It can be alluring to think about living in a new construction build instead of an existing home on the market. As the first to own that home, not only is everything new, but you can customize details from the architecture to the finishes to your specific tastes.
What is the best way to go about buying a new construction home? Many prospective buyers think going directly to the builder will save them money. They see real estate agents primarily dealing with existing homes and don't realize you can use a real estate agent to purchase a new construction home.
If you want to save money, get a great deal, and make sure your home is precisely what you want, then you want to use a real estate agent when buying a new construction home.
About Buying New Construction
While there are many benefits to purchasing new construction, it's a complicated and expensive process.
It often costs 30% more to buy a new construction home than to purchase existing residential real estate. According to HomeAdvisor's home build calculator, the national average cost to build a home is $302,033.
In Fort Worth (zip code 76131), the average to build a home is higher, at $342,660. According to the Greater Fort Worth Real Estate Association, the median price of existing residential real estate sold in Tarrant County was $280,000 in February 2021. As you can see, that's quite a price difference.
A Construction Cost survey conducted by the National Association of Home Builders (NAHB) in Fall 2019 shows on average, 61.1% of the sales price on a new construction build goes to construction costs, while another 18.5% goes to finished lot costs. On average, builder profit is 9.1% of the sales price.
What Are You Paying For in New Construction?
The same survey reveals that, when looking at the major construction stages, interior finishes account for the largest share of the construction costs at 25.4%, followed by framing at 17.4%. These percentages account for all expenses paid by a new construction home builder, including labor, materials, and hiring subcontractors.
In the 2019 NAHB Construction Cost Survey, the average single-family home sales price is $485,218, the highest average sales price in the survey's history, not adjusted for inflation.
Considering the costs involved with a new build, you may be wondering what exactly you are paying for. Let's break down the work involved, the percentage of the job cost, and the overall cost of each project to better estimate the budget required to purchase new construction.
According to a cost estimator and budget guide published by HomeAdvisor, the cost breakdown of a new build typically includes:
● Land and site work - The cost of the land plus any necessary site work to build a new construction home typically ranges from $5,000 to $38,000, or between 3-8% of the total job cost.
● Foundation - Costs for foundation work usually range from $16,600 to $72,000, or 10-15% of the whole job cost.
● Framing - Framing costs on a new build range from $16,600 to $95,000, accounting for 10-20% of the total job cost.
● Exterior Work - Exterior work ranges widely, typically running between $20,000 and $95,000, or 15 -20% of the total job cost.
● Major Systems - Major systems, like electrical installation and HVAC work, can range from $17,000 to $72,000, making up 10-15% of the total job cost.
● Interior Finishes - Interior finishes, such as drywall and flooring, make up a large amount of the build's total cost and can be anywhere from $42,000 to $167,000. This makes up approximately 25-35% of the entire job cost.
How Long New Construction Takes
Factor in the time it takes to build when considering a new construction home. Purchasing a custom-built home will take considerably longer than the process of purchasing an existing home on the market.
According to data sourced from the U.S. Census Bureau's Survey of Construction, published in 2018, the average amount of time needed to build a new construction home is approximately 7.7 months for homes built for sale, such as in new housing developments. When done by homeowners themselves, the timeline grows to 12.5 months. These timelines do not factor in the additional time spent securing financing or time spent in the design office making plans for the home's design or selecting the finishings.
As noted, this Census data is also from 2018. The Fort Worth market has changed drastically over the year. High demand, both for new construction homes and the supplies to build them, has extended the time needed from purchase to delivery.
Why use a real estate agent?
Even if you're confident you are versed in the logistics of purchasing a new construction home, working with a real estate agent can provide many benefits that will enhance the experience. Real estate agents have industry information and experience working with builders. The results save you from extra expenses and roadblocks during the purchasing process and after you settle into your new home. Keep this in mind before approaching a home builder on your own:
1. Contracts are builder-friendly
A new construction home contract is different than an existing home sale and purchase agreement.
Your real estate agent can connect you with an attorney to read through the contract and guide you through the fine print and any various issues that may arise. This ultimately protects you from contract items that may lead to potential problems, including shoddy materials in your home, unending construction delays, changes to the scope of work or the "change of work" clause, or waiving your right to legal recourse if issues arise.
An ABC News investigation found that the new construction industry was so overwhelmed with complaints that home building corporations were setting aside millions of dollars annually to account for defects and other issues that regularly arise in new construction builds. In the investigation, D.R. Horton disclosed to investors that it had set aside over $400 million per year in each of the last two years to assist with the hundreds of claims related to new construction defects in brand new homes recently constructed by the organization.
By working with a real estate agent, you can better navigate the fine print in contracts designed to prioritize builders and their bottom line.
2. Remember the builder's agent works for them.
Builders hire a builder's agent to represent their needs and present the contract. The builder's agent's job is to secure the highest price for the builder.
A builder's agent is legally obligated to serve their clients' needs. Therefore, they prioritize the builder's interests. Plus, looking out for the builder helps them establish and grow a relationship with the builder, so they land more work.
Ensure you are getting the best deal possible as a buyer by hiring a real estate agent to represent your best interests. We represent YOU and your specific needs.
Our role keeps you from going over your set budget while still meeting your purchase goals. The builder's agent could quickly talk you into upgrades you don't necessarily need or won't add any real value to your home.
Having agent representation also signals to the builder that you're interested in oversight. This will ensure you're getting the best materials that align with your budget and goals without being taken advantage of.
