Phoenix new construction hbc 1.10.13
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Phoenix new construction hbc 1.10.13 Phoenix new construction hbc 1.10.13 Presentation Transcript

  • What Home Builders Don’t Want You to Know January 10, 2013 Chandler, AZ Follow: @RedfinPhoenix Like: facebook.com/RedfinPhoenixSlide 1 of 91
  • Introductions ● Kevin Wachel ► Redfin Agent ● Marcus Fleming Introductions ► Market Manager and Broker for Redfin Phoenix ● Justin Toenjes ► Redfin preferred lender ► 12+ yrs experience in builder industrySlide 2 of 91
  • Your Turn ● Name ● What brought you to the class? ● Have you purchased a new home before? ● Are you looking to buy/build a new home? ► Where are you looking? ► How long have you been looking? ● Bonus Question ► Would you be more or less likely to attend another class on a Saturday?Slide 3 of 91
  • Agenda Phase 1 – Do Your Homework Phase 3 – Building Your Dream ● 5 reasons to buy (or not) a new Home construction home ● Contract to close timeline ● Changes in the new construction industry ● Where did my Realtor go? ● How to search for a new home ● Design center ● Qualifying the builder and the area ● Walkthroughs and inspections ● Infill communities ● Home inspections ● How do home builders price their homes? ● How contractors work ● Spec homes ● Signing and closing Phase 2 – Getting the Home Phase 4 – Living in Your Home Under Contract (Negotiations) ● Builder warranties ● 5 reasons to (and not) involve a Realtor ● Customer service requests ● 5 reasons to (and not) use their preferred ● 365 day walkthrough lender ● What are the most common improvements after moving in? ● Financing ● Contract negotiations ● What improvements add the most value? ● Builder contract need to knowSlide 4 of 91
  • A Little Bit About Who We Are Redfin is a real estate brokerage that has helped over 20,000 people buy or sell a home; 97% would refer us to a friend. ● Focused on customers, not commissions ● Refunded over $100 million in commissions ● Local agents, local knowledge ● Help people make informed decisions ● Help people find the right home for the right priceSlide 5 of 91
  • Redfin.com Benefits of a MLS Powered Site ● All the homes for sale: 30% more listings ● You see what the agent sees: 4x the data ● Real-time market data: photos, details of just-sold homes ● Far more accurate and up to dateSlide 6 of 91
  • Phase 1 Do Your HomeworkSlide 7 of 91
  • 5 Reasons to Buy a New Home 1. You want a home designed to your specifications and style 2. Little to no maintenance costs 3. Move in ready 4. You want to buy now while prices and interest rates are low 5. You don’t want to mess with banks or distressed homesSlide 8 of 91
  • 5 Reasons Not to Buy a New Home 1. You want a short drive to work and don’t like traffic 2. You don’t want to spend money improving the home after closing 3. Build time is too long 4. Cost is too high 5. You prefer an established communitySlide 9 of 91
  • Changes in the New Construction IndustrySlide 10 of 91
  • What’s New with New Homes? ● Technology ● Green building ► HERS index (Energy Star) ► SRP Powerwise ► Solar panels ► CFL lightbulbs ► 14-SEER HVAC ► Low-E glass ► Spray foam insulation ● Is it effective for the owner? ► Est. Annual Savings: $1,000+ ► Caution with solar ● Is it cost effective for the builder?Slide 11 of 91
  • Construction Boom ● Cause and Effect of New Construction Boom ► Prices increases: 34% in 12 months ► Increased sales: 85% in 12 months ► Build time takes longer ► Quality becomes a concern ► Material shortage ► Labor shortage ► Lotteries ► Tough Negotiations ● Why? ► Shortage of resale homes ► Recent price increasesSlide 12 of 91
  • Top 5 Builders in Sales 1. Pulte Homes 2. D.R. Horton 3. Meritage Homes 4. Shea Homes 5. Blandford HomesSlide 13 of 91
  • Searching for a New Construction HomeSlide 14 of 91
  • Searching for a New Home ● Where to look ► Online ► Redfin ► Builder websites ► MLS data, not always accurate ● What to do ► Consult your agent for help ► Drive the streets, look for signs ● What to bring ► Realtor (optional) ► Camera ► Will to resist registrationSlide 15 of 91
