Buying New Construction
If you are buying a home on a new community, either an already constructed (inventory) home or to be built, the process is different in several ways. The first difference you will come across is that there is no formal contract-based negotiation over price or terms. These things will be discussed informally between the prospective buyer (or his buyers agent) and one of the builder's sales team. The sales agent may indicate what may or may not be acceptable to the developer, but eventually the agent will have to put whatever has been discussed to corporate for a decision on whether or not it is acceptable.
When price and terms have been agreed, either the sales agent or someone at the corporate office will prepare a contract based on what was discussed. Here the second difference comes into play.Each developer will use their own very extensive and individual sales contract rather than the comparatively straightforward FAR/BAR contract that is used for re-sale homes. This is because developers want to protect themselves in ways that private sellers wouldn't expect to be able to. For example, you may find that the developer has no commitment to a specific delivery timescale. If construction is delayed for any reason, then the buyer just has to wait it out. Needless to say, the buyer should be fully aware of what he is signing, but that may be easier said than done considering the length of some of these developer contracts!
Financing the purchase is similar overall. and the requirements for qualification will be the same as for a re-sale, as should be the interest rate and the terms of the mortgage. However, in the case of new construction the buyer is likely to receive a short list of preferred lenders. These will be reputable lenders, occasionally affiliated with the builder but often one or more of the major institutional lenders. Buyers have no legal requirement to use a preferred lender, but the developer may offer incentives such as a closing cost contribution that are dependent on using a lender on their list. They do this because they know that these lenders are more likely to work quickly and diligently to get their buyers approved and the purchase closed.
A final and significant difference if you are buying new construction is the higher total figure for closing costs you will have to bear. A private re-sale is likely to incur general closing costs (excluding financing-related costs) of no more than a few hundred dollars, because several of the bigger costs fall on the seller's side. Developers, however, won't pay these costs, and they may also add in other costs related to the development of the community. The bottom line is that you are likely to have buyer's side closing costs of around 2% of the purchase price. A $500,000 home will carry closing costs of $10,000 or more.