How do I negotiate buying a newly built but not finished house?

March 16, 2012 8:26 AM

How do you negotiate buying a new house that is not completed? (a very basic negotiation question)

We have found a new construction that would suite our family and want to make an offer but I don't have any experience doing this. The complicating factor is that we are buying the house directly from the builder, no estate agent involved. (this is a small builder with only two houses in build, not a massive development) The house is finished except for kitchen, floor tiles, wall paint, and landscaping.

I want to negotiate a price for the finished house but obviously the way we chose to finish it will affect the price. I want as much as possible to be covered in the mortgage so I don't have to pay cash out of pocket. In what order do we proceed? Do we pick out the kitchen, tile, and landscaping first and then work on the price? Or do we offer a price for the existing house and negotiate the additional work separately?

Certainly the builder will have suppliers and materials he prefers. I don't have the first idea...I know what I like (example, I know what I want in the kitchen and what quality) but I don't have the first idea about how to go about pricing it.

It feels like I am missing something really obvious here. Any hints?

Also, at what point to we get a surveyor in?

posted by pandabearjohnson to home & garden (6 answers total)

Maybe you could approach the builder and ask them how they think it should get handled?

My guess would be that you could negotiate based on an assumed cost to complete the house with a clause in the offer that includes an adjustment based the final contract or something but I don't work in real-estate so I don't know if that is possible.
posted by VTX at 8:30 AM on March 16, 2012

You might consider talking immediately with a real estate lawyer. The trick here is that you're buying a finished product without knowing what it looks like. If something is done improperly or not to your liking, what will you do? I wouldn't proceed without legal counsel experienced in this kind of real estate.

And yes, ask the builder frankly what process they recommend. Though I'd recommend not using any outside help that they refer to keep any conflicts of interest out of the equation.
posted by amanda at 8:54 AM on March 16, 2012 [1 favorite]

We bought our house as it was being built, though that was quite a while ago.

Here is how it worked: We put down earnest money ($1000) as it was being built We chose what items we wanted, the builder had a list of upgrades and how much they cost ready, because it was a neighborhood development. You can still agree on a cost ahead of time with the builder.

We kept an eye on what was going on with the construction, and caught a few problems as they were working on the house. They were going to put on the wrong roof, which would have been a huge problem!

As the house was approaching being finished, we did get pressure to close before everything was finished. I am glad we didn't do this, as some of our neighbors who did ended up waiting to get some things finished..

Here is the thing I would recommend you push on: we had a one-year warranty with the builder to fix problems that cropped up. That turned out to be some minor things, like an improperly (backwards) installed shower door, etc.
posted by annsunny at 10:10 AM on March 16, 2012

Make sure that you do see the fixtures that are to be used before you close. I had family buy a mostly finished new place that was lacking only doors, toilets, and bathroom sinks. When they moved in the doors were super lightweight ugly cheap plastic, the toilets were miniature, and the sinks cheap and ugly. All the other house fixtures that were there before were much higher quality. The builder just skimped tremendously when finishing the house.
posted by procrastination at 11:01 AM on March 16, 2012

Everything I've heard is that builders are notorious for skimping on the finishes and generally sleazy behavior in this situation. There's an ask from 2008 or so where someone asks if its necessary to have a real estate agent and one of the answers goes into more detail, IIRC.

Warranty is nice, but if it were me, I'd get a lawyer and a certified inspector/contractor who could make periodic inspections. Don't bother with a real estate agent.
posted by RandlePatrickMcMurphy at 11:49 AM on March 16, 2012

To answer your question succintly: very aggressively.

Consider another house entirely.
The complexity of this deal greatly exceeds that of the purchase of a regular house.

For example, the builder has obtained a permit from the local government to build the house. It's difficult and expensive to transfer the permit once the job is started. He'll be
the one finishing the construction, unless you want to go through the process of finding someone else to do it, and transferring the permit from the builder to that someone else
(if that is even possible in your area).

Are the permits still current? It's difficult and expensive to re-permit a construction once the process is "broken".

Has the house been approved by the local government for habitation? It hasn't been, without a kitchen. You can't even move in if you buy it, until it has been signed off.

Have you found a bank that will give you a loan to buy a house that is not approved for habitation? I expect you'll have a lot of trouble here.

Does the builder have enough money to get the house to habitability? If not, you will be paying him out of pocket, aside from a mortgage that you will be obtaining sometime after the house is complete enough to inhabit. If he did have the money, I doubt that he would be looking to sell you an incomplete, uninhabitable house.

Is it a lot with acreage? You might not need a surveyor at all. Is the lot line contested?
posted by the Real Dan at 11:25 PM on March 16, 2012