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Modern House


Beware of New Construction Homes!

This blog is a direct transcript from the video below. This comes in 3 versions: You are able to watch the video, read the blog for your convenience or listen to the audio experience (which is linked under the video below).

You’re a buyer trying to purchase a home in today’s crazy housing market, but you keep getting outbid, no matter how many offers you make or how much money you’re offering over the asking price, you still can’t seem to get that offer accepted. It becomes a little discouraging doesn’t it?

I know how you feel, I see it every single day. On top of that, you’re going on an exhausting amount of showing appointments.. How do I know? Well, the stats don’t lie. You’re almost to your breaking point, and then you think to yourself “If I can’t find a house, I’ll just build one, problem solved” That idea is logical, but I have four words for you, beware of new construction.

Aside from this market’s craziness, I would ALWAYS tell you to beware of new construction. As friendly and outgoing as the sales associates are in the model homes, you must understand that they are working on behalf of the builder, not you, but this video isn’t about the normal headaches of new construction such as: construction delays, low builder grade quality, costly upgrades, potential property tax increases or the questionable fees you as a buyer have to pay for.

This blog is about building a new construction home in today’s COVID-19 infused housing market. The “If I can’t find a house, I’ll just build one” logic stems from the thought of “If I’m going to pay over asking price for a used home, I might as well just do a new construction home and use the extra money to cover the inflated building materials.”

If you aren’t aware of the inflation of building materials, go check out my recent YouTube Video about the lumber shortage to bring you up to speed, I’ll link that in the description below. If you are aware of the price inflation of building materials, you know that the price of a new construction home has increased nearly $36,000 according to numerous sources.

Even though that number has been plastered all over the internet, new construction homes are still being built and purchased to this day. If you’re in an area where home values appreciate substantially, and your city is becoming the next “big thing” based on developments and real analysis , then what’s the worry? Well, let’s rewind back to the building stages and I’ll tell you.

Let’s say you’re in the beginning stages of a new construction home, you’ve chosen the piece of land you want to build on, you’ve decided which floor plan works best for you and your situation, and you’ve scrolled or flipped through the endless pamphlet of upgrades deciding on what makes sense and what doesn’t. The home started at $300,000, and you’ve decided on $25,000 worth of upgrades, and your set price is $325,000. Obviously, there’s other fees involved with closing, lot premiums, transfer taxes, insurance etc. but for the sake of this example, I’m keeping it simple.

More so than not (especially in this market), subdivision builders are providing their own purchase agreement or contract instead of using the buyer’s real estate agent’s. Hmm why might that be? It’s because the builder has slid in extra terms and clauses that you NEED to be aware of. Please listen to this example carefully, let’s say lumber prices soar higher, builders are putting clauses in their contracts that say after the purchase agreement has been signed, if for some reason prices on materials go up within let’s say 3-5 months, they can decide to void the contract, finish out the build and sell the home for more money while reimbursing you your funds, deposits and parting you with a lovely Texas Roadhouse gift card for two as a sorry.

All jokes aside, that would be terrible. Imagine spending months envisioning your life in this new home that you essentially customized from the ground up, just to have your dream stripped from you after a few months because the builder wanted to make more money. I’m not saying every builder does this, but a lot of builder’s have been shifting to this strategy to make up for their losses and delays during COVID-19.

That’s why it’s crucial to not only read the fine print, but get a real estate attorney involved so you don’t misinterpret the wordy documents being pushed onto you. It’s also good to have a buyer’s agent on your side to help you through the process, as they are working solely on your behalf and not the builders.

By no means am I trying to discourage you from building the home of your dreams, as there are tax breaks, low interest rates, the fact that land is always appreciating, and in some cases you can leverage this COVID-19 housing market to find deals from builders trying to stay competitive, I simply just want you to be aware of the situation. Some people might be fine with that happening, especially if it meant getting your funds back, but others are more hesitant at the amount of time that could be wasted on the project. On a plus side, you could find comfort in understanding the new construction process even if it didn’t work out for you.

For those of you who have done new construction during the pandemic, how did it go for you? Drop your experiences in the comments.



Andrew McManamon is a Michigan REALTOR® with Signature Sotheby’s International Realty and provides real estate services to Buyers, Sellers and Investors throughout SE Michigan including Livingston County, Oakland County, Washtenaw County, Genesee County & beyond. Andrew has become one of the rising stars of Michigan real estate agents. Prior to his real estate career Andrew was responsible for managing a senior living facility in Brighton, Michigan as a dining supervisor and an activities assistant. Andrew’s passion to help people is unlike any other, and he continues to strive to be best resource he can be. Andrew graduated from Cleary University in Howell, Michigan with a double major and currently resides in White Lake, Michigan.


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