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Tips For Buying New Construction

Tom Gross, CRS, ABR

Real Estate has always been my passion...

Real Estate has always been my passion...

Feb 6 16 minutes read

Buying a newly constructed home is an exciting and at times challenging process. The initial attraction to a new home while touring a model home is an emotionally charged moment. The construction and financing process is a lengthy process that requires careful and thoughtful decisions. For most people buying a new home is a once in a life time experience. Based upon 25 years of assisting clients in their construction and purchase of a new home we have prepared a summary of tips and advice for anyone thinking about buying new construction.

  • Typical construction time for a new home in the Denver Metro Area in a planned community is 8-12 months. Custom homes may require 18 to 24 months.
  • The advertised base price or "starting from" price is for marketing purposes only. No one buys a home for the "starting from" price.
  • In most new communities every lot (except extremely undesirable lots) have a lot premium of $5000 to $200,000. Typical lot premiums often run about $15,000 to $25,000.
  • Builders vary as to how they handle upgrades and options such as flooring, counter tops, light fixtures and cabinet finishes. Some builders offer upgrade packages while many builders offer upgrades and options on an a la carte basis in their design center. Many buyers spend 8% to 12% of the contract price in the design center. A fully upgraded home may require an investment of 20% to 30% in the design center. Major upgrades such as a full basement, expanded breakfast nook, bay windows, expanded ceiling height, gourmet kitchen packages, garage service door, decks and patios are added into the contract price before a buyer visits the design center.
  • In addition to the final construction price it is important to plan for the cost of rear yard landscaping and fencing. It is not uncommon for buyers to spend $15,000 to $45,000 on rear yard landscaping and fencing. If possible, it is always good to try to share the cost of fencing with your new neighbors. Window blinds and shutters is another significant expense to plan for when purchasing a new home. It is not uncommon for new home owners to spend $15,000 to $50,000 on window blinds and shutters. Typically these expenses are incurred after closing and are not included in your new mortgage loan. Of course, do not forget the potential cost of your new refrigerator, washer and dryer.
  • It is important to remember that the on-site sales person works for the builder. They strictly represent the builder's interests and are accountable to the builder. In most cases, the on-site sales person is not a licensed real estate broker. Many builders insist on this to avoid any accountability issues (consumer complaints) with the Colorado Division of Real Estate. The on-site sales person is very comparable to a car salesman. They may be very nice but they are not representing your interests in any way.
  • It is important to remember that verbal representations by the on-site sales person are of little value. Builders will not honor the verbal representations of the on-site sales person. The written contract dictates all the terms. Some representations and statements of the on-site sales person are nothing more than sales talk and fluff. It is essential that all critical representations be verified and written into the contract. Be particularly cautious of representations made regarding construction time, upgrades in the model home that may or may not be include in the base price, future community amenities such as pools, parks, clubhouses and schools. Future open space is a potentially important issue. You may want to verify the status of open space with the County or City.
  • Touring model homes is fun and it is often the starting point for most new home buyers, however, model homes are often loaded with upgrades design to appeal to home buyers. Model homes often feature $100,000 plus in upgrades. Be very careful in verifying what features in the model home are actually included in the base price of the home you are pursuing. Once again, be cautious with representations made by the on-site sales person. All standard items must be documented and verified in the final sales contract.
  • The sales contract you are required to sign is written by the builder's attorney for the benefit and protection of the builder. Unlike the standard Colorado sales contract used for the sale of existing homes, the builder's contract is not subject to the review or approval of the Colorado Real Estate Commission. It is not a consumer friendly contract, it is a builder friendly contract. The on-site sales person will try to summarize the important elements of the contract. However, they often gloss over less desirable features of the contract such a two year build time (the builder often has up to two years to complete the home), limited mortgage financing contingency (if a buyer loses their job during the 8-12 month construction period the buyer may lose all or a portion of their earnest money if they are unable to buy the home) and a requirement that the buyer be prepared to close upon a 15-30 day notification of the builder. You should read the contract and contact an independent real estate professional or lawyer with questions or concerns.
  • Many builders offer an incentive to use their preferred or in-house lender for mortgage financing. It is certainly true that a large volume builder can close the sale of homes more efficiently with their own lender rather than working with a large variety of lenders. New construction requires unique coordination with the lender regarding appraisals, upgrades, final inspections and occupancy permits. However, in-house lenders are a source of profit for the builder. The mortgage lender is loyal to the builder and not to you. They may offer limited mortgage programs and they may add a significant amount of lender fees that will diminish the benefit of the incentive offered by the builder. It is important that you obtain a mortgage pre-approval from an independent lender so you can compare terms and rates and determine the best option for you. In most cases, you will have the option to lock your mortgage interest rate 30 days prior to closing or 60 days prior to closing for an additional fee. It is important to allow for a possible increase in interest rates, during the construction period, in your financing budget.
  • It is very important that you objectively and carefully evaluate the financing options while also planning for the additional costs of exterior landscaping, window blinds and shutters as well as the cost to furnish your new home. Be very cautious in accepting financial advice from the builder's mortgage lender. Their mission is to find a way to close the sale for the builder. Their advice may not be the best option for you.
  • The sale of your current home is often a challenging issue with new construction. If you have the ability to purchase your new home without the sale of your current home you have many attractive options. If you are like most people and you must sell your current home in order to buy your new home, the timing of the sale of your current home relative to the completion of your new home is a challenge. Some builders will accept a limited sale of home contingency. However, a number of major builders will not accept a sale of home contingency. In either case, the builder will require that you list and sell your home as soon as possible. If the builder accepts a sale of home contingency, the builder may not proceed past the construction of the foundation of your home until your current home is under contract or sold. Given the current build times of 8 to 12 months it is a near certainty that you will need to move to short term housing while your home is constructed.
  • Although short term housing is an inconvenience, it is beneficial to have your home sold as soon as possible so you can accurately plan your new home construction budget. Be very cautious in terminating your short term lease, storage contract or scheduling movers based upon the builder's projected closing date. Many builders will provide a projected closing date 60 days in advance. However, this date may be delayed a few days or weeks prior to the scheduled closing date due to unexpected delays. Although you are required to close on time, the builder's contract gives the builder the right to delay closing with no compensation to you for any extra costs you incur. We suggest you allow extra time when planning for your move into your beautiful new home.
  • Lot selection is a critical decision in the new construction process. Take your time and carefully evaluate the grade of the lot (will the lot require a retaining wall and if so will the builder pay for the retaining wall or will you), how will the home will be positioned on the lot, the orientation of the home (a north facing driveway will require more snow shoveling) and the impact of the surrounding community amenities. Try to envision the neighborhood when all the homes are built. Will the new elementary school create extra traffic on your street? How will your neighbor's homes be positioned relative to your home? Will the neighborhood traffic flow impact your home? Will the stop sign across the street result in headlight glare in your home in the evening? Will the nearby open space always remain open space? Once again, do not rely upon the advice and guidance of the on-site sales person. They may be rewarded by the builder for selling a less desirable lot.
  • Be aware of expansive soils in Colorado. The builder will provide a soils report for the lot you select. The engineer's report will determine the type of foundation the builder constructs for your home. Read the report carefully and consult an independent engineer if you have any questions or concerns. Once again, do not rely upon the representations and assurances of the on-site sales person. They are not qualified to offer guidance on engineering issues.
  • Your trip to the builder's design center is often fun but also potentially stressful. You must have a plan and a budget. Do not allow yourself to be rushed by the sales staff. You may want to insist on several trips to the design center to carefully finalize your selections. It is often a good approach to focus on critical upgrades such as kitchen cabinets that cannot be easily upgraded in the future. You may want to select builder grade carpeting and flooring if you plan on ultimately upgrading the flooring in the future. Selections in the design center are often priced higher than other retail stores. If it is not critical for you to incorporate the cost of the upgrades into your new mortgage, you may wish to complete some upgrades after you purchase the home.