  • Highlights of Redfin’s Site ● Search by zip code or neighborhood ● Search for new construction ● Saved searches/instant alerts ● Agent notes ● Download results ● Price your home ● Forums ● Home buying guide ● Home inspection guide ● Any questions about the site?Slide 16 of 91
  • How Do Builders Advertise? ● “If You Build It, They Will Come” ► After all, they have 2-3 years to find it ● MLS ► Not always up to date ► Prices rarely accurate ► Home may not be complete ● Company website ► Rarely up to date ● Street directional signs ► Typically only used on weekends ● Realtor specific websitesSlide 17 of 91
  • East Valley CommunitiesSlide 18 of 91
  • North East Valley CommunitiesSlide 19 of 91
  • West Valley CommunitiesSlide 20 of 91
  • East Valley Home Builders Price Avg $ vs Avg Sqft$700,000$600,000$500,000$400,000$300,000$200,000$100,000 $- - Sqft 1,000 2,000 3,000 4,000 5,000 6,000 Stats – Min: $60/sqft High: $217/sqft Average: $106/sqftSlide 21 of 91
  • Qualifying the Builder and the AreaSlide 22 of 91
  • Research the Builder and Area ● Builder Research ► Online research ► Social media chatter ► Talk to current owners ● Area Research ► Public Report ► Online research ► Drive the area ► Google EarthSlide 23 of 91
  • 12 Research Questions to Ask 1. How many homes have you sold this week/month? 2. Do you have any spec homes? 3. What are your current incentives? 4. What is the build time? 5. How much does the average buyer do in upgrades? (12-18%) 6. Do I have to use your preferred lender? 7. When was the last price increase? 8. Have the recent homes appraised for the contract price? 9. When do you plan on finishing the community? 10. Do you work as a team or individually? 11. Can I have a copy of the public report? 12. Which floor plan is your best and worst selling?Slide 24 of 91
  • What is a Public Report? ● The Public Report contains important information, such as: ► Located near or within a superfund ► Located in the vicinity of airport ► Disclosure of conditions that may limit the use of the home ► Homeowner’s association information ► Any known flooding or drainage problems ► Existing and proposed adjacent land use ► Nearby landfill information ● Public Reports can be found online at: ► www.re.state.az.usSlide 25 of 91
  • Slide 26 of 91
  • Infill CommunitiesSlide 27 of 91
  • Infill Communities ● What is an infill community/project ● Why do we have infill communities? ● What should you consider before buying in an infill community?Slide 28 of 91
  • Infill Communities Three types of infill communities 1. Same builder, 3-4 years between home 2. Different builder, comparable quality 3. Small lots in the middle of town, one builder, one age Four things to consider 1. Were the previous homes built with the same quality? 2. Are the older homes more or less valuable? 3. Is this the same builder or two different builders? 4. What are the resale concerns?Slide 29 of 91
  • How Home Builders Price their HomesSlide 30 of 91
  • Marketing Tactics ● Online pricing ► With or without upgrades? ► With or without incentives? ► Is the home still available? ● Price increases ► Slow, steady and consistent ► With lot releases ● LotteriesSlide 31 of 91
  • Marketing Tactics ● Spec homes ► 5-20% Discount ● Incentives ► Preferred lender incentives ► End of month incentives ► Interest rate incentives ► Sunny day incentives ► Rainy day incentivesSlide 32 of 91
  • From the Ground Up ● Base floor plan price + Lot premium + Community premium + Elevation premium + Design center upgrades + 3% in closing costs = 18-28% of base priceSlide 33 of 91
  • Their Bottomline ● Appraisal ► It’s all about the appraisals ► Every home sold is used as a comp ► Selling a home below market value drastically hurts future prices and sales because future homes may not appraise ► Your additional $5,000 off the price, could cost the builder $30,000 ● Bottom-line, unless it’s a spec home the builder simply can’t afford to sell homes for much less than what’s listed. ● Negotiation Tip ► Keep the sales price high by asking for upgrades instead of price discountsSlide 34 of 91
