New Construction Steps & Process

Everything You Need to Know About Buying New Construction

Multiple Offers. There typically have not been multiple offers on new construction, and that was one of the better things about buying new construction. However, with the lower-than-usual inventory levels right now, some new construction is experiencing multiple offers, but you would be competing against less offers than resale/existing homes—maybe only 1 or 2 other offers with new construction, if at all.

Standard Features. Different builders have different standard/included features. Some builders are more of a custom builder and homes come already decked out with granite/quartz counters, higher-grade cabinets, etc. You pay more upfront but then may not have to spend as much on upgrades (see below). Others come with roll-out vinyl flooring and laminate countertops and you would need to spend more to get those same features.

Structural Upgrades. These are items like moving walls, adding a third-car garage, and certain other design features the builder will allow. The builder needs to know the structural upgrades very early in the process. Some builders require you to know when the contract is written (or immediately after) and other builders may give a couple weeks for you to choose these options.

“Spec” (pronounced “speck”) Homes. If the home is already being built and the builder has already chosen the upgrades on a home (they’ve chosen the SPECIFICS/”specs” of the home), you may not be able to choose any upgrades, or there will be very few items which can be chosen (perhaps just carpet and paint). Each builder can be different with what options they allow you to choose on Spec homes. Also, if the home is very near completion, there most likely will be no upgrades you can choose.

Model Homes. Model homes sometimes have $100,000 or more in upgrades. Typically it is NOT what the average buyer will build with their upgrades. I always like to see if we can go through other homes in the community which are near completion with little/fewer upgrades so you can get a better idea of what yours will look like.

The Builder’s Preferred Lender. Nearly all builders will require you to be pre-approved with their preferred lender. Builder’s lenders offer you incentives for using them. However, many times the amount they are giving you as an incentive is more than what they would make on the loan. So how would they offer you an incentive for using them that is more than they make on the loan?

I’ll explain by giving an example:

• If it is something you would like to do, you can opt to “buy down your interest rate” by paying more money NOW to save money down the road with a lower payment and less interest paid. Well, the opposite is true also. You can opt to take a slightly higher interest rate than the par rate and it kicks money back so it can be used to pay for loan closing costs, incentives, or so the lender can make more money. In short, you are typically paying for your own incentives with a higher interest rate with a builder’s lender when it comes time to lock your interest rate. By the way, the builder’s lenders will always say that they don’t do this. They also try to get you by telling you that if you use their preferred lender they will give you keys right after you sign your loan documents instead of waiting until the next business day (though sometimes it happens the same day with other lenders too with same-day funding). What some of my clients like to do is after getting pre-approved with the builder’s lender, they tell them to remove them from their contact list.

Interest Rate Lock. I mentioned locking in your interest rate above. I’ve seen some reports that interest rates may stay near where they are now during 2021. Just know that you cannot lock your interest rate until about 30-45 days from completion. Rates could go up or down before the 8-10 months it takes to build a home. (Note: I will be attending an event with a local economist and another economist who is the Chief Economist and Senior Vice President of Research at the National Association of Realtors in January and they will be discussing what they predict for real estate in Utah for the next 12-18 months–I’m always very excited to hear what they have to say!)

Options Deposit. Some builders require that you put down, along with the Earnest Money and Construction Deposit (as applicable), an additional Options Deposit. This deposit is typically a percentage (%) of the total amount of the options you select. Some builders may only require you to put down an Options deposit if you upgrade more than a predetermined amount; for example….no Options Deposit necessary up to the first $10,000 or $25,000 of upgrades, but for everything after that point. Other builders may require an Options Deposit for all upgrades.

Elevations & Floor Plan. Each Floor Plan has several different “Elevations”. The Elevation is the way the outside of the home looks, more specifically, from the front curb. However, some elevations can change the material and look on the sides and back of the home. Many builders offer 3-4 elevation choices. Each jump in elevation costs more money as an upgrade.

Lot Premiums & Sizes. Builders set premiums for lots they think are more desirable. Some builders may have lot premiums on ALL lots they are selling at varying amounts, and other builders may only have a few requiring lot premiums. Lot premiums are in addition to the cost of the home, and it is added on top of the price. Some lot premiums may be because of a location within the neighborhood (like in a cul-de-sac), a bigger-than-standard lot size, because it will have a walk-out basement, or if the home should have nice views.

Building Timeline. When building a home from the raw land, here are the general steps you will take through the process. Some builders finish in around 6-7 months, and others are about a year out.

1. Contract Acceptance!! 

2. Required Pre-Approval by Builder’s Lender

   1. Usually required within 3-7 days from acceptance but some builders require this to be done before an offer can be written.

3. Design Center Appointment (sometimes builders use a different name for this)

   1. Some builders are very strict with the amount of time and visits you can have to decide.

   2. Choose all your upgrades. Every aspect of the home, from light switches, to cabinets, countertops, paint color, fixtures, etc!

   3. You can usually add more outlets, lights, etc as well as choose the locations of some items.

4. City Approval

   1. After you have accepted all the changes and upgrades, the builder will prepare and submit all of your plans to the city for approval. Sometimes the city is fast and takes only a few weeks, and other times, it may take up to 3 months.

5. Pre-Construction Meeting

   1. Review the “black lines” (schematics) of your home with the person who works for the builder who is responsible to oversee the construction and make sure it’s accurate and built in a timely manner.

6. Dig Date

   1. This is when they dig the hole for your home!!! This usually happens just before, or just after, the Pre-Construction Meeting.

   2. Things start happening quickly from here and there is progress each and every week, weather permitting.

7. 4-Way Walkthrough

   1. You will have a scheduled time during the workday to have a walkthrough with the Builder. This is when the 4 contractors have completed installation (Plumbing, Electrical, Heating, and Air Conditioning) and before the builder puts up the sheetrock. The city will also send a city inspector out before the sheetrock goes up who has to sign off on that step of the process.

8. Inspection (if you choose)

   1. About 30% of the buyers who build a home with me choose to do an inspection.

9. Orientation (“Blue Tape” walkthrough)

   1. Months after the 4-way walkthrough and just before closing on the home, the builder or one of their representatives will go through the home with you to help you understand the systems of the home, where things are located, etc. They will also review warranty information and “who to call”.

   2. Most builders use this meeting for us to mark up the walls with tape where a repair is needed (missing paint, chipped cabinet paint, unfinished items, etc). Some builders have several people check before you come and it is mostly good to go and ready to move into at this time.

10. Settlement (sometimes referred to as “Closing”)

    1. You will sign all of your loan documents and it takes about an hour.

    2. You’ll need to bring a photo ID and a 2nd form of ID (could be a Costco/Sam’s Club card or credit card) for verification.

    3. We like to take celebratory photos afterwards!!! Woohoo!

11. Keys and Moving In!

    1. Be careful about scheduling your moving party too close to Settlement/Closing. Sometimes the builder needs to finish up on a couple small things before they’d like you to move in, or sometimes there are unanticipated delays.