Friday, April 21, 2006

New Construction II
The Seattle Real Estate Blog VIII

(This post is continued from our other blog at the Seattle PI)

New construction is great. Contemporary architecture and finished surfaces, low maintenance, up-to-date appliances and new lifestyles all come with the package. Another part of the package is a special set of issues that you should be aware of when looking for your new home or condo

Ø Is the home built green?
Green architecture is becoming more common, and it is a feature that is highly valued by many people in our region. This means that it’s easy to buy green, and green architecture appreciates in value very well. To learn more about green architecture, visit Leed's website, keep up on this blog or watch for green architecture posts at Seattle Real Estate Professionals. Some green architecture projects in our area are Hjarta in Ballard, Vineyard Lane on Whidbey Island and hundreds of new homes being constructed on the Issaquah Highlands.

Ø Use an inspection contingency and hire a professional inspector
Many agents say this is not necessary for new construction because the county inspects new construction before the sale can close. However, I always recommend that buyers hire a professional inspector and make their offer to purchase contingent on the results of the inspection. It’s better to find the flaws that county inspectors may have overlooked before the sale closes so these issues don’t become warranty issues later. It’s not common to find major flaws in new construction around here. But minor flaws are not uncommon, and they can become major headaches if they’re not addressed before you take possession of your new home.

Ø Be aware of the potential for construction delays
Most Purchase and Sale Agreements used by builders include a clause that protects the builder if construction is delayed. This makes sense because there are many factors the builder can’t control that can delay construction. Builders are typically indemnified for delays up to 30 days. After that, the buyer’s recourse is typically limited to a refund of their earnest money deposit if they terminate the transaction. Construction delays are common, and sometimes they can last six months or more. Be sure to take this into consideration when you’re planning your move.

Ø Use your own lender, not the lender recommended by the listing agents
Many builder’s have preferred lenders that are familiar with the construction project and have streamlined the lending process for a particular development, but my clients have always done better by shopping for a different lender. It is certainly more convenient to use the builder’s preferred lender, but you can save thousands of dollars by shopping around a bit. Ask your buyer’s agent to refer a couple of lenders, and read the WA State Dept. of Financial Institutions’ (DFI’s) Guide to Home Loans. This guide is extremely helpful for people who want to compare lenders and loan products, and for those who just want to have a better understanding of the lending process.

To read about more new construction issues, like using a buyer's agent, the danger of site registration, property walk-throughs and neghboring new construction, please visit our other blog at the Seattle PI.

Monday, April 10, 2006

New Construction I
The Seattle real Estate Blog VII

A pre-sale purchase occurs before construction of the property is complete. For example, the condominium units at dwellRoosevelt are still under construction, but most of them have been sold already. The buyer must make an earnest money deposit (usually 1.5% or less of the purchase price) and come to mutual acceptance on a purchase and sale agreement with the seller. If there are no custom upgrades to be made, then there are no other payments due until closing.

This is a great way to leverage a relatively small investment for a healthy return. In the case of a $320,000 condominium unit at dwellRoosevelt, the earnest money deposit would be something like $4,800. The appreciation rate for two-bedroom condos at dwellRoosevelt, from the time they were listed in January through today, is approximately 7%. This means that an investment of $4,800 in January has brought a three-month return equal to $22,400. Sounds great, and it is, but this is only part of the picture. The investor could not simply walk away right now with $22,400.

The reason that no money other than the earnest money has had to be paid since January is that the down payment and the mortgage payments are not collected until the transaction closes, and the transaction cannot close until construction is complete and the condominium has passed the final building inspection. It's also important to note that interest on the mortgage does not begin to accrue until closing.

For more information about new construction or pre-sale purchases, please visit the blog Seattle Real Estate Professionals, keep watching The Seattle Real Estate Blog and subscribe to RSS feeds for both.

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