  • Spec HomesSlide 35 of 91
  • What is a Spec Home? Spec homes are ● Designed to someone else’s taste and style ● Often sold at significant discounts ● Two types of spec homes: ► Last minute cancellation ► Intentional SpecSlide 36 of 91
  • Spec Homes Top 3 reasons why spec homes are attractive to buyers 1. Available for a quick close ► Normally 30 days or less 2. Discounted price ► Ranging from 5-20% off 3. Occasionally the builder makes improvements for a quick sale ► Landscaping ► Window Covering ► Upgraded AppliancesSlide 37 of 91
  • Why are Spec Homes Cheaper? ● Construction vs. hard money loans ► Completed homes cost money to hold ● Someone else’s upgrades/style ► Not everyone likes their neighbor’s tastes ● Recycling money ► Builders only have so much money to build/play withSlide 38 of 91
  • Phase 2 Getting the Home Under ContractSlide 39 of 91
  • Working with a Realtor… Reasons for… 1. Its free 2. Negotiation skills 3. Experience 4. Second set of eyes 5. Good Cop, Bad Cop Reasons against… 1. Easier Process 2. Lower Price? 3. ? 4. ? 5. ?Slide 40 of 91
  • Sales Agent’s Point of View ● Buyer’s agents are… ► Lazy ► Dumb ► Ask too many questions ► Get in the way of deals coming together ► Just walked in the door, signed up the client and left ► Friends and family looking for a free meal ► Make things harder than they need to be ► Would make a good boat anchorSlide 41 of 91
  • Why Sales Agents Don’t Want Your Realtor in the Picture ● Without a Realtor negotiations are faster and favor the Builder ● Your Realtor can and will keep showing you more homes if you don’t get what you want ● Simply put, a Buyer’s Realtor makes it harder on the sales agent to close the deal, which means you get a better dealSlide 42 of 91
  • Builder’s Logic Why they don’t want a Realtor ● One less person to involve in the buyer’s decisions and appointments ● Faster negotiations ● More likely to use the preferred lender ● Fewer complaints Why they want a Realtor involved ● Realtors are a “marketing expense” ● Realtors bring buyers ● Realtors can be influenced with high commissions ● Realtors know they can walk away once the contract comes togetherSlide 43 of 91
  • Working With the Preferred Lender Reasons for 1. Builder Incentives ► Better rates ► No closing costs 2. Extremely fast closing 3. Smooth process 4. Fewer appraisal issues Reasons against 1. Keep your financial details private 2. Stronger negotiations 3. Ability to cancel 4. More loan options 5. Better rates 6. Better customer serviceSlide 44 of 91
  • Builder’s Logic Preferred Lender Outside Lender ● There is a relationship ● Untested ► Loyal to the builder ● Loyal to the customer ● There is a track record ● Could kill the deal at ● They will get the true story the last hour about your finances ● Uncertainty about ● Closing the loan will be the buyer’s financing much smoother ● Much harder and longer closingSlide 45 of 91
  • Financing Justin ToenjesSlide 46 of 91
  • Review Your Financial Situation To Buy or Not to Buy ● Pull credit report, look for errors ● Establish comfort level for monthly payment ● Figure out how much monthly income goes towards debt: 28 – 33% healthy ● Pay down credit balances to 1/3rd ● Don’t open any new lines of credit ● Don’t buy any big ticket items ● Source of money ● Current employment statusSlide 47 of 91
  • Start Shopping for Lenders Compile a list of 3-4 lenders & brokers Good sources include: ● Redfins partner lenders ● Referrals from friends, family & co-workers ● Online review sites, such as Yelp ● Local chains and offices ● *Know your lenderSlide 48 of 91
  • Getting Pre-Approved A pre-approval letter is a letter from a bank or a lender estimating how much theyll lend you ● Establishes what you can afford & makes offer process go faster ● What’s the difference between Pre-Approval and Pre-Qualification ● Good for 90 days, depending on lender ● Ask for a few different amounts ● Similar, yet different from pre-qualification ● Redfin asks that you get pre-approved before your third tour ● Are gift funds involved? ● How much do you have for a down payment? Information needed: ● W-2, two pay-stubs, tax returns, bank statementsSlide 49 of 91
