Buying a new construction home is a different experience than buying a pre-owned home that's been lived in by one or more previous parties. A new construction home is completely new, never before lived in and, if done well, up-to-date with modern building codes, energy efficiency standards and amenities.
However, the process from initial offer to closing can be quite different from buying a pre-owned home, so here are some things to know when buying a new construction home in Portland.
Know the Paperwork
Builders often have their own sales contracts and addendums specific to that particular builder, though some builders use the standard Oregon sales contracts that real estate agents typically use when making offers to purchase properties in Portland.
If your builder has proprietary sales contracts, be sure to review them carefully, making sure that you understand each of the terms to which you are agreeing when you sign the offer. With a fully executed sales contract signed by both parties, those terms govern the purchase of your new home, and 98% of those terms will not be up for renegotiating once they've initially been agreed upon between you and the builder.
For a nominal fee, it may be prudent to have an attorney review the contract and related paperwork. Portland real estate agents are licensed to fill out and use real estate contracts created and sanctioned by the state of Oregon only, not contracts created by other parties. Real estate agents are not attorneys, are not licensed to practice law, and are granted a very narrow spectrum of creating and reviewing contracts for consumers, something that would otherwise fall within the realm of an attorney.
At the end of the day, and this applies when using standard state of Oregon forms as well, know what you are signing, know the terms and make sure that you are in agreement with being bound by those terms. Signing a contract is serious business.
Know Special Terms: Earnest Money
If the home you want to buy hasn't been built yet or is still under construction, builders often take a different approach to a very important term that is a part of any real estate sales agreement: significantly larger earnest money deposits with early, non-refundable release to the builder.
An earnest money deposit is the initial deposit a buyer makes once the buyer and seller have agreed upon the terms of the sale and a fully signed and executed sales contract is in place and is part of the buyer's down payment. In Portland, earnest money deposits are typically anywhere between 1 - 1.5% of the purchase price. So, if the home you are purchasing is $575,000, a typical earnest money deposit might be $5,750 - $8,625. Builders, however, may ask for closer to 2% and up, especially if the home has not yet been completed.
Additionally, if the home is under construction and not complete, the builder will likely ask you to release your earnest money to the builder and to make it non-refundable once released. In a typical sales contract, the earnest money would remain in escrow (the neutral third party that facilitates the sale) until closing, when all funds are released to the seller. So when your earnest money gets released early to a seller, this means that, should you not complete the purchase of the home, you would not be entitled to receive your earnest money back from the builder. A common timeframe for releasing earnest money to a builder is within 5 business days after signing the sales contract.
That's a fair amount of risk to a buyer, especially when a larger earnest money deposit is at play.
Know Financing Considerations
If the builder hasn't started construction on your home at the time a sales contract is executed, and you are financing the purchase with a mortgage from a lender, know that your interest rate may not be the same when you close the sale after the home has been completed as the rate you were quoted at the time the offer was made.
Generally speaking, you can lock your interest rate for up to 90-days prior to closing, so if your home is scheduled to close in 90 days or less, this is less of a concern. However, if your home won't be ready for 6 months from the time you make your offer, there's a chance that your interest rate at the time of closing will be different since you won't be able to lock your rate that far out, for better (a lower rate) or worse (a higher rate).
At the end of the day, purchasing a home is serious business no matter who the seller is or what kind of home you are buying. But if you are considering purchasing a new construction home in Portland, it's prudent to know how that type of purchase differs from purchasing a resale home that's previously been lived in. A seasoned Portland real estate agent who is familiar with new construction purchases can walk you through the process to ensure that you are informed and protected every step of the way.
Interested in purchasing a new construction home in Portland but don't know where to start? Contact us today and we'd be glad to help you.