Wednesday, June 25, 2014

Advice for those Building New Construction with a Local Custom Builder

Here is some simple advice on the "not so simple" issue of building a new home with a local custom builder. 


Many future homeowners dream of building a new custom home for their family. They are seeking a higher quality craftsmanship and one of a kind design.  They might even want their floor plan and exterior to look different than their neighbors.  They also want a neighborhood that looks unique.  You get to make changes, custom floor plans, major structural changes, color selections, select the major brands of fixtures, lighting, appliances, cabinetry, and more.  Really, building custom seems fantastic with all the choices and flexibility doesn't it?  


Remember, there is a price for everything.  In this example, I'm not talking about the actual price of the home, although it will likely be much higher.  I'm talking about the price that we pay for being able to build with a local homebuilder.  Yes, the price of the home will typically be higher, the process will take longer, there will be more tough decisions, and you will most likely have to get a CONSTRUCTIO LOAN or FINANCE THE CONSTRUCTION of the home yourself.


So, what's really so bad about financing my own construction right?  Well, my advice is this.....GET REPRESENTATION before you decide on a custom builder.  It's always best to GET REPRESENTATION before you start the looking, buying or selling process.  In other words....YOU NEED A REAL ESTATE PROFESSIONAL to help you negotiate your way through the process. 


WHY WOULD I NEED AN AGENT?  You don't just need an agent...You need a VERY GOOD AGENT, who knows the builders and developers in your market.  They will steer you clear of builders with bad reputations or poor finances. 


SIDE NOTE:
Want to hear something really ironic?  I sold new construction for several years and now I help people as a managing real estate broker protect their liability when they build with them.  When I sold new construction I was always amazed at how many buyers didn't have any representation.  It made our job much easier when there was an issue, but I always felt bad for the client.


Basically, the builder calls the shots and if the client doesn't agree then too bad.  With an agent in the mix, the builder often doesn't want to get a bad reputation with the agents who builders often consider "gate keepers" to more buyers.  As agents say, make one of us mad and it will spread through the entire office.  At the builder we would always take this into consideration before making any decisions on major issues.


QUESTION 1 on NEGOTIATIONS:
An important ingredient to any negotiation is "How much does the other side stand to lose."  So does builder A stand more to lose with client x without an agent or client y with an agent (backed by an entire office of agents with more potential builder clients)?




BACK TO THE READING:
Just remember this.....There is risk anytime you finance the construction of your home.  What happens if the builder does not pay the subcontractors as we saw in the late 2000's in our local market?  Often the subcontractors place liens on the properties and when the builder files for bankruptcy the person building is faced with huge liens on their property before they have even moved in.  Yes, there is definitely some risk with building a custom home with a local homebuilder.  Make sure your real estate professional knows the company before you get under contract and read your contracts thoroughly. 


I recently had a client who ran across a local homebuilder.  The contract specified his remedies if the buyer defaults but did not list the buyers remedies if the builder, subcontractors or builders service provider defaults on their contract.  Why do you think that is?  It's because the builder is protecting themselves and not the buyer. 


This is a perfect example of why a very solid real estate professional needs to be representing their clients throughout the entire process.  Plus it's free in most markets for buyers to get representation so why would they not.  My last bit of advice is this....If the builder tells you it's better or cheaper not to have a real estate agent represent you, walk away. 


It's like going to court without an attorney.  Who does the builder represent?.....The seller.  Who represents a buyer?......A real estate professional.  Again, it's been my experience since the early 2000's that everyone should have a real estate agent present during the building process.


This is where an agent can help you through the building process:  contract negotiations, verbiage negotiations, financing, structural options, re-sale advice, design center options, contract disputes, inspections, inspection responses, closings, pre-drywall walkthrough, final walkthrough prior to closing, previewing closing statements, closing, after closing, and with warranty issues.


Thanks for reading!






 

Tuesday, June 17, 2014