The TMYK series highlights interesting facets of the home building process I had no idea about before we began. In the last post, I covered the difference between spec and custom homebuilding. Whether you are pursuing custom or spec, home builders offer a widely varying amount of control in the home building process.
A good custom builder will happily collaborate with you to ensure your ideas are well implemented before you sign your contract. Spec homes, however, can be deceptive to potential buyers who see an incomplete structure and think they can control all things that aren’t yet built.
A pre-buy is when you agree to purchase a spec home before it is complete. Spec home builders want certainty on their investment as early as possible, so they may list a house for sale before construction has commenced or at any point before completion. By doing this, they are asking buyers to use their imaginations about the finished product and in exchange lock in a (possibly) lower price for the home. Frequently, a spec home builder will have completed similar home models you can tour.
In many circumstances, the builder cannot actually sell you the house at this point. You end up signing a pre-sale contract and making a down payment on the house. You commit to buy without actually making the purchase just yet. When construction is complete and the certificate of occupancy has been issued, the bank will be able to complete the loan for the property. Your down payment for the pre-sale will be applied to the loan down payment and the purchase commences like any other housing sale. Your pre-buy down payment is not necessarily the same amount as your loan down payment, so you may be asked to put 5% down for pre-buy and then another 15% to complete the 20% down payment on your loan.
Pre-buying a spec home may allow you to customize the finish and possibly even the architecture, but your options are reduced quickly as construction progresses or as the number of other buildings going up at once increases. The builder is likely to have picked out trim, carpet, hardwoods, and counters before the walls are finished. The cabinetry may have been ordered while the framing was still going up. The framing itself is largely set when the engineer and city put their stamps of approval on the blueprints. Be sure to talk to the builder as early as possible to ensure you have the most flexibility.
Some spec builders may allow you to customize any decision that is still open to change while others may have a menu of pre-defined options to choose from. Expect the latter case in a large housing tract with many homes going up at once: They’re ordering items for all of the houses at once and may not take kindly to a special order toilet when the other 60 in their order are identical. Of course, as with many things in life, it all comes down to the mighty dollar. If you pre-buy a spec house and decide that it needs an extra window even after the siding is up, the builder may agree to go along for the right price.
In a custom build and in some pre-buy arrangements, the bank will require a complete specification, blueprint, and finish level punchlist for the house. This specification is the bank’s contract with the builder. Just as you wouldn’t want vinyl flooring when the marketing materials promised marble, the bank doesn’t want to write a loan on a house that was finished to a quality level lower than market value. If the builder doesn’t deliver according to the contract, they don’t get paid (more on this in a later post). Make sure you have access to these specifications before you sign and agree to them. They should be detailed enough to answer every question you have about the finish quality, right down to the brand and model number of the appliances, faucets, and furnace. These documents are essentially the recipe for building your home.
Custom, spec pre-buy, and new construction follow a continuum of increasing cost and certainty but also decreasing risk and customizability. A very important part of getting involved with any new construction is determining what’s most important to you and evaluating the trade-offs.