Buying New Construction in Houston: 5 Things Builders Won't Tell You

Buying New Construction in Houston: 5 Things Builders Won’t Tell You

A brand-new home feels like the safe choice. Nobody has lived in it, everything is under warranty, and the builder has their own inspectors. What could go wrong?

As a Houston realtor® who works with new construction buyers, I can tell you: a lot. These are the five things I make sure every buyer knows before signing anything.

1. The builder’s inspector works for the builder

Builders will tell you their homes are inspected. That’s true, but those inspectors are paid by the builder. A third-party home inspector works for you, and their only job is to find problems.

I recommend a three-phase inspection:

• Pre-pour: before the foundation is poured
• Pre-drywall: framing, plumbing, electrical and HVAC before sheetrock covers them
• Final: before closing

On one of my recent builds, the third-party inspection found a badly installed roof on a brand-new home. That’s the kind of problem that leads to blown-off shingles, rotted decking, leaks and mold. On another, construction debris had been flushed down the drains and clogged the plumbing. Neither would have shown up on a walkthrough.

2. The contract was written to protect the builder

Many Houston-area builders use their own contracts instead of the standard Texas forms. Common terms I see:

• Earnest money you can lose easily. On inventory homes, changing your mind often means losing your deposit. In many builder contracts, the main protection is the financing contingency, and it usually requires written notice before a deadline.
• No option period like a resale contract has.
• Flexible closing dates for the builder, with no penalty for delays.
• Nonrefundable upgrade deposits.
• Mandatory arbitration clauses.

Read every page, ask questions, and consider having a real estate attorney review it.

3. “Up to code” doesn’t mean done right

When your inspector finds problems, some builders answer, “It’s up to code.” Building code is the minimum legal standard. Push for repairs based on the manufacturer’s installation requirements and quality workmanship, and put every request in writing.

4. Your payment may jump in year two

New homes are often taxed mostly on land value the first year. Once the finished home is appraised, taxes rise and your escrow can come up short, which raises your monthly payment.

Many Houston-area communities are also in a MUD (Municipal Utility District) or PID, which add to your tax rate. Always ask for the total tax rate and the HOA dues before choosing a community.

5. The builder’s sales agent represents the builder

The friendly person in the model home works for the builder. Bring your own buyer’s agent on your first visit. Many builders require your agent to be with you from the start, or they won’t work with them later.

6. The builder’s lender incentive may be paying for points

Builders often offer thousands in incentives if you use their preferred lender, and many have a financial interest in that mortgage company. Sometimes it’s the best deal available. But on some closing disclosures, much of the incentive goes toward buying down the rate (points) instead of closing costs, and fees can be higher. Get a Loan Estimate from an outside lender the same week, compare the APR and Section A, and ask whether the incentive can go toward price or closing costs instead. You’re never required to use the builder’s lender. You may just give up the incentive, so compare the actual numbers.

Thinking about new construction in Houston?

Whether you’re buying a builder inventory home, building from the ground up or deciding between new and pre-owned, I’d be glad to help.

This article is general information, not legal advice. Contract terms vary by builder, so have your contract reviewed by a qualified professional.