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Tips for Buying an Unbuilt Home

by Michele Dawson

As an increasing number of Americans are snatching up new homes at record levels and technology's role in the home-buying process continues to mount, many homebuyers are thrust into the position of buying their homes site unseen.

The National Association of Home Builders reports that new-home sales in August reached a record 996,000 units on a seasonally adjusted annual basis.

"Very low interest rates and the widely held view that housing is a very good investment are largely responsible for the surge in new home sales," said NAHB President Gary Garczynski, a builder/developer from Woodbridge, Va.

In addition, many home shoppers are relying on the Internet to conduct virtual tours of new-home plans and research home prices, availability, and options.

The National Association of Realtors recently reported that 62 percent of buyers with Web access surf the Internet to shop for a home; 41 percent use the Web as a tool in searching for a home.

As a result, an increasing number of new-home shoppers are buying their homes site-unseen, usually after viewing models and then selecting a lot. Some buyers know even less about what they're getting into.

In 2000, California's largest homebuilder, Kaufman and Broad Home Corporation, held an online auction, selling 18 new homes in just 19 seconds. The homes, which ranged in price from the mid-$90,000s to the mid-$300,000s, are located in Riverside, San Bernardino and Los Angeles counties.

In addition, rising home prices - triggered in many regions by demand outstripping supply - means the competition to buy a new home grows fierce as homes are being sold before they're built.

While this may cause some level of uneasiness as you wait out weather delays, watch fluctuating mortgage rates, and worry that the builder may be taking shortcuts to get your house built as quickly as possible, there are ways to avoid potential problems. The Better Business Bureau suggests you:

Investigate land plans. While you may know where your house will be located on the community map, look into what will be happening around you. Go to your local land planning office as well as any current zoning requirements and any proposals that have been submitted to develop land near your home.

Visit your builder's other projects. Check out the quality of the community, landscaping, and other amenities. Talk to residents there about their experience with the builder.

Check with your BBB for a reliability report on the developer. BBB branches maintain files on many companies in their service area. These reports, which cover the past three years, will tell you how long the company has been in business, complaint patterns, whether the company is pre-committed to a dispute resolution program, whether the company is a member of the BBB, and whether there has been any enforcement actions taken by a government agency.

Find out about the homeowners association, if there is one. Obtain a copy of the rules and ask how much fees are.

Scrutinize the contract. You may want to have an attorney review it before you sign it. Make sure upgrades are included. You should also add a statement that allows you to visit the site at several designated times. Keep your deposit check as small as possible.

Protect your mortgage rate. When the closing date draws near, you'll want to lock in your interest rate. If the builder is delayed in delivering your house on time, ask your lender if you can extend your lock-in rate. If that isn't successful, ask the lender to close the loan and hold some of the money in escrow until the appraiser verifies the home is complete.

Most importantly, you'll want to inspect the house thoroughly when it's done. You should strongly consider hiring a professional home inspector. Be very thorough in inspecting every aspect of the home - systems, roofing, counters, fixtures, flooring, walls, and landscaping - for potential damage.

As NAHB says, once you move in it will be difficult to prove whether damage was caused during the building process, especially considering the potential for damage that can occur during move-in.

Published: October 14, 2002

Use of this article without permission is a violation of federal copyright laws.

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