sales representative, get all promises as to what will be done, and when, in writing. Before you sign the purchase contract, make sure it includes every one of the agreed-on changes. If you’ve already signed the contract when you negotiate changes, write them down in a separate document and have the developer or the sales representative sign it. Don’t rely on oral commitments, which are notoriously unreliable and almost impossible to enforce.
Get a New-Home Warranty
You’ve probably heard horror stories about new houses that begin to disintegrate soon after the buyer moves in — the roof leaks, the basement floods after the first big rain, or the doors won’t close. This shouldn’t be a problem if you buy from a reputable developer — but not all developers are reputable, and you may not be sure about yours.
Your best bet is to buy a house that comes with a new-house warranty from an independent insurance company as opposed to relying on a warranty that comes directly from the builder. Typically, new-home warranties cover workmanship and materials for one year; plumbing, electrical, heating, and air conditioning systems for two years; and major structural defects for ten years.
You can also buy a new-home warranty on your own, but you’ll have to shop carefully to find one that covers major structural defects. (Don’t just settle for the standard homeowners’ warranty, which is really just a service contract for your appliances and furnace.)
Protect Yourself Against Delays
It’s best not to close escrow on a new home until the work is completed. You don’t want to leave the builder an opening to delay construction into the indefinite future.
Unfortunately, however, the standard form contract’s closing date may force you to close on a home that isn’t finished (or even started). You may be asked to sign a very one-sided purchase contract. You will be given numerous deadlines (to make deposits, agree to design changes, get loan approval, sell your present house, and close escrow), but the developer will have great leeway — sometimes up to a year from the target date — to deliver the house.
Do what you can to negotiate a fairer deal. Most important, you want to establish a reasonable date at which you can cancel the contract and get all of your money back if the developer doesn’t deliver the house. Again, make sure it’s in writing.
If you must close escrow because you need to move in, but significant and costly work remains, insist that the necessary funds be taken out of what you’re paying the developer and placed in a trust account after escrow closes. Then ask for a written agreement stating that if the work is performed on time, the money will be released to the developer; but, if it isn’t, the funds go to you to hire someone else to do the work. If the developer refuses, at least make a list of what needs to be done, assign a completion date to each, and have it signed by the developer.
If the developer fails to make a good faith effort to do the work, you may be able to sue in small claims court if you have out-of-pocket losses, such as rent or hotel bills, because you could not move in on time. For more information on small claims court, see Everybody’s Guide to Small Claims Court, by Ralph Warner (Nolo).
And for more advice on buying a new home, contact our team at James Brown Law. We represent a lot of buyers in contract to purchase “new construction” homes. These contracts are long, and can be pretty lopsided. Please call or text us at 561-838-9595 with any questions.
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