Pros and Cons of Buying a Home Under Construction

Depending on your location within Middle Tennessee, you may find that homes under construction are easier to find than existing homes. Certain areas are so desirable that there simply isn’t enough real estate to go around without new homes being built.              

If this is part of the decision you’re facing as you purchase your next (or first) home, let’s break down some pros and cons of buying a home under construction.

Financial Considerations

Mortgage interest rates are higher than you might prefer, especially when compared to the roughly 3% national average rate we enjoyed in 2020. Rising interest rates have made it somewhat easier for buyers to bid competitively for existing homes, but they have also resulted in higher monthly mortgage payments.

Given that the cost of repairs needed in a new construction should be zero (or close to it) for many years to come, it can be a better choice for buyers who are on a tighter monthly budget.

On the other hand, the listing price of a newly-built home is usually higher than comparable existing homes, and an existing home that earns a stellar inspection report may be equally maintenance-free for the foreseeable future.

Purchasing Sight Unseen

Whereas you will always be permitted to tour an existing home before you make the single largest purchase of your life to date, a home that is still being built must be purchased sight unseen. You will be invited to tour a model home, of course, but you will also be expected to purchase the home on spec directly from the builder. Unless you visit the site frequently and make any requests or complaints known immediately, you may have to take legal action against the builder to rectify problems down the line.

If you purchase land, hire an architect to design a custom home, then contract a builder to build it for you, you will have much more control over the construction process. With this control, though, you will have to shoulder much more responsibility. You should expect to visit the construction site daily, speak with the contractor at least once per day, and may spend 4 or more hours per day overseeing and managing the project.

If you do opt to have a fully custom home built, it’s important to keep in mind that the bank financing your mortgage will release funds gradually to keep pace with construction. Whether or not it is worthwhile to plunk down more cash to build the exact home of your dreams is a decision only you can make.

Bidding Wars

When buyers are competing for homes in a tract or master-planned community, bidding wars are launched over who gets the prime lot, the larger home, or the home with the best layout—sometimes all of these or more. Whether you wish to join the fray will come down to your priorities.

If you are content with an “average” lot within the community, meaning a home in the middle of the block with a typical layout and standard size, you will be able to save cash. Alternatively, if you know you won’t be happy driving past that home you really wanted six days per week, gritting your teeth as you wave to Mr. Daugherty, it may be best to throw as much at the bid as you can afford.

Choosing a Reputable Builder

We never recommend purchasing a home from a builder who is tackling their first neighborhood. While there may be no issues, there is a significantly higher risk of shoddy workmanship, delayed construction, or contractor walk-outs resulting in incomplete construction.

For this reason, we strongly encourage our clients to stick with builders who have earned an excellent reputation across multiple, high-value builds. Such builders employ teams of contractors with whom they have longstanding relationships. These contractors have proven their mettle, are happy working with this builder repeatedly, and are therefore highly unlikely to exhibit poor workmanship or quit mid-project.

This same rule holds true for their materials suppliers, who will supply their long-term, high-value clients with good prices, better materials, and will offer them priority when supplies run low.

Do plenty of research on the builder, including asking your Parks Real Estate agent to find out everything they can about their past projects. If you want your home to be completed on time, on budget, with high-quality materials, and by master craftspeople, it is essential that you buy from the right builder.

Upon Completion

Some buyers believe that brand-new construction does not require home inspection, but this could not be further from the truth. A rigorous home inspection is just as important for a newly constructed home and must be performed immediately upon completion.

Walk through the property yourself as well. Photograph and document any issues you detect and submit them electronically to the builder. Include a description of the repairs or installations you expect to take place.

If any issues are detected, put your payments into an escrow account. Do not release them to the builder until every problem has been resolved to your inspector’s satisfaction.

The Takeaway

While there is no worry-free way to purchase real estate, the peace of mind that comes from moving into your own home after all the hassle is behind you is irreplaceable. To learn more about construction happening near you, or to find an existing home that is a cut above the rest, contact your agent.

No other real estate company in Middle Tennessee understands this region and its homes better than we do. Give us a call, and we’ll happily show you what we mean.