24 Risks of buying in a new development

As experienced real estate professionals specializing in new construction, Tom and I understand the risks of buying in a new development.

We have successfully sold hundreds of homes, including a significant number of newly constructed properties, with a combined value of tens of millions of dollars.

Our expertise in building strong connections with builders has allowed us to truly understand the market.

We’re here to provide you with valuable insights into navigating these potential pitfalls.

From cost considerations and construction process challenges to customization options and more, we’ll guide you through the decision-making process.

Our expert knowledge will help you to make informed choices as you embark on the exciting journey of buying a new construction home.

Let’s navigate the complexities together and ensure you find a home that not only meets your needs but also safeguards your investment.

(1) Lack of Negotiation Power

You’re not dealing with a seller who wants to start a new life somewhere else; you’re dealing with a builder who is focused on making a profit.

Negotiating the price of a new construction home can be difficult because builders usually can’t lower prices too much without affecting the whole project.

We leverage our expertise in negotiating on behalf of our clients to explore potential incentives, upgrades, or favorable terms that can add value to their new home purchase.

Having a realtor who doesn’t work for the builder is a huge benefit. We aren’t worried about builders profits, timelines, or inventory problems—we work for you.

Check out our recent blog on the advantages to having a realtor when buying new construction.

In addition, outside realtors can be well-informed about the builder’s current incentives, as well as their past incentives and those offered by their competitors.

Good builders will have a design studio to pick from a range of options. Boutique or private luxury builders will have the most options.

(2) The cost of newly built homes can be higher.

New houses can be 15 to 20 percent pricier than existing homes due to additional construction expenses, such as land development and building permits. Furthermore, it is essential for builders to generate a profit.

Tom and I always advise our clients to carefully assess their budget and consider the long-term financial implications before committing to a new construction purchase.

(3) New neighborhoods under construction aren’t always attractive.

In new construction neighborhoods, the lack of mature trees and smaller lot sizes may result in less privacy and reduced greenery compared to established areas.

Your view might look like this below—cranes, trucks, and dirt roads.

This look isn’t for everybody. We explore different options to match the preferences of buyers who like the charm and established landscaping of older neighborhoods.

(4) Unforeseen restrictions

Some new subdivisions have restrictions that limit homeowners to specific contractors, which may limit your choices and potentially impact the quality of the construction.

This means that if you want to make changes or upgrades to your home, you will have to choose from the limited pool of contractors approved by the developer.

We make sure that our clients are fully informed about any restrictions imposed by builders and assist them in assessing the reputation and track record of their preferred builders prior to reaching a decision.

(5) Not all new construction is convenient

New developments are often situated farther from business districts, which may result in longer commute times and limited access to amenities.

A lot of people choose new houses to get more space, but they end up unhappy because of their long travels to work.

It’s important to consider commute time, location of amenities, and how far you will be driving daily. Check out our recent video on choosing a neighborhood for commute times.

(6) Post Construction Issues

It’s important to note that even new homes may require callbacks to resolve minor issues that arise after construction is completed.

• Construction materials may settle or shift, leading to issues like cracks in walls or flooring.
• Plumbing or electrical systems could encounter problems that require attention.
• HVAC systems or appliances may require adjustments or repairs.

Builders typically have warranties, and we tell clients to review the warranty and talk about any concerns they have after the construction. It helps them know what support they can expect.

There is usually a set period of time when the builder has to honor fixing defects. Make sure you have a good understanding of that specific time period.

(7) Aesthetic Considerations

Homes in new residential developments often share similar designs and lack the unique character found in older, established neighborhoods.

We call this the “cookie cutter”.

Not all new construction communities are identical. It’s important to pick a real estate team that knows the entire area well.

(8) Property Association Fees and Development Fees

New subdivisions may have strict regulations enforced by covenants or homeowners associations (HOAs), which can restrict certain property changes and affect homeowners’ desired lifestyle.

You may even see some new construction areas have CDD’s (Community Development Districts) while others do not.

Tom and I help our clients review the HOA rules and regulations to ensure they align with their preferences and long-term plans for the property.

(9) Noise Can Be an Issue

Ongoing construction activities in new subdivisions can result in noise disturbances that may affect daily life and disrupt the peace and quiet homeowners desire.

You should know the different building phases a community is in to determine how long you’ll be hearing cranes, jack hammers, and construction workers. Don’t assume things will finish on time.

(10) Material Costs Change with the Market Disruption

Fluctuating material prices and potential change orders during the construction process can introduce unexpected costs, leading to financial concerns and potentially straining budgets.

We see this happen most often with luxury “boutique” builders. Initial quotes for that walk-in closet can change drastically materials are picked out and the hammer hits the wall.

(11) Unexpected Temporary Housing

Unforeseen building delays can disrupt moving plans and force buyers to find temporary housing arrangements, resulting in additional expenses and inconveniences.

We’ve had this happen to clients, and you need to be ready with a plan if your home has already sold.

Tom and I advise our clients to consider potential construction timelines and have backup plans in place to minimize any disruptions to their relocation process.

(12) Poor Builder Reputation

The choice of builder is crucial, as some builders may deliver poor quality craftsmanship or exhibit unprofessional behavior.

We’ve dealt with many builders and trust us, THEY ARE NOT ALL THE SAME.

We see the biggest differences in walk-through policies, unprofessional communication, inspection policies, and refusal to fix larger issues.