  • Comparing Loan Estimates ● Gather loan estimates ► A minimum of three, more is better ► These aren’t final numbers, but within a few thousand dollars ► Compare similar loans Program (FHA, conventional) Timeframe (same day) ● Compare costs side-by-side ► Discount & origination points ► Interest rates ► Insurance premiums (FHA, PMI) ► APR (interest rates + fees + points + PMI)Slide 50 of 91
  • Types of Loans ● Conventional: ► As low as 5% down ► Fixed or adjustable rates, conforming or non-conforming ● Federal Housing Administration Loan (FHA): ► Always have mortgage insurance ► Buyers need only a 3.5% down payment ● VA Guaranteed Loan: ► Veterans, active duty personnel, reservists/national guard, surviving spouses ► No down payment ● Ask your lender if they have special loan programs ► Example: BB&T Chips ProgramSlide 51 of 91
  • Make Your Decision ● When possible, get a loan commitment ● Make alternative funds liquid (401k, stock) Good news! Loan payments are made in arrears, so your first loan payment won’t be for two months.Slide 52 of 91
  • Contract NegotiationsSlide 53 of 91
  • Famous Sales Office Quote “The home you saw today and want to think about tonight, is the home someone else saw yesterday and thought about last night”Slide 54 of 91
  • Analyze Your Competition ● Assess the builder’s situation ► Are they selling a lot of homes? ► Is there a lot of traffic in the office? ► Is there a lot of construction going on? ► New community or almost complete? ► End of the month/year? ► Recent price increases? ► Spec homes inventory? ► What are the incentives? Have they changed recently? ► Do they have any deals about to fall apart?Slide 55 of 91
  • 9 Questions to Ask 1. Does the builder have a need to sell this home? 2. Are there any incentives to buy this home by a specific date? 3. What are the preferred lender incentives? 4. Is it the end of the month, quarter, year or fiscal year? 5. How much activity have you seen in the sales office? 6. Is anyone else interested in the home? 7. Are you getting the strong arm sales approach or the “be my friend” approach? 8. What can/will they change about the house (if construction has started) 9. Is this a competitive floor or a team floor? (will the other agent sell the home I’m negotiating on?)Slide 56 of 91
  • Your Needs and Wants ● Figure out your needs and your wants ► Yes, there is a difference ► Example: man cave = want ● What is your ► Price point ► Timeline ► Desired lot location ► Preferred floor plan ► Elevation preference ► Lender preferenceSlide 57 of 91
  • Create a Backup Option ● Best negotiations result when the buyer has another option ● If you can’t get all your needs and most of your wants, what’s your next best option? ● Is there another home you would consider? ● Is there another community/builder you are interested in? ● How serious are you about the other option? ► If your serious, make it known (politely)Slide 58 of 91
  • Starting the Process ● Bring your agent (optional) ● Pick the sales agent you like ► You can choose! ► Choose wisely, you will be stuck with this person ● Ask a million questions to assess the builder/agent ► They will think you are asking smart questions ► They will also think you are a little nervous ► Get as much info as possible ► Build a relationship with the sales agent ● When you’re ready ► Let them know exactly what you want ► Let them know about your backup plan ► Tell them you want to put together an offerSlide 59 of 91
  • Negotiation Tips ● Always ask to put a hold on the home during negotiations ► Get it in writing ► If there is a cost to hold it, make sure its refundable ► This relieves the pressure of someone else buying the home during negotiations ● The sales agent will naturally act as your representation ► Use it to your advantage, but… ► Don’t forget, they work for the builder ● Builder cost vs. buyer cost ● Ask to review the contract and public report ● Playing nice, gets you a lot further in negotiations ► Unless you have an agent that likes to play good cop, bad cop ● Don’t let negotiations drag out more than 3 days ► If it happens, you lose your leverageSlide 60 of 91
