In 2006, the skyline was filled with cranes, and buyers could sift through the surplus of homes under construction to find the shiny new home of their dreams. But when the market turned, the cranes disappeared, new development came to a near-standstill and most new projects hit the market
as rental properties.
Today, we are finally turning the page, as once more, home builders and large-scale developers are reentering the market with the for-sale products desired by buyers. However, buyer’s agents are quickly discovering that new construction purchases present their own series of challenges.
Common Challenges
Finding New Construction Options
Solution:
- When searching on the MLS, expand the scope of your search and reach out to agents who have current or recent new construction listings. Many developers only post a small sampling of units.
- Reach out to listing agents with strong developer ties as they may have information on future projects that have not been announced.
- If your brokerage specializes in new construction, reach out to your Managing Broker and follow posts on your internal app to track new projects. Know someone at a firm specializing in new construction? Ask for their help!
- Follow the breadcrumbs! Drive around and look for potential sites, reach out to the selling agent on recent teardown sales, and research recent permit requests. This is a labor-intensive approach, but if your client knows where they want to be and
inventory is scarce, this is your opportunity to get them on the inside track.
Visualizing Room Dimensions
and Layouts
Solution: Visit open houses and schedule showings at properties with comparable layouts and room sizes to help your buyer gauge the flow.
Visualizing The
Finished Product
Solution:
- If the developer has recently completed a similar project, ask for photos. Even better: request a showing.
- Request renderings and ask to see samples of the cabinetry, tile, counters, and flooring options.
- If the buyer can choose their own finishes, encourage them to explore showrooms at the Merchandise Mart and to browse Houzz.com for
design ideas.
Trusting the Developer
Solution: Request a list of past projects, references and testimonials. Ask your peers for insight and encourage your client to do some digging online.
Tip: Search both the company name and its principals.
Navigating The Transaction
The transaction itself is very different from a resale purchase. Although this is just scratching the surface, here are a few things to anticipate:
Timing the Project
While completion dates are targets, buyers in the earliest stages need to be prepared for change. Until developers break ground and pour the foundation, everything can change. Anticipate delays and be sure the buyer can be flexible.
Understanding the Spec Sheet
The Specification Sheet (aka spec sheet) outlines many of the finishes and features planned for the home. Agents and buyers should read this carefully to understand the type of finishes included and also look for what might be missing (towel bars, lighting fixtures, and the make and model of appliances). If something is missing or if the buyer prefers another option, they can either ask the developer to install an alternative or request an allowance.
Negotiating the Deal
Look at recent developer sales, current project progress and market/completion time to gauge your position. If the project is complete, the developer is eager to close ASAP. While price is the driving force of the negotiation, many agents are negotiating upgrades for their clients, as well. Buyers are getting everything from Trex
® decking and pergolas, to upgraded electrical and wiring, because the hard costs for the developer are a fraction of what they would be for the buyer. As a point of reference, ask the developer’s agent what they’ve been willing to include in the past. Put everything in writing; upgrades, allowances, and modifications to the floor plan or finish level should all be detailed out and agreed upon by all parties.
Understanding the Contract
Developers use property-specific contracts, instead of C.A.R. and
Multi-Board. Every contract is different, so be sure you’ve looked it over. Because the developer’s attorney drafts these, they tend to favor the developer’s interests, so it’s never a bad idea to have the buyer’s attorney glance it over before signing on the dotted line. While modifications may be made during attorney review, some developers
will not accept offers with significant alterations to the initial contract.
A few thing to note: earnest money amounts are often pre-determined (but may be negotiable), and the timeframes for due dates are expedited. These contracts include the spec sheet, upgrade/modification addendums, warranty information and delivery timeframe clauses.
Be sure there is a clause for attorney approval and that your client understands the financing contingency (or
lack thereof).
Scheduling the Inspection
Although new construction often includes warranties, inspections are still important. In the rush to complete a home, sometimes appliances aren’t hooked up properly; without proper inspection, these mistakes can cause more damage and hassle to a home than it is worth. The inspector is there to ensure the work is up to snuff so that your buyer can have peace of mind. Many attorneys recommend the inspection be held once the work is completed, rather than the first few days of going under contract.
Having a Punch List and Holding a Final Walk-through
New construction is delivered in like-new condition. While this does not mean it will be “perfect,” the seller will likely address aesthetic items that a resale seller would not.
Bring a roll of blue painters tape and have the buyers mark items that need to be addressed prior to closing. Common requests include the removal of paint on light switch covers, installing missing doorstops, and touching up paint on baseboards.
To ensure it all gets done, make a list with your buyers outlining the outstanding tasks. If the results from the inspection have been delivered, look to see what has and has not yet been addressed and add those to the list. Send the list to the seller’s attorney and listing agent for their reference. This list will also be helpful during a final walkthrough.
If you are able to, schedule a final walk through where you can revisit any items from the punch list to ensure
they have been completed. For items that have not been fixed, bring the list to the attorney’s attention to establish
a time frame for completion.
As new projects come online, it’s important to be adept at navigating these deals, and these tips barely scratch the surface of what you need to know as a buyer representative for new construction. It’s important to do your homework — understand the process, know the seller and work with the listing agent to get the best solution for your buyers. Much of the learning is hands-on, but your Managing Broker and peers can be a valuable resource. Good luck!
Rebecca Thomson, Vice President of Agent Development, @properties
Photos courtesy: @properties 