We use our knowledge and industry contacts to find builders and recommend them to our clients. We help our clients choose reliable builders who have a history of delivering good quality construction.

(13) Customization Restrictions

Builders often offer limited choices for customization, especially for common elements like flooring, countertops, and cabinetry.

(14) Immature Landscaping

New construction neighborhoods lack mature trees and natural landscapes, resulting in a very bland look. The further north you buy, the bigger the trees.

In places like Florida, Arizona, or California, palm trees and native shrubbery look better earlier than in northern climates where mature furs, pines, maples, and elms take more than 10 years to mature.

(15) HOA Rules Limit Changes

New subdivisions often have HOAs that strictly enforce rules and restrictions, which can limit homeowners’ freedom to make changes such as exterior modifications, landscaping alterations, or the addition of certain amenities or structures.

Be sure the community you are moving into will allow for your future plans.

(16) Builder Loan Costs

Building a new home often involves construction loans with higher interest rates and down payments compared to traditional mortgages. The devil is in the details.

Builder home loans may have hidden fees, like origination fees or processing fees, which may not be clearly stated at the beginning. These fees can raise the total cost of the loan.

(17) Property Tax Shock

Property taxes for new construction homes can be higher due to the assessed value of the newly built property.

For instance, the value of a house that was initially $400,000 could potentially increase to $430,000 after undergoing construction, all thanks to the high demand in the market.

We saw this happen during the years from 2021 to 2022 during the work from home buying frenzy.

We ensure our clients are well-informed about the potential loan costs and property tax implications associated with new construction purchases.

(18) Quality Control Can Get Sketchy

Some builders may prioritize meeting deadlines over using high-quality materials, which can lead to lower-quality construction and long-term durability concerns.

Reasons construction quality can take a dive:

• Global supply chain issues and labor shortages.
• Trades have more control and prioritize their own interests.
• Increased demand and pressure to meet deadlines.
• Lack of oversight and quality control measures.
• Limited availability of skilled labor.

We guide our clients in conducting thorough inspections. We can’t tell you how many times we’ve spotted quality issues during a final walkthrough.

**We always recommend a third-party inspection. Ask before you purchase if you are allowed to have a third party inspection.

(19) Change Orders Will Cost You Money

Making changes during construction, known as change orders, can be costly and add thousands of dollars to the final cost of the home.

We always encourage our clients to carefully review the construction plans and consult with us before requesting any modifications to avoid unexpected expenses.

(20) Historical Cost Knowledge

Previous homeowners of an older house can share information about the monthly and yearly expenses related to the property. This can help with better financial planning.

When people move to new climates such as relocating to Florida, they are often caught off guard with the cost of running a home.

However, this is often not the case.

Newly-built homes are often less expensive because they are energy efficient, require less maintenance, and are cost-effective in the long term. However, they lack historical data.

Old homes suffer from energy inefficiencies such as:

• Insufficient insulation
• Drafty windows and doors
• Inefficient heating and cooling systems
• Poorly sealed air ducts
• Aging or outdated appliances and fixtures

(21) Upfront Costs vs. Lifespan Costs

New homes have higher upfront costs due to their asking price. Expect to pay 15% more for a new construction home than an existing resale home—on average.

Nevertheless, we make it a point to address a crucial aspect with our clients: although older homes often come with lower initial expenses, they may necessitate more continuous upkeep and potential replacements for aging systems and appliances.

New homes will have better technology, building code, and warranties.

(22) Home Value Depreciation

There are unique situations where new construction homes may not hold their value.

One such situation is selling shortly after purchasing when the home transitions from “new construction” to an “existing home”.

Other instances can occur when purchasers start introducing costly enhancements that may not yield a ROI (for instance, heated flooring, jacuzzis, or converting a fourth bedroom into a closet), personalizing the home with their distinctive taste such as the cottage-style ship lap or purple walls, or encountering issues that are not covered by warranties.ties.

(23) Areas Can Change Over Time

Changes in the neighborhood, like lower school ratings, higher taxes, or more crime, can make it harder to sell a new home and lower its value.

Remember the Rust Belt of the 70s? Buffalo, Cincinnati, Cleveland, and Detroit were all great cities with family aesthetics. In the 1990’s, major industry shifts destroyed the value of the properties that were built two decades prior.

It’s important to understand the area you are considering. For example, we love suggesting Clermont, FL because of the stable infrastructure and city investment.

(24) Shift in Buyer Demand

Market shifts, such as a buyer’s market or an oversupply of inventory, can also affect the value and demand for new homes.

During the housing crisis of 2008, the excessive construction of new homes in areas such as Las Vegas, Phoenix, Austin, Chicago, and San Jose resulted in much larger issues.

However, nowadays, the demand for new homes surpasses the supply.

We have extensive experience in selling homes on behalf of banks and asset managers after they have gone into foreclosure. With a successful track record of selling hundreds of homes, we are equipped to assist new buyers in making well-informed decisions about the market and their future homes.

Conclusion

Buying a new construction home comes with various considerations and potential challenges.

While they offer advantages such as customization options, energy efficiency, and builder warranties, there are factors to be aware of, including higher upfront costs, potential restrictions, construction delays, and limited negotiation power.

It’s crucial to work with experienced real estate professionals who can guide you through the process, assess the reputation of builders, and help you make informed decisions that safeguard your investment and meet your needs for the long term.