Many homebuyers think that purchasing a newly constructed home is smarter than purchasing a "used" one. A brand-new home's maintenance costs should be minimal; its construction materials, systems, and appliances should be up to code and energy efficient; the floor plan and amenities should meet the needs of contemporary living, and the place should be move-in ready—or so they reason. A spanking new property also has an emotional appeal for buyers: No wear-and-tear! no dealing with someone else's taste or mistakes!

What many buyers don't realize is that new homes often have numerous hidden costs. If you're purchasing new construction from a builder or real estate developer, here's what you should look out for to make sure you're spending your money wisely and don't incur any unpleasant surprises.

Key Takeaways

  • Buying a newly constructed home requires almost as much attention to detail as buying a previously owned one.
  • Inspect a new home carefully, as it can have hidden defects.
  • Many new homes lack a lot of internal and external features: Adding them will be an extra cost to you.
  • When viewing model homes, understand what's standard and what constitutes an upgraded feature—which of course costs more.
  • You should have your own real estate agent and research your own mortgage—don't assume the builder's terms are the best.

Hidden Defects

Just like an older home, a brand-new home can have hidden defects (also called "latent defects") that require expensive repairs. Heavy rains can reveal inadequate waterproofing or grading that leads to leaks or flooding. A weak slab could crack. Siding could fall off. The wood floors could warp. Your toilet could overflow. Electrical wiring could be done incorrectly. Any problem that you might be afraid to find in an older home can also appear in a brand-new one.

To protect yourself, research the builder's reputation before you commit to a purchase. And don't skip a thorough inspection by an independent home inspector who is not affiliated with the builder.

Arrange for two inspections at different times to make sure your new home is truly free of defects and in move-in shape: One after the home has been constructed but before all the finishes have been put in (problems can be easier to identify) and another just before you close and take possession.

Also, find out what kind of warranty the home comes with and read it carefully before you actually purchase. You may have to rely on that warranty if any latent defects pop up because your homeowners' insurance policy may not cover them. Different aspects of the home may be covered for different lengths of time so make sure you're aware of those limitations. Report any problems to the builder as soon as you notice them.

Missing Necessities

New homes often don't come with everything you need. It's quite common for them to lack interior essentials such as appliances and window coverings, and exterior features like decks, fencing, and landscaping.

Each of these missing items can be a major added expense. Before you make an offer, ask what is included in the price of the home, note what's missing, and do some research to figure out how much these items will cost. Make sure to factor these purchases into your budget. If you can't afford to pay for them out of pocket, getting the builder to pay your closing costs might free up the cash you need for blinds, sod, and a washer and dryer.

If that doesn't work, look for a new home that comes with all the essentials, or consider a property that's almost brand new and is just lived-in enough that the previous owner has installed all the missing necessities.

Pricey Upgrades

The showy model you'll tour will typically have all the upgrades the builder offers, from hardwood floors and granite counters to bay windows and oversize bathrooms. Seeing what you could have can lure you into spending significantly more than the base price that originally attracted you to the property and the community. The price difference between the base model and the model with all the bells and whistles can be tens of thousands of dollars.

Also, if you buy the upgrades through the builder, you might pay an upcharge and have a limited selection compared to doing the upgrades yourself. You also have to consider the future resale value. Make choices that will appeal to a wide variety of buyers and won't result in your home being over- or under-improved for the area.

Some builders do include upscale features in the standard model and factor them into the base price. Just make sure you know what you're looking at before you tour a home and fall in love with something you can't afford—or feel gypped because the standard model seems to fall short of the deluxe one.

Uncertain Future

In a new community, you don't really know what you're buying into. What will your neighbors be like? What will be built on that vacant land next door? How reliable will the services (snow plowing, utilities, garbage collection) be? How will these unknowns affect your quality of life and your home's resale value? "New construction" is not a synonym for "low crime," "friendly neighbors," or "great neighborhood maintenance."

It's OK to take a chance on these unknowns. Just realize that you're taking a chance. Conditions can change in established neighborhoods, too, but at least those have a history that'll give you a better idea of what life will be like in your new home, compared to an untried development.

Lack of Representation

When you buy a new home, you shouldn't walk into the sales office unarmed, even though it can seem like a no-brainer, one-stop-shopping operation. The builder's sales agent represents the builder—not you—and any financing the builder may have arranged will not necessarily be the best available financing. Do your research and familiarize yourself with the different mortgage types available and the interest rates available for lenders in your area.

Then, based on your research, get your own real estate agent and your own lender to make sure you get the best price on the home and the lowest interest rate and fees on your mortgage.

The Bottom Line

Don't make any assumptions about what you'll be getting if you buy a new home. It can be more expensive and come with many more uncertainties than you bargained for. However, if you prepare for the experience, you'll know how to watch out for your best interests and spend your money wisely.