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3 Things to Negotiate in Your New Construction Purchase Agreement

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Do you have a new house built? Here are some key elements to follow.

Key points

  • Some new construction homes allow you to customize your living space and build it to your specifications.
  • If you’re smart in your negotiations, you could end up saving a lot of money on your build.

There are certain benefits that you will get when you buy a newly built home. On the one hand, you will get a property in perfect condition when you move in. Also, in many cases, you will be able to customize your home to suit your needs. Do you want an upgraded kitchen with a double oven? Your constructor can probably make that happen.

Also, while you may have to take out a higher mortgage when you buy new construction, in return, you’ll usually enjoy several years in your home without major repairs. Not only do new construction homes come with a builder’s warranty that protects you against manufacturing defects, but most new appliances, like water heaters, come with their own warranties.

But still, new construction can be an expensive undertaking, especially if you’re not careful about the purchase contract you sign. Here are three things you should try to include in that contract to keep your costs to a minimum.

1. A lower escalation clause (or better yet, none at all)

It is common for newly built homes to include an escalation clause. That clause allows your builder to pass on certain costs to you if they are higher than expected. And having one on your lease could make your house cost a lot.

Imagine that you have signed a contract to buy a newly built house for $400,000 with a 10% increase clause. That means your builder could end up charging you up to $440,000 if the materials end up costing more than anticipated. Clearly, that’s a big difference. It’s a good idea to negotiate any escalation clause down, or better yet, fight to have it removed.

2. More generous allocations

When you buy new construction, you’re entitled to all the basic features a home should have, like a kitchen sink, stove, and lighting in your bathrooms. But often those features will be what is known as builder grade. That’s a good way of saying that they will be budget versions that are not necessarily of the highest quality.

You may, as a buyer, choose to purchase some of those items yourself, such as upgrading to a stainless steel sink, high-end stove, and attractive lighting. If you do, you will be entitled to an allowance from your builder for each item you provide yourself, the amount of which will usually be detailed in your purchase contract.

But be careful. Your builder may try to discount some or all of the items you could supply with low allowances. If you see that happening, fight for credits that are more generous.

For example, you can get an allowance of just $40 for a kitchen sink. Technically, it’s possible for your builder to buy one at that price. But it might also be reasonable for you to argue that any decent sink will cost $100, not $40. If you decide to buy a $200 sink for your kitchen and fight for a $100 allowance, you’ll spend less money overall.

3. More home improvement

Your builder should specify the exact features you will be entitled to as part of the purchase price of your home. But that doesn’t mean you can’t ask for better.

If your contact requests laminate flooring, try to get your builder to include more expensive hardwood flooring in your living room. Or, you can try to negotiate a nicer refrigerator or dishwasher than the models your builder plans to provide. The more upgrades you secure in the course of your construction, the less likely you will have to renovate your home in the future.

Newly built homes can be expensive. Don’t hesitate to negotiate before you sign a contract to make your home as affordable as possible.

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