Many years ago, before I got into the real estate business, my husband and I were ready to take the plunge and buy our first home. We had just moved back home to Indiana after several years of apartment living, and we knew nothing about the process of home buying. We also didn’t know much about home maintenance, and had little cash on hand, so working with a local homebuilder that had programs for first time home-buyers seemed like the best route for us. Brand new! All ours! No cash up front! Life couldn’t get better…or so we thought at the time.
We picked a brand new housing development in a good school district. The salesperson in the model home was super nice. We got pre-approved for a certain amount through the builder’s preferred lender (that’s how we got the best deal on financing). The salesperson let us pick whatever we wanted, our selections just had to add up to under that total amount. There was a whole list of items and choices. We paid a premium to pick a lot that backed up to a wooded tree line along a railroad track. (No neighbors behind us!) We picked floors, appliances, structural design items, fixtures, and so on. It was a little overwhelming, but fun – it was all ours!
We checked on our house throughout the building process. We’d squeeze in trips to swing by the build before or after we got off work. One day, peeking through the doorknob hole (we couldn’t actually get in, because it was after-hours and no one was there to let us in or supervise), I noticed that the wrong floor had been installed. We went down to the office the next day, and after spending 10-15 minutes convincing the salesperson that it was, in fact, the wrong floor, he agreed to have it fixed. They simply installed the correct floor over the mistake. No big deal! That kind of floor can be installed in two layers.
Our home was completed, we closed, and moved in. Everybody wins, right? Well, sort of. Fast forward a few years and add in some real estate experience, and you’ll spot several rookie buyer mistakes. First, we were one of the first three homes built in the first section of that neighborhood, factor in that this neighborhood includes four sections, and you find that, six years later, we still live in a construction zone because the neighborhood still isn’t complete. We put no money down, and we went through the builder’s approved lender – a lender with deals in place with the builder to protect the builder’s interest. That means (in our case, at least) that we paid over market value for our home, because our selections added cost, not value to our home. We’ll also have to compete with the builder if we want to sell. (Who would buy a six year old home, when they could have a brand new one for the same price?) That leaves us today with little-to-no equity in our home and no chance of selling anytime soon.
We missed several key details when making our selections that would have added significant resale value to a home. Things like, we opted for upgraded appliances instead of structural upgrades that would have increased our square footage, or even details like remembering to include overhead lighting and cable jacks in all bedrooms. Our lot backs up to a railroad track… yes there’s a tree line… but there’s also a train that rumbles behind it several times a week. (It’s actually kind of oddly soothing, and doesn’t bother us at all, but believe me, there are many potential buyers who wouldn’t and don’t see it that way.) If we want to change our vinyl floors, we have to rip up two layers of floor because of the builder’s mistake, instead of just adding that second layer ourselves.
I am inviting you now to learn from our experience. While everyone involved in our home-building transaction was nice (That’s their job! They are salespeople and are paid on commission!), no one was looking out for our long-term best interests. They were simply trying to sell us a home. You can still have all that, and have a trusted, professional advocate on your side, in the form of a Realtor. The nice salesperson in the model home may try to steer you away from this route, telling you that having a Realtor is not necessary and only complicates the transaction. But, remember, who does that salesperson represent? Whose best interests are on his mind? The builder’s, that’s who. These are highly trained salespeople, it’s their job to make you feel comfortable and spend your money. Remember that flooring mistake? The salesperson soothed us, then pursued the route that would be the least-expensive way for the builder to correct it. Not the route that would have been the best option for us, the future homeowners. If we had worked with a Realtor, he or she could have checked on the home for us throughout the build, during business hours, and advocated on our behalf to resolve any situation that arose with the actual construction manager, and not the salesperson.
Builders include a 3% “marketing fee” into the cost of your home, whether you are represented by a Realtor or not. They do this to protect themselves in case someone gets cold feet or a life situation changes before the close of the build. These homes become “spec homes” and are sold the same way any existing home is sold. This marketing fee is non-negotiable, so it costs the same for you either way. The builder just makes an additional 3% if you don’t have your own representative.
Building a home is exciting – it was for us – but don’t let the excitement cloud your judgment. Remember that while your home is your castle, it’s also one of the biggest financial investments you’ll ever make. Don’t be a solo rookie, get a pro behind you – someone with a cool head and experience that can guide you to create not only the home that excites you right now, but will deliver for you in the long run. Get the best of both worlds – and don’t build alone.
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