Episode 69: How New Construction Homes Work

Acquania Escarne 0:00

Beware of buying a new construction home may not be all it's cracked up to be. In this episode, I'll share reasons why I didn't love my home at first, and what things you should watch out for if you decide to build your home.

Acquania Escarne 0:14

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You are listening to the purpose of money podcast, a podcast where we talk about ways to build wealth and create more freedom in your life today. I am your host Acquania Escarne.

Acquania Escarne 1:35

Hey, guys, welcome back to the purpose of money podcast, I'm super excited. We are going to continue our series on home ownership since June is home ownership month. And today we're talking about new construction homes. Yall I've never shared this story before, or at least not on the podcast. But I have talked to a couple of friends and family members about it. And I thought to myself, you know, given the market and how crazy it is, maybe I should share this story with my listeners too. So let's hop to how when I got my home, it was a new construction home. And I didn't really love it at first. And here's why.

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So a few years ago, about six or seven years now my husband was we both were working from home one day, and he was like, hey, you know you have lunch plans today, I'd love to take you to see something. So I get all excited. I'm like, Oh, he's gonna take me out to lunch. And we're gonna have a little lunch day in the middle of the workday, this is going to be great. So we hop to car we go for a drive, we do not end up at a restaurant. Now, ya know, I'm serious about my food. I am a foodie at heart. And when you tell me that we're gonna go see something during my lunch break. I immediately assumed food. My bad, we ended up in front of a model home in Virginia. So I don't freak out, I get excited. But I'm like, What are we doing here? Full context at the time we were renting. And we were looking to potentially buy a home of our own. But we were torn about should we look for homes that are already standing, but potentially are going to cost more in need work? Or should we pursue new construction. So turns out, my husband was surfing Facebook, an ad popped up for the subdivision. And they saw that he was looking around at homes and different opportunities. So they invited him to come check out the model.

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So fast forward, he takes me on a lunch date in quotation marks to check out the model home in Virginia. So we come we look at the house and I'm like, Oh, this is a really nice house is really pretty. But remember, I'm hungry. So I'm also like, when is lunch coming.But after looking around, I said to myself, you know this, this looks nice. And we'll give it some thought. But at the time again, since my mind wasn't really focused on looking at a new construction home at the time, I wasn't mentally prepared to sit down and talk numbers or even to really move forward with putting in an offer. I just was looking. My husband and I we have two children and one of them as a special needs child. And so one of my initial thoughts after bedrooms, bathrooms, and everything that a house has to offer was the school system. So I really needed to know how easy is it going to be to change my son's individualized educational program from one county to another county. And until I knew that I wasn't going to be comfortable buying a home in completely new county where we would have to potentially go through the education eligibility process again.

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So we went back home after this tour of the model. And we never got lunch, by the way. But I took the opportunity to kind of answer the questions that I had, which was about transferring counties and transferring schools. And I was super impressed because I called the county and I asked them, you know, what is it going to require for me to change counties change schools, and they were like, oh, it's super simple. You just bring your IEP, that's the individualized plan for my son, you bring it to your new home school, present the paperwork, and then also enroll your kids in school. And they don't honor it, you know, they might have questions or make sure that they can comply. But essentially, once they are aware that you have a special needs child, they're going to provide the services that he needs. So I was like, okay, cool. Once that anxiety was gone, I was on board to potentially doing a new construction home. But one of the things that, you know, I had never done this before. So I didn't know what to expect, I didn't even necessarily know how all of the process worked. So my husband and I did a another trip back to the model home to talk to the builder and the realtor on site to ask questions. So if you're interested in a new construction home, I definitely think you should kind of outside of their space, write down your questions, figure out what your main points are, and then have that opportunity to go back and to discuss that with the builder and the realtor on site. But it was throughout the process, I had a great experience. So let me start there. I mean, for the most part, the house came out great, it was beautifully done. There's just a few things that I didn't know, I didn't know, right.

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So one of them is being very clear about what comes with the house. And what's an upgrade. Because remember, I saw the model, and the model is always gonna look great, it's going to be the top of the top because they want you to get all those upgrade features in your home. And they're going to sell you on the extra bedrooms, the extra bathrooms, the granite countertops, the beautiful hardwood floors, maybe even marble tiles, who knows, whatever it is, the model is always going to be the ultimate option right in or somewhere in the middle, like they're not going to provide you the basic home, but they're not going to provide you probably 100% upgrades, because that might not be in the price range that their average buyer is going to be in, right. So they're going to pick some very intentional things that are gonna make the house pop and make it attractive. But they're also going to have some features that don't come with a basic home, right. But then when you sit down with them, they're going to tell you houses starting from and they're gonna give you their starting price. And then it's as you go through the buying process, you're going to add features, that's going to increase the cost of your home.

