Buying a home can be a very stressful process. Before starting, it's best to know the ins and outs of your potential options!! Most homes purchased are resale homes, simply because there is not usually enough new construction inventory to keep up with demand in any given area. But what's the difference between buying New Construction homes and a resale home? There are a couple differences to pay attention to, by knowing these differences, it may help you decide which is the best route to take.
Contracts:
Knowing the difference in sales and purchase contracts is absolutely one of the most important aspects of this conversation. When buying a resale home, you will typically use the State's standard real estate purchase contracts. Depending on your state, you will have different escrow timelines, contingencies/protections, and abilities in place. If you're in Florida, make sure you understand your contracts by reading our blog here. Something to know about resale contracts, is you usually have a few "contingencies" that protect you and your best interest throughout the contract process.
It is crucial to understand, though, when you go to a builder/developer to purchase a new construction home, you are using the contract they have. In most cases, you will notice there are a few differences from the resale contracts. One of those being the escrow deposit. In residential resale, it is common for the buyer to put 1% of the purchase price towards the escrow (which is a deposit the buyer puts down to lock up the home, and is usually due back ot you at closing). With new construction, these deposits are usually larger, sometimes upwards of $15-20,000. Another key component is that there are no inspection or appraisal contingencies in most cases. This means, you do not have the right to inspect the home and negotiate repairs or credits like you would in a resale situation.
As long as you speak with your trusted agent and understand the protections in place in the contract, you will be fine! It's common that a buyer would want to feel as protected as possible in the case that they need to exit the contract for any reason. Your agent should be explaining what you can and can't do in order to retain your deposit. For new construction, usually, you will notice a financing contingency for the first 30 days of the contract. During this 30 days, you want to be diligent to get loan approval by the lender, after the 30 days if you cannot finance for any reason, you will not retain your deposit.
Closing Timeframe:
Closing Timeframes or "escrow Timelines" are the contract process and deadlines you will have to meet. With new construction, these timelines and deadlines can vary greatly. Sometimes you will be in a situation where you are purchasing a new home right when it is finishing completion, and your time line can be much shorter. But in most cases, you are waiting months, and sometimes years, for the builder to go through the building process, obtain permits and clearances, and then finally being able to close on the home.
The residential resale process is very short in most cases. From start to finish, in most states, you can close on the home in about 30-45 days. This means you will have to act diligently, take time off of work, and perform all of your duties in a timely manner. This can be stressful for first time home buyers a lot of times. As long as you have a professional in your corner to help you keep track of deadlines, obtain what is needed, and complete all the tasks, this will be a short and smooth process.
Warranties:
Warranties are available in any home purchase situation, but they're not always guaranteed. With new construction homes, the builder/developer almost always offers a series of warranties for the home. Usually a 1, 2, 5, and 10 year warranty in which the 1 year warranty is a "bumper to bumper", anything that goes wrong can be covered by the builder. The 2 and 5 year warranties will usually be for things like plumbing, electrical, appliances, and other main components of the home. The 10 year warranty is almost always just for structural components like the roof, foundation, slab, walls, etc. Please make sure you check with the builder and/or your agent to determine what warranties are in place for you as you buy that new construction home.
In the resale market, home warranties are not nearly as common. Almost always, the seller will not be offering the buyer any form of warranty. This can be negotiated, but in most cases, we do not see warranties put in place. The warranties that can be purchased though, are not nearly as thorough as the ones offered by builders. They will cover things like Appliances, Plumbing, Leaks, A/C units, Electrical outlets, and sometimes windows. These warranties vary in price and coverage, and depending on what you want covered, can rack up to pretty high prices for just 1 year coverage. For example, if you have a septic tank, you will have to make sure the home warranty company covers that, or that will need to be purchased as an additional add-on. However, the good news in resale is you usually have a "due diligence" period in which you can inspect the home with a licensed home inspector, and negotiate any repairs or replacements that need to be made. During this time, it would be ideal to ask the seller to repair/replace any defects found during inspection. You can also ask the seller to purchase a home warranty with specific coverages on your behalf, and you can also ask for credits in the form of money at closing!
Inventory:
Resale homes and New Construction homes will always vary in available inventory. Commonly, there are many more resale homes on the market than there are new construction homes. Your real estate agent should have access to show you all the new build inventory and resale inventory that matches your wants/needs.
The resale market will almost always have more homes, and homes with a variety of features. Considering a lot of builders will build communities with set floor plans, features, etc. referred to as "Spec homes", you will likely have a better chance finding what you are looking for on the resale market. Homes in new developments rarely have the option to build a pool, therefore you will need to wait until after you purchase to pay a contractor to install a pool. Not only can this cost a lot more, but it's more of a hassle if you want a pool. I always recommend to people looking for a pool, buy a home with a pool already installed!
Depending on your area, the age of resale homes can also vary. You may be looking in an area where most homes were built in the 50's and 60's, as a result, you will find homes that are typically smaller and have issues from being built to previous building code standards in those times. In this case, you might want to look for the new build developments to avoid things like Cast iron piping, outdated and uninsurable electrical wiring and panels, and potential water piping issues that can arise with older homes.
Conclusion:
All in all, you as the buyer get to decide what is best for you. If you feel that home from the 60's matches your style and you are willing to put in the work to make it right, then by all means, GO FOR IT!! As the home buyer, it is your job to determine what you're willing to do and not do, what is in your best interest, and which route you want to take. Your agent's job is to breakdown the pros and cons, the processes, and options you have to best meet your goals. Make sure you do your research on both new construction and resale homes in your market before you start the process!
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