  • Contract Negotiations ● How Builders like to do it ► Some prefer verbal ► Some want it all in writing ► Most want the initial offer in writing and then verbal counters ● Counter Offers ► Could take hours or minutes to get a response ► Weekend response times will be longer ► The slower your response/counter the less interested (or serious) you appear ● Contract will be accepted verbally ► Not legal until you get a copy in writing ► This could take several daysSlide 61 of 91
  • Did You Get the Best Price? ● How do you know you got the best price? ● Risk vs. Reward ► Its not always about the price tagSlide 62 of 91
  • Builder Contracts The Need to KnowSlide 63 of 91
  • Overview of Builder Contract ● Builder contract ► Very different than AAR contract used by Realtors ► Each builder has a unique contract ● Home builders want you to use ► Their lenders ► Their title company ● Keep an eye out for the important dates ● Don’t assume it’s a fair contract ● Don’t get caught off guard ► Read the entire contract ► Read the Public Report ● Use a Realtor to help guide you through the processSlide 64 of 91
  • What Happens If… 1. I decide to cancel? 2. The home doesn’t appraise ► Will they reduce the price? 3. I can’t qualify for a loan (in 4 months) 4. I decide the finished home is not to my standards/liking? 5. The builder goes out of business? ► Who holds the earnest money? 6. The builder doesn’t complete the home on time? ► How do I get out of the contract? How Do I Get My Earnest Money Back???Slide 65 of 91
  • Builders always require you to use their title companySlide 66 of 91
  • If you don’t close on time you agree to pay us $98/day until you do closeSlide 67 of 91
  • If we haven’t finished the repairs on your home when it comes time to close, you’re taking possession of the home, like it or notSlide 68 of 91
  • If the home doesn’t appraise, the builder can decide if they want to: a. Lower the purchase price to the appraised value b. Cancel the contract and return earnest money to BuyerSlide 69 of 91
  • Talking about appraisals, without ever using the word “appraise”. Verbiage like this can make it easy to gloss over the important details. Make sure you understand everything.Slide 70 of 91
  • Slide 71 of 91
  • If we (builder) decide to change anything about your future home, we can. I hope you like the changes!Slide 72 of 91
  • Once you deposit your massive earnest deposit, we get to spend it! Which means, if you cancel on us, we won’t be able to refund your earnest money.Slide 73 of 91
  • Phase 3 Building Your Dream HomeSlide 74 of 91
  • New Construction Timeline ● Major Milestones ► City Permits ► Foundation ► Framing ► Stucco and roof ► Drywall ► Pre-final walkthrough ► Orientation ► Final walk through ● Time frames? ► Depends on builder’s resourcesSlide 75 of 91
  • Where Did My Realtor Go? ● Builders don’t want a buyer’s Realtor involved ► They don’t need or want their help ► Its one more decision maker/complainer ► Its one more person complicating the process ► Its smoother without the Realtor ► You are their customer, not the Realtor ● If you want your Realtor involved in the process ► Let them know about all your appointments ► CC them on all email communications ► Ask the builder to keep your Realtor in the loopSlide 76 of 91
  • Design Center ● Come prepared with some general costs in mind so you know if you’re getting a decent price or if it would be better to do the work/upgrades later ● Some items might be cheaper after closing ► Paint, blinds, landscaping, carpet ● Be sure to buy what you want in these categories ► Cabinets, counters, door hardware, hard flooring ► Cost too much to redo after moving in ● Spend within the community budget. ► Don’t turn your $200k home into a $400k home, you’ll lose a lot on your investment.Slide 77 of 91