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So I did ask the bigger questions, because I always tell people, when you're looking for a home, you need to know upfront your minimum bedrooms, your minimum bathrooms, and the things that are your must have, you know, I talked about this in the last episode where you want to make sure that you have a list of what you must have in your home. And then you want to have a list of what you'd like to have in your home. So I wanted four bedrooms, that was a must for me. And I also prefer that everyone had access to their own bathroom, because I just don't like the hallway where everyone is sharing as much as individual usage, right. I also prefer because I do have a special needs son who has certain things that he likes for his bath and his room, I'd like to be able to place those in the bathroom and not have to move them every time someone else needs to use it. So that was more motivation for me to make sure if anything, I need to have a certain number of bathrooms. And I prefer for them to be private or semi private. So one of the things we did was we went through the model home, and they had what we call a Jack and Jill bathroom option, which is when two bedrooms share a bathroom in the middle. So we have two bedrooms that share a bathroom in the middle. And that happens to actually be one of our guest rooms and then my office.

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So it's not frequently used. It's not something that people have to share on a regular basis, but it is that private bathroom. But one of the reasons that I went for that upgrade is because I knew that when it comes to resale, people want bathrooms and kitchens right. So I chose to do that because alternatively if I hadn't chose the jack and Joe option, I would have had a hallway bathroom that two bedrooms would have to share. And I just didn't want anyone to have to go into the hallway and back and forth to a bedroom.

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But other than that, I didn't have very strong feelings about a lot of the other details of the house, I had colors that I wanted to have for the cabinets and things like that. But I wasn't really like committed to a certain level of, you know, fixtures or features in other parts of the home. So for me, that was the biggest thing, bedrooms, bathrooms. And then my husband, I also decided we didn't want to finish the basement. Because the finish the basement was an additional $50,000. and us being in this space where we'd done some upgrades and renovations to properties before and we had rentals, we had a strong sense that we probably could finish the basement not only for less money, but also in a different style that we liked. Because one of the things that comes with purchasing a new construction home is a lot of times you're going to have cookie cutter frames, right, you're gonna have maybe two to three models that you can choose from, and everyone's house who picks the same model is going to look the same. And in this particular subdivision, anyone who opted for the finished basement had the same layout for the finished basement. And that actually turned out to be a great decision for us, because we saved $20,000 doing our basement ourselves after we moved in. And we had the opportunity to change the layout. And we had the opportunity to hire our own contractor. And what's so dope is we did our research and we actually found a woman owned business that was able to do the work, they did an excellent job. And that's how we finished our basement to our specifications. and we save $20,000. So those are just some of the things that I appreciated about the home buying process and the things that I took into consideration.

Acquania Escarne 11:59

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But here's some of the things I didn't like so much. We got a stack of papers that told us all the things that you could choose for the house. Everything from the knobs and whether you want brass or bronze to like cabinets in the laundry room. But what no one ever did, and I didn't know to ask was really sit down with me and tell me what pages I should be paying the most attention to. The main thing they pointed out was the Jack and Jill bathroom.

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But other than that, nothing was really pointed out to me to take into consideration. So here's an example. The laundry room in the model had really nice cabinets was really organized, clean and crisp. I thought it looks gorgeous. I also liked the fact that the laundry room was on the second floor. So now there's no going downstairs to wash clothes, clothes are on the same level as where the kids and I sleep. This is great.

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I didn't know that the cabinets in that laundry room were an upgrade. And that's something that I would have to ask for and pay additional money for if that's what I wanted my laundry room to look like. And I actually didn't realize that was the case until the house was half done. And we could not make any more changes. And I couldn't even ask for cabinets in my laundry room if I wanted to. My laundry room came with a simple white wired shelf, one of them and you had to figure out the rest. You see what I mean? Little things like that.

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I later learned after we moved into the house and I started to meet some of the neighbors that those who showed up to the builder with a realtor got special perks that I didn't get. Now remind you I told you I've never purchased a new construction home before and my husband and I came to look at a model on our lunch break What I didn't know at the time was had I had a realtor with me. Not only would the realtor have been able to be on my team to express my interest, he or she would have also been able to negotiate some factors in the house that maybe would have been added on at no costs are added on at a discount. In addition to that, I wouldn't have had to pay my realtor, the builder was going to have to pay my realtor, and they would have had to split the fees. What most people don't realize is when you go to a new construction home and you look at it for the first time, if you don't bring your Realtor with you, they may not be able to represent you at any point of the deal. Because once you come to express interest the first time, the and you're without a realtor, that is how the builder considers you when it comes to purchasing. But if you show up with a Realtor, that Realtor is eligible to represent you in the deal and be paid by the builder at the closing table. And you never know when a realtor has more experience than you do for that particular housing market and has also sold houses in that area. They have more visibility on not only the comparable costs and prices of the homes, they can also advise you on what upgrades are worth it right for when it comes to reselling your home. But then they can also tell you what they've negotiated for their other clients in the neighborhood. So now I have 100% recommend whether you're shopping for an older home or a new construction home, that you shop with a realtor who knows the market and can help represent your interests in the deal.