Top Five Builders In The Denver Metro Area

1. Richmond American Homes -
2. Lennar -
3. Meritage Homes -
4. D.R. Horton Inc. -
5. Shea Homes -

(Source Denver Business Journal Book of Lists 2014 - 2015)

  • The construction of your new home is exciting and fun to watch, however, it is also critical that you carefully monitor the construction of your new home. Once the home is actively under construction you should visit the home no less than once a week. Your point of contact during the construction process is the on-site construction manager. It is very important that you establish an agreed upon method of communication with your on-site construction manager. We recommend e-mail to maintain a record of your communications. If you verbally resolve an issue we suggest you document your understanding of the outcome in an e-mail. Do not rely upon your on-site sales person to address construction issues. If you encounter a serious problem or concern document your concern in an e-mail to your on-site construction manager. Copy your on-site sales person and real estate broker (if you have one). Insist on an e-mail documenting the resolution of the issue.
  • In the current market conditions, builders are struggling to keep up with demand. Skilled sub-contractors are in high demand and are extremely busy. On-site construction managers are under pressure and stressed. There is a very good chance mistakes will occur with the construction of the home such as the proper installation of upgrades and options. It is critical that you inspect your new home and communicate with the construction manager on a regular basis. If at all possible, forge a positive working relationship with your construction manager.
  • Do not attempt to discuss issues or concerns with the construction workers and subcontractors. They are not authorized to address your concerns. They may give you the impression they understand your concern. However, they have no authority to take action. All concerns must be properly communicated to your on-site construction manager.
  • New homes are inspected repeatedly during the construction process by approved city or county inspectors. Each inspector is tasked with the inspection of a particular component of the home such as framing, electrical, plumbing etc. However, the required inspections do not address the proper inclusion of upgrades, quality of the finish work such as trim and cabinets and the overall quality of the construction of the home. Although your on-site sales person may suggest that an independent home inspection is not necessary, we strongly recommend an independent home inspection. A home inspection will typically be scheduled 2 or 3 weeks prior to the scheduled completion of the home to allow time for the builder to address the inspection concerns. Some homeowners elect to have an independent inspection after living in the home about eleven months. This allows time to report any inspection concerns to the builder prior to the expiration of the one year builder's warranty. If you elect to have an inspection 2-3 weeks prior to closing, be sure to communicate your plans to your construction manager.
  • It has been reported that over 80% of all new home sales in Colorado involve a licensed real estate broker representing the buyer. An experienced, highly skilled real estate broker will work with you through the entire process including standard home walks. Your broker can serve as an objective, experienced adviser and advocate. If problems arise a good broker will intervene on your behalf to reach an acceptable resolution with the builder. All reputable builders in Colorado cooperate with licensed real estate brokers. The builder will pay the broker a commission. The involvement of an independent real estate broker will not impact the price of your new home. In fact, a good real estate broker may save you money and improve the quality of your new home purchase experience.

Buying a new home is an exciting experience. A thoughtful approach to the process will preserve your happiness and comfort in your new home for many years to come. Given the stakes involved, securing the independent, objective advice and assistance of a knowledgeable professional is a wise decision for home buyers navigating the new construction process. For more information or to discuss your new construction home buying plans call 303-591-2116 to speak with an experienced professional.

Helpful Article on Buying a New Home

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