  • Spending Money Four best places to spend money 1. Cabinets 2. Counters ► Granite ► Silestone, etc 3. Tile flooring 4. Electrical ► Fan pre-wires ► Recessed lighting, etc Spend money on these areas because it costs too much to tear out the materials and reinstall new materials laterSlide 78 of 91
  • Walkthroughs and Inspections ● City Inspections ► City inspects the home as it is being built and signs off on everything ● Get your own inspector ► Is it worth the money? ● Framing and Drywall Inspections ► Really more a progress update than an inspection ► Make sure any structural modifications are correct ● Pre-Final Walkthrough ► Grab a roll of blue tape and start looking for repairs ► Is everything the way you ordered it? ● Orientation and Final Walkthrough ► What is an orientation? ► What happens if the work isn’t done?Slide 79 of 91
  • New Home Inspections Three Types 1. Phased inspections involving multiple inspections at major milestones: ► Pre-slab ► Framing ► Pre-drywall ► Final walkthrough 2. Final walk through Inspections ► Inspector creates the “punch list” for the buyer. 3. Warranty Inspections ► Done 1 month before the builder’s 1 year warranty expiresSlide 80 of 91
  • How Contractors Work ● All work is done in a systematic order for efficiency ● Trades constantly trash other trade’s work ► Its just part of the process ● It is common place to have painters and drywall contractors touch up the home many times before closing ● Don’t fret when you see new damage, its all part of the processSlide 81 of 91
  • Signing and Closing Day ● Sign loan docs at the title company ● Lender and title exchange paperwork for money ● Title company records the deed with the state ► Home is officially yours! ● Meet builder/Realtor at your new home ► You receive your keys ● Can happen same day, often happens over 2 daysSlide 82 of 91
  • Phase 4 Living in Your HomeSlide 83 of 91
  • Builder Warranties ● What’s covered? ● What’s not covered? ● 30, 90 and 365 day walkthroughs ● 2, 5 and 10 year warrantiesSlide 84 of 91
  • Customer Service Requests ● Schedule/request online ● Must be home for work to be done ● Request as many as you want/needSlide 85 of 91
  • 365 Day Walkthrough ● One final chance to get all the cosmetic repairs done ● Hire an inspector 2 weeks prior to your walkthrough ► Use their report to identify repairs like roof, attic, etc.Slide 86 of 91
  • Most Common ImprovementsSlide 87 of 91
  • Most Common Improvements ● After closing, expect to spend $$$ on the following ► Light fixtures/fans ► Blinds ► Paint ► Landscaping ► Water softener ● Which improvements add the most value? ► Necessary improvements ► KitchenSlide 88 of 91
  • Recap Phase 1 – Do Your Homework Phase 3 – Building Your Dream ● 5 reasons to buy (or not) a new Home construction home ● Contract to close timeline ● Changes in the new construction industry ● Where did my Realtor go? ● How to search for a new home ● Design center ● Qualifying the builder and the area ● Walkthroughs and inspections ● Infill communities ● Home inspections ● How do home builders price their homes? ● How contractors work ● Spec homes ● Signing and closing Phase 2 – Getting the Home Phase 4 – Living in Your Home Under Contract (Negotiations) ● Builder warranties ● 5 reasons to (and not) involve a Realtor ● Customer service requests ● 5 reasons to (and not) use their preferred ● 365 day walkthrough lender ● What are the most common improvements after moving in? ● Financing ● Contract negotiations ● What improvements add the most value? ● Builder contract need to knowSlide 89 of 91
  • Thanks for Coming! Please fill out the survey that was handed out at the beginning of class. We appreciate the feedback! Check out our upcoming classes and events at http://www.redfin.com/buy-a-home/classes-and-eventsSlide 90 of 91
  • Our next class! What Home Builders Don’t Want You to Know January 24, 2013 6:30pm – 8:30pm Dillon’s Arrowhead, Glendale http://www.redfin.com/buy-a-home/classes-and-eventsSlide 91 of 91