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One of the other things that I learned through this process, but I did do myself is I looked for other lenders, I ended up using a builder's lender because they provided a lot of support towards closing costs and also upgrades in the home that we didn't have to pay for because they did pay for it. But I still shopped around rates. And I looked at what my credit union had to offer. And I looked at what other banks had to offer. Because when it comes to buying a house it never make sense to pay more for it than you have to. So if a bank is going to give you a better rate, or they're going to give you some support towards closing, you should consider it and my credit union at the time had a program for homebuyers where they give you cash back at the table. Unfortunately, their program did not exceed what the builder was offering. So when I did my pros and cons comparison, I found that the 10,000 additional dollars that were coming from the builder was well worth it for me and my husband in the long run, it allowed us to get the house, we wanted the upgrades that we did want, and also take an additional 10k off the deal. So for me that made the most sense. And it far exceeded the cashback that I was going to get if I had gone with my credit union. But that's the type of research that you need to do when you're considering a new construction home or any home for that matter. Because you want to make sure that you don't just go with the lender whose best interest is to buy and sell that home to you at the best cost for them right. And so they're going to offer you a standard lending contract in most cases, and they may not offer you as many incentives if they have a particular agreement in place. So it does help to shop around when you're trying to purchase a home.

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But here's some other tips that I have for you, especially if you're shopping in a new area or you're just never owned a home before. And this is the first time you're pursuing a home and new construction. I recommend you research the builder. Why? Because not all builders are made equal. Some of them take shortcuts. Some of them have problems and some of them are not in good standing with your state's construction contractors board. So before you purchase a new construction home, look up the company and see what the reviews are from previous customers. But also look at their record. Do they have any outstanding lawsuits or judgments Do they have any outstanding claims with the state's construction contractors board? Are they in good standing? Do they finish their projects? Do they meet customers needs? These are all things you want to know. Because once that house is built, and that loan is close, there's a lot of things you're going to be responsible for, unless your warranty says otherwise. And you want to make sure you're working with a good builder. The other reason this matters is because 99.9% of the time, builders are only your lender for the first 30 to 60 days of owning that home. And then they eventually sell your loan to someone else. So you want to make sure that in that time period, that they're responsible for any changes or modifications to the home, that they're held accountable to those and that you know that they're going to do it right, because most people who are not in good standing, those records will eventually be public for you to see if they're not already public. And you don't want to ignore those types of things.

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Another thing you want to do is be very clear on what comes with the house and what doesn't, I gave you my example with the cabinets in the laundry room. But for others, it might be more serious factors like the flooring and the standard carpeting versus upgraded padding or things like that, you want to make sure that you're clear. And when you are picking out your upgrades, ask a lot of questions. Don't just pick features that you think you want. But also be clear on the cost and how that's going to impact you. One thing I did like is when we did have that meeting with the builder, we sat down, we picked out the knobs, the padding for the carpet, where we wanted hardwood, what came what didn't come as far as those features. But they also gave us the new price at that meeting, it wasn't like you walk away, and you're hoping when they add it up, it's still within the limits of the loan that you're going to qualify for. We knew before we left, what the house was gonna cost at closing, right.

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The other thing you want to kind of keep in mind is to know your warranty. Our house came with a one year warranty after closing. And that's really important because a lot of new construction homes are going to settle over the first 12 months. And what I mean by that is they're gonna move the ground underneath your house will shift slightly as the house settles into that land. And a lot of people don't realize this, but this will impact some of your drywall, some of your home will actually move. And it might cause cracks in the drywall, not the foundation, but cracks in the drywall or cracks in the paint that will show up within the first year or so. And it's nice to know if you have a one year warranty, that the builder is going to come back and repair those things, right. But my house is six years old, and it still shifts from time to time. It's not something you can feel, but it's little things you can see. And those are things that now we're responsible for, because we're outside of the warranty. But don't just know the warranty for your home. You also want to know the warranty on your major appliances, you know, what are they going to cover and how long most of the appliances might be covered for the 12 months after building as well. But some of them like your water heater and your H vac system, they might have a much longer warranty, say five years. And then your roof might have a 30 year warranty because it is expected to last at least the length of a 30 year mortgage. But if there's a storm or anything that happens, you might find your roof to have issues sooner than that. So those are just some things that you might find or you need to ask about because that was my situation. But you need to ask what's covered and for how long? And what will you fix after the house is built and occupied.

