Great points above. I would like to add:

1) Get your own appraiser (oftentimes through your own lender).

2) Don’t trust the closing data on the MLS. Oftentimes they will hide $50,000 seller subsidies.

3) Go to the tax records to see what units are closing for. Many builders are requiring that Realtors sign a piece of paper that forbids them publish the closing price on the MLS. The problem with tax records is you can’t see the upgrades or HUBE closing costs.

4) Given #3 make your offer SUPER aggressive on closing costs and seller subsidy. The subsidy won’t show up on the tax records, so helps their resales.

5) Given #4, demand to look at HUD1s. Don’t trust the price that they say another unit sold for. Ask for specific units. Not ones cherry picked.

6) Ask that % they are sold. And make sure that is CLOSED units. None of this “held back” tricks.

7) Be aware of the risks with builders unloading the rest of their inventory at an auction. You can lose $50,000 overnight.

If you are between a new construction and a 1 year old resale in a similar building, consider the risks of prices taking a free fall. Even pay $10k-$20k more for the resale. The builder’s last 40 units won’t get more expensive.

9) Expect the condo fees to take a 10-15% jump after you move in.

Good luck!

Frank

Frank,

Great points except I disagree about your thinking for #7. You seem to imply that a builder lowering prices on the remaining 40 units will only affect pricing in that particular building. If a gas station were to have a “going out of business sale” and sold all remaining fuel for 50% off wouldn’t almost everyone buy the gas there until it is gone before buying the market priced gasoline across the street? A builder lowering prices hurts ever owner trying to sell in the building, neighborhood, submarket, city, county, metro area, etc. to the extent the homes are comparable. You mention getting an appraisal. If you contract on resale next door and the appraiser finds out that prices have been dropped $50,000 for a comparable unit next door something will have to give. Either the deal is off because your unit doesn’t appraise or you’re bringing a lot more cash to the table.

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Frank-
Thanks for the additional tips. I really like #6. It’s key that you know what % of homes or condos in the development are closed.

Chris

Fantastic list, Chris. On #1, may add: hire a real estate agent or a lawyer — just so we aren’t biased, or at least we don’t sound biased.

Hey Glenn,
I think you are fine saying to hire a real estate professional. A lawyer can read a contract, but that is not where the tricks lie.

Jamie,
I have seen it happen personally. You can read it on my blog. A community was hovering around $330k, then they held an Auction and everything dropped to $280,000 and they haven’t recovered since.

And even if they don’t do an outright auction, even if they slowly drop prices $10,000 every 2 months for 10 months… The point is you might think you are getting a “steal” but if the builder has another 20 units, everyone after you will get a “steal-er.”

Also I left off the all important #10

#10 WATCH OUT FOR CONDO FEE HIKES AFTER YOU CLOSE Don’t think this doesn’t happen. Sure the condo association is a bunch of owners, and they don’t want the fees to go up, but the builders tend to make them artificially low to attract buyers. Watch out for this.

Frank,

I’m not arguing that a builder reducing prices or auctioning off units in a community does not hurt the existing purchasers. What I’m saying is that it is not limited to owners in the particular building. It instead will affect owners in the building AND owners in nearby buildings to the extent they are comparable. In a way it is not dissimilar to a bunch of foreclosures in one particular building. The banks will cut the price until they can get out which doesn’t help an owner occupied seller who is selling at the same time. At the end of the day I think people should do their research, know the market and what things are selling for, and buy a home that they want to live in. There will always be someone who gets a better “deal”. But, maybe they had to sacrifice the enjoyment of living in a home they like for some time to get that “deal”.

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# 11 – If possible, place builder deposits or earnest money in trust accounts, not the builder’s general operating account.

this is a helpful one!

Be inquisitive and ask about the materials that were used in building the house. This way, you protect yourself and the building contractor than wait ’til you’re living in the facility already.