How To Avoid 3 Common New Construction Home Setbacks
As the U.S. struggles with a housing shortage, new construction builds will reportedly need to increase dramatically over the next 10 years. The lack of real estate inventory has prompted many homebuyers to consider new construction homes. The increase of new construction homes has begun with 6.8 million single-family homes from 2010 to 2019. But an increase of approximately 60% would be needed to close the housing gap in the coming years.
While eager homebuyers appear to be taking matters into their own hands, wading into the construction sector can prove challenging. It's not uncommon for someone's first experience in the industry to involve a learning curve. But the lessons homebuyers take away from the process typically result in lost time, money, and ongoing stress. That's why it's essential to conduct due diligence. Read on to learn how to avoid the most common mistakes that new homebuyers make when pursuing a new construction home.
Not Thoroughly Vetting a Contractor or Developer
For many Americans, purchasing a home ranks as the single largest investment they make in a lifetime. Still, too many people don't protect this investment by thoroughly vetting contractors and developers. It may come as a surprise to learn that, on average, people spend more time researching automobile purchases than the company tasked with building their homes. Although many potential homebuyers believe they have a good feeling about the contractor or developer, few dig deep enough to answer the following questions adequately:
- Does the contractor or developer employ experienced construction professionals?
- Does the contractor or developer sub-contract work to only accredited companies?
- Have any claims been filed against anticipated sub-contractors?
- Have any lawsuits or liens been leveled against the contractor or developer?
- Has any entity involved in the project filed for bankruptcy?
- Are all the parties involved insured and bonded?
While charismatic contractors and developers may inspire confidence, they won't be hammering in every nail or installing electrical systems. As the saying goes: trust but verify. The alternative to thoroughly vetting key stakeholders could be a lien on the property or a half-built home that requires legal action to move forward.
Not Planning for New Construction Delays
Building timelines are typically based on the availability of specific materials and labor. As a result, it's common to experience backorders that cause delays in constructing a new home.
Completing one facet of the build may be required to start the next. For example, electricians cannot run wiring for electrical outlets until interior and exterior partitions are completed. A 2x4 lumber shortage not only slows the carpenters' work but also may hold up various subcontractors.
When things such as lumber shortages occur or boots-on-the-ground workers are not available, elements of the building process become stalled. That's why it's essential to have a fallback position that includes placing belongings in short-term storage and a flexible lease or closing date connected to the place you live while your home is under construction.
Not Planning for Construction Cost Overruns
The 2021 lumber shortage resulted in a seemingly unprecedented spike in building material costs. That unanticipated increase caused a recalculation of new construction home projects that were already underway. Although this extreme case may be something of an anomaly, it highlights that builders have no control over supply chains.
Financial overruns can result in homebuyers having to renegotiate financing terms or take money out of savings to offset the shortfall. It would be wise for new construction buyers to budget for a possible 20% cost overrun.
New construction provides homebuyers a path around the cramped real estate market. It also places a higher burden on homebuyers to ensure the process runs smoothly. By considering these common mistakes and avoiding them with due diligence, homebuyers can save time and enjoy a positive home-building experience.