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Now in this market, and 2022 housing is so expensive, the demand is high and the inventory is really low. So there might not be as much flexibility on the pricing and your ability to wiggle in deals and brakes and free stuff. In fact, I've been talking to a couple of my friends in the housing market. And they've told me that when you're buying new construction, you don't even get to pick as many things as you used to. Why because of the supply chain. The supply chain is all messed up. Some materials are just not available. So they don't let you pick in all markets, what type of floors you want, what color cabinets, they just pick what's in stock, get the house done, and then you buy it as is and we hope you love it right? That sucks a little bit because it takes out the personalization of it all. But it is the sign of the times, right? People are trying to get these houses built and they already had a huge delay due to COVID and lack of access to supplies. And now they're running out of certain items, or they're in a significant backorder, like cabinets, take week to get if you're in the market for new cabinets, and that's just across the board. So a lot of builders have had to make some modifications into what you can select because the inventory is just not there, right. But ask those questions and have patience of you know, because this situation is unprecedent, there's higher prices, there's just less access to inventory. And there's also less access to laborers. There's just not enough people to build the houses that they need to build. So you just want to keep that in mind.

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But I think it's not bad to ask the worst that they can say is no, the worst that you can say is no to certain prices for upgrades, if you decide you don't want them. And that's fine. Just make sure that when you're choosing upgrades, or you're asking for certain things, that it's within your final budget, you never want to put buy or build a home, that you're not going to get approved for by the lender, and the lender won't let you do that anyway. But it's always good to make sure you avoid that from the beginning. And then the last tip I want you to take in consideration is to expect delays because of the supply chain issues. And because of weather, which isn't in anyone's control, you might have a delay in your construction. You know, our house is built through the fall winter and finished in the summer, and we closed in August. So we had cold weather impacts our construction, we have snow impacted our construction, because certain weather, they can't lay foundation in certain weather, they can't have workers working on the property, you know, so you have to understand that if severe weather takes place in your area, or you're transitioning through seasons, like we were, you might have a day or two delay, every time weather impacts construction. You might also have supply chain issues. Like for example, my dad just closed on a house. And he was not able to move in for like 60 days, because he couldn't get cabinets the whole house is done. But they didn't have cabinets. Another thing that he experienced in his home buying process is that all of his appliances weren't included. And I found that to be like shocking, because in my house, all of the appliances were included, except the washer and dryer. But he had to choose his own fridge and his own stove, because they built your kitchen, but they did not provide appliances.

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So again, knowing what you're getting. And what you're paying for is so important. You don't want to move in and find out oh my god, I don't have this. And now I have to pay for it. Because what I don't want you to do is save all your money for a down payment, put all your money into this house. And then you move in and you can't afford to buy anything, you can't afford to fix anything and you can't afford to get what wasn't included, right? So we want to make sure that we're buying houses we can afford. We're not making ourselves house rich by putting all of our savings into a house, and then not having money for ourselves in the event of an emergency or getting that house in order, right. But don't rush yourself. You know, I always tell people, if you get a 30 year mortgage, you have 30 years to decorate that house to define that house to make that house your home, right. So you don't have to buy all new furniture in the first year and you don't have to paint all the walls. There are still parts of our house. We're improving. Were making our own were painting the way we want to. We took 12 months to decide paint color, you know, so don't feel rushed and they recommend that anyway because because the house is settling in the first year is not always recommended to paint right away because some of your paint might have to be redone if there are cracks or tweaks in the drywall.

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So anyway, those are my quick tips on what to do. If you're in the market for a new construction home, and things to watch out for. I hope these tips were helpful and I'd love to hear from you. Either on the website, leave a comment or leave a review on Apple podcasts or wherever you're listening. And let me know what is your first time homebuyer experience like and what was your experience? If you bought a new construction home? What were some things you liked and what were some things you didn't like? I'd love for you to leave a five star review wherever you're listening, and comments on this and all my other podcast episodes on my website or on social media.

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Until next time, keep building generational wealth one doller at a time.

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Thank you for listening to the purpose of money podcast. For more resources and information check out my website the PurposeofMoney.com and while you're there, please sign up for our newsletter so you have the latest information on new episodes and blog posts.

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Until next time, keep creating freedom in your life today.

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