3. We communicate with builders.
Our years of experience and working relationships with many builders give us extra insight. We know what exactly to ask the builders. We also know when you're being overcharged and help you to get the best deal possible.
In the months leading up to and throughout the build-out, a lot will be happening. Instead of worrying about your home's progress and if timelines and budgets are being adhered to, we'll handle the process oversight for you.
As your representative, we will drive out to the building site and provide progress updates. We will keep you apprised of any news, changes, or delays. We can alert you to any issues and communicate any questions or concerns on your behalf. Our mission is to give you peace of mind about your home.
4. We negotiate the extra add-on items.
In addition to ensuring your project stays on budget, working with a real estate agent for a new construction home can influence the quality of materials used. We also can find ways to land additional perks to be incorporated into the construction and design.
From paint color to garage door styles, we can leverage our relationships with builders and our knowledge of the industry to negotiate extra upgrades, design features, and other add-ons you may not think of.
5. We improve the price terms dramatically.
While you can't change the base price, you can negotiate upgrades or financial incentives. Homebuilders want you to buy upgrades. This is their biggest profit margin when working with new construction home buyers. A prime example is charging $40 for a pendant light that really costs $25. Even small upcharges like this, when spread across a build, improve their profits.
Your real estate agent can help improve the price terms and get the features you want without breaking the bank by negotiating this into your purchase price. Sometimes we can get the builder to pay some of the closing costs, too.
6. We help you think about resale.
The median duration of homeownership in the United States as of 2018 is 13 years, based on a report published by the National Association of Realtors (NAR). In Dallas-Fort Worth, the average is lower at ten years.
Keep resale in mind when purchasing a new build. You may consider this your "forever home," but life and circumstances change. Your real estate agent helps you to make decisions to impact your new home's resale value down the line.
For instance, maybe you don't want a bathtub. Consider that the next owner might be a family with small children who would want a bathtub in their home. What about carpet versus wood or tile? How does its longevity work for resale? Your agent can help you select the right upgrades while keeping your potential return on investment in mind.
7. Help connect you to financing.
Homebuilders often work with preferred lenders, and many even have their own companies. If you work with a builder directly, they may try to pressure you into using their lender. But are these the best terms for you?
Your real estate agent will help you weigh all the loan options' terms and conditions, potentially saving you a large amount down the line. Let us help you navigate the different home construction loans available, so you find the best financing option. After all, a good deal on financing can save you thousands in the long run.
8. We'll push for the inspection.
When it comes to new construction, many homebuyers are tempted to skip the home inspection. In an ideal world, every brand-new feature will be top quality, up to code, and in working order. The reality is that defects in new homes can be just as frequent and severe as those in resale homes on the market.
Your real estate agent is working with your best interests in mind. We'll push for an inspection no matter what, especially because it's unlikely the builder's agent will offer one willingly.
9. We set expectations.
Thanks to the vast knowledge and industry experience a real estate agent brings, you're more likely to be happier with the finished product of your new home.
Keep in mind what you see in the model may not be what you get. Models often have all the upgrades and features that aren't standard because home builders are trying to entice you into the sale.
Working with an agent helps you manage your expectations and learn to be realistic about the finished product. Determine what's standard and what would be considered an add-on or an upgrade. If it's something you have your eye on, we can negotiate this into your build contract.
What does it cost to work with an agent?
You need to know: the builders will pay an agent's fee, but there's one caveat - you must use a real estate agent from the very beginning. By doing so, you will get all the benefits of working with an agent at no additional out-of-pocket cost to you.
If you decide to work with an agent down the line, some new builders won't foot the bill for the agent's fee. Some builders even incorporate the agent's commission into the sale price.
How to find the right real estate agent in new construction
Just like all home builders are not created equal, your real estate agent is the same. Not all of us have experience working with new construction homes in the Fort Worth area. Consider asking some of the following interview questions when vetting a potential agent.
1. How often do you work in new construction? By asking about the agent's experience, you'll receive valuable intel about the scope of their knowledge regarding contracts, builders, and the whole process.
2. What value will you bring to my new home project? This can help you determine how hard the real estate agent will work to represent your interests.
3. What relationship do you have with local builders? This question is key. You want your agent to have positive experiences and relationships, which helps negotiate better deals for you.
4. How long have you been working in the area? New home prices and construction can be influenced by geography, location, impact fees, and more. An agent with local experience means they'll know what to look for when helping you negotiate a great deal.
5. Do you have any lenders who work with new construction loans? This gives you an idea of where you can shop around before talking to the builder's preferred lender.
New construction on the rise in Fort Worth
The real estate market in Dallas-Fort Worth is hot. This not only applies to home resales but to new construction as well. According to building permits survey data from the U.S. Census Bureau, the DFW area ranks second nationwide among areas experiencing an uptick in residential construction.
Statistics from the city of Fort Worth's permit data also indicate a rising trend in residential new construction in the area, with a steadily increasing number of permits over the past five years.
Use a Real Estate Agent for New Construction
As you can see, it's imperative to work with a real estate agent when exploring new construction homes. From navigating contracts to negotiating add-ons, your real estate agent can get you the best possible home while being mindful of your budget and your expectations.
Working with a Fort Worth real estate agent, you can rest assured that your best interests are kept in mind. Benefit from the knowledge and experience of the Chicotsky Real Estate Group. As lifelong residents, we are well-versed in Texas real estate and specifically Fort Worth's new construction builders.