Top Risks when buying a New Construction Home in Phoenix

Top Things to know when Buying a New Construction home in Phoenix

Buying a home is an exciting (and sometimes scary) process no matter what kind of home you are looking for. The sale of resale homes (homes that have had previous owners) is a bit more intuitive and cut-and-dry. But you can still have a successful buying experience with a new construction home; you just have to be a little bit more aware. All can go well, and sometimes, a lot can go…not so well. These are a few of the top risks to consider as you venture out into the market of new construction home sales.

1. Construction delays

A building contract is usually about two years, which should be plenty of time to build a home. Unfortunately, this isn’t always the case, and the post-pandemic supply chain delays that we are still experiencing are only making these delays more common. Especially if you are working on a deadline because you have to get out of your current home and into the new one, these delays can put you in a tough place.

2. Non-refundable earnest money

When you are buying a home, traditional contracts often have contingency plans written in that allow you to get your money back if and when a closure falls through. With the seller’s market during and after the pandemic, many contracts did away with these features, so be certain that you are signing one that ensures your money can be returned. This is especially true for new construction homes you are custom designing yourself.

3. Market shift affecting the sale of your current home

You bought this home for perhaps more than you can afford, knowing your current home will sell for more than it is likely worth. After all, you can benefit from a seller’s market, too! But now that the market has leveled out, some buyers are finding themselves building homes they don’t have the money to pay for because their own home just won’t sell, or they can’t get the amount they needed for it to finance the new home construction.

4. Unable to qualify with higher interest rates

While it is rare that interest rates will so much as double – like they did last year, we have seen that it can happen. Scarier yet, it can happen even after you are under contract. Just because you have signed the dotted line with an agreement of a certain interest rate does not necessarily lock this rate in, even though that would seem logical.

Looking to move to the Phoenix area & need some help?

Schedule a zoom call with us today so we can help you get started & clarify what you need to do before moving here.

5. Lottery fees and bidding wars

It certainly isn’t the way we have done things in the past, but lottery fees and bidding wars became commonplace during the pandemic, and it seems they are still rearing their ugly heads. Builders take names on lists, release lots slowly, and take advantage of who is willing to pay the most for the least. It isn’t great sportsmanship, but all is fair in love, war, and real estate.

6. Non-representation

You can certainly try to buy your own home without an agent. It can be done, and it can often turn out just fine. But there is a lot of value that comes with an agent if and when something goes wrong, especially when you are building. An agent can’t fix everything, but you sure have a better chance of success with one than without.

7. Builder contracts

Builder’s contracts often differ from the contracts usually seen with resale properties. These contracts are heavily weighted toward taking care of the builder and protecting them in any given situation, even if the buyer is not at fault. This is another reason why having an agent is particularly important when buying a new construction home, because you need to make sure you 100% understand what you are signing in your contract.

8. Attorney fees

One of the least favorite potential risk of buying a New Construction Home in Phoenix is potentially having to pay attorney fees. Nobody wants to think about it, but you might have to get an attorney involved before all is said and done in your new construction home purchase. A myriad of things can go wrong, and if you have to take someone to court, this is never a minor cost. The money spent on legal fees often surpasses the money you are trying to get back out of the deal to begin with.

9. Pressure to close before the home is complete

A few hallways needing to be painted yet is one thing, but buyers can get pressured into closing on a house that is far from finished because the builder is ready to get on with the sale. Buyers have the right to an inspection by their own inspector, but builders will often do all they can to keep this from happening, as the inspector will likely make note of many parts of the home that are far from finished.

10. Poor workmanship

There’s a great deal of subcontracting on a job site, and many of these people are doing this job day in and day out, cranking out homes by the hundreds. It’s safe to assume they aren’t treating each and every home like their own personal Sistine Chapel. You do not have to settle for poor workmanship if something in your home needs to be redone. But due to the rushed nature of closing on new construction homes, buyers are often made to feel like if they want something fixed, it is on them and their own time to do so.

11. Incorrect builder timelines

Timelines for building new construction homes have been highly volatile in recent years. Some are going far over the estimated construction window, others are seemingly racing to the finish line, trying to force buyers to close sooner than expected and potentially without all needed financing secured. It can be hard to know what your rights as a home buyer actually are, and what will happen if things don’t go quite as planned.

12. Builders forcing buyers to use their lender

Builders often offer incentives to use their lender. While incentives sound like they are just “perks” for doing something a certain way, they are more or less a way to force you into using the lender the builder prefers. A buyer has the choice to go with a lender who they know and trust who isn’t in the builder’s pocket. Regardless how rosy it may sound, remember there is a lot of money that goes back and forth between these two entities, and you don’t want to be the only one who isn’t getting anything.

 13. Prices decrease after you are under contract

This is one of the most disappointing things that can happen to a buyer who has just secured their new home, only to see comparable homes selling for significantly less. The real estate market fluctuates from day to day, but you shouldn’t be seeing a 50,000 dollar decrease in the price of the home next door after you are already on the hook for much more. Hopefully, you can get out of a deal if it starts to head that way, because nobody wants to start their homeownership in a negative equity position.

14. Earnest money that goes directly to the builder

In the resale of a home, earnest money goes into a neutral escrow account. If for whatever reason the deal falls through, both parties get their money back depending on where the fault of the failed deal lies. When you pay earnest money on a new construction home, it goes directly to the builder, meaning it is extremely hard to get this money back if and when you need to. It’s a lot easier to get money out of a communal jar than somebody else’s pocket.

15. Market changes

Perhaps home prices go down, interest rates go up, the economy experiences a recession…there are countless ways the real estate market can change while you are building a home. These factors won’t necessarily all affect your buying experience, but a lot can happen in a couple of years. There is nothing that can be done about any of this, it’s just wise to be aware that things can potentially change while you are building your home. The best thing you can do is be prepared and expect the unexpected.

Need a trusted realtor to guide you through the purchase of a new construction home?

Are you thinking of buying a home in the Phoenix Metro Area? Whether you are interested in resale, or building a home of your own, reach out to me at AZLiveStyles with any questions about living in the Phoenix area, I would love to help!