Denton County TX New Home Buyers Guide

If you are considering buying a new home, you have come to the right place. There is no substitute for professional buyer representation when you are shopping for a new home. Let me cut to the chase and say that if you are considering buying a new home and you haven’t talked to your Realtor first, you are shooting yourself in the foot!

A good real estate professional will not only help you with the new home buying process, but he/she can also help you lower the cost structure of selling if you have an existing property. Even if you don’t have an existing home to sell, it costs you nothing to have a Realtor in your corner when you are buying a new home. Its a win-win situation for everyone involved if done correctly.

The balance shifts, however, if you feel the need to go it alone assuming that you have the experience and knowledge to negotiate with the builder’s sales representatives. Most people don’t. If you wan’t to level the playing field and make sure you don’t get taken for a ride by a new home builder, keep your real estate broker in the loop, or better yet have him/her with you to evaluate potential properties. A good broker will help you target neighborhoods, builders or properties that fit your needs and budget. An experienced real estate professional will help you avoid some common pitfalls and keep the process balanced.

Ever heard the builder’s sales rep tell you there’s a price increase coming next week? Of course you have. It’s salesmanship 101. It’s part of the business. Puffery and bluffing are part of the game to generate buyer demand and boost sales regardless of the actual market conditions or the real economic backdrop. If you aren’t familiar with the area, the product or the market you might be at a severe disadvantage in terms of negotiating leverage.

Would you rather celebrate your new home purchase or be overcome with a heaping dose of buyer’s remorse?

The unfortunate reality is that building a new home can be a rather daunting experience, particularly if you are a first-time home buyer. New home builders are in the business to make a profit, and the more the better. If you doubt this, just look at how many of them are publicly traded corporations. In many cases you are NOT their real customer. You are a walking piggy bank who could potentially move some of their product which would thereby boost sales and the company’s stock price. Can you spell “year-end bonus” for the CEO and executive staff? Do you think the CEO is going to personally call you when your AC stops running or the roof on your new home leaks? Of course not. It’s important to remember that you need an objective voice to advocate for you when the builder drops the ball.

They call it real estate for a reason!

Look out for those lot premiums. They can add to the cost of the home rather quickly, and sometimes they have absolutely nothing to do with the resale value of your home. What’s that? The builder didn’t warn you about that 14 foot utility easement. You didn’t realize that your neighbor’s back door was going to be only 20′ from your own back door? These are things an experienced real estate professional will warn you about when the builder’s sales rep is trying to steer your focus to the fabulous hardwood floors and other eye candy.

Behold the design center profit center.

New home builder design centers are a place where your imagination can run wild and your bank account can be emptied faster than you can blink. Fortunately most builders want to actually close their sales contracts so they will provide some guidance about loan-to-value ratios and offer the occasional warning if you go hog wild on designer finishes. An experienced real estate professional will go much further and help you get the best bang for your hard-earned money when you are choosing finishes and upgrades. Not all upgrades are equal, and some of the stuff you might consider “must-haves” may offer little to the home’s actual resale value.

Affiliated business arrangements are the bomb…for the builder!

If you are familiar with the term “affiliated business arrangement” chances are good that you have bought a home before. Almost all new home builders utilize them, and in almost all cases they are NOT consumer friendly. Affiliated business arrangements are designed first and foremost to boost the builder’s bottom-line profit. Let me demonstrate one of the most common examples…

Builder XYZ tells you they are going to offer you an incentive to use their affiliated lender ABC Mortgage Company. In this hypothetical example, the sales rep advertises a $5000 credit to you as the new home buyer if you use their affiliated lender and title company. Sounds great. What’s the catch? The catch is that ABC is going to probably jack up the interest rate on your loan above wholesale to the point where the yield spread (the difference between the wholesale and retail rate in the market) provides the mortgage company with a large enough credit to cover your $5000 “incentive”. Basically the the new home builder just gave you NOTHING and made you feel good about it.

A good real estate professional will help you prevent this from happening and keep the playing field balanced. It’s important to remember that those affiliated business arrangements would not exist if they didn’t generate revenues (profits) for the home builder. Everyone deserves to make a profit, but that doesn’t mean you need to be taken for a ride in the name of vertical or horizontal business integration.

If you are considering buying a new home in Denton Texas or anywhere in Denton County, give me a call. Aaron Layman Properties welcomes the opportunity to assist you with your new home purchase. Professional buyer representation costs you nothing, but it could save you thousands and prevent some rather unpleasant surprises.

For a good laugh and some historical perspective, just take a look at some of the more entertaining comments from publicly traded new home builders prior to the bottom falling out in 2006…

“Fiscal year 2005 was our 28th consecutive year of growth in earnings and revenues. In addition to setting Company records, D.R. Horton is establishing industry records. The Company is the first builder to sell and close more than 50,000 homes in a year. We have accomplished this leadership position while continuing to improve our balance sheet. Our shareholders’ equity grew 35% to $5.4 billion, contributing to our record low homebuilding net debt to cap of 32.2%. The improvement in our balance sheet combined with our strong operating results resulted in our recent upgrade to investment grade status by Moody’s Investors Service.” Donald R. Horton – Q4 2005 Earnings Release November 16, 2005.  By Q4 2009 D.R Horton’s closed home sales collapsed 68% from their 2006 peak.

“We are pleased to report another year of record performance for Lennar in 2005. As in past years, we have once again enhanced shareholder value through consistent execution of our Lennar strategic growth plan.” Stuart Miller, Lennar Homes CEO – 2005 Letter to shareholders/annual report. By 2009 Lennar’s deliveries of new homes plummeted 76 percent from their 2006 peak.

And perhaps one of the most laughable statements of all time from a publicly traded home builder…

“Right now is a great time to buy a new luxury home. Builders are motivated to sell their specs and the fundamentals that typically lead our industry out of a slowdown are already in place. Interest rates are near historic lows, unemployment is near an all-time low and the stock market is setting records…Experts project that population and household growth will continue. The increase in affluent households continues to outpace that of households in general, which bodes well for our luxury niche. We believe we are well-positioned for the market rebound.” Robert Toll, CEO Toll Brothers – Q4 2006 Press Release. Of course by 2009, new home sales for Toll Brothers had plunged to a fraction of their 2005 peak.