Why you must use a Realtor when buying new construction

That new condo building going up a few blocks away looks very enticing. Great location. The price is right. You’re ready to make a move.

That’s what Mr. and Mrs. “Smith” thought this summer when they grabbed a condo in a hot new building. The spec sheet and floor plans showed their unit facing a small unmarked space. Just before closing, the sales agent remarked that the little blank space was a dog run.

The couple was afraid of dogs. Had they not had a Realtor with them, they would not have known what to do.

It’s a common misconception that buying new construction in Chicago means a Realtor is not needed. Unlike with resale homes, often there is no finished product to walk through and the developer’s sales person handles all the paperwork. If you sign a contract without someone on your side, that’s very nice for the developer, but not so much for you.

Fortunately for the couple with a fear of dogs, Dream Town Realtor Barbara O’Connor knew the building well, and knew that the price on the condos had gone up since they first inked the contract. If they bailed out, the builder could easily re-sell the unit for more than they had agreed to pay. She was able to get them out of the deal entirely and get the couple’s earnest money back.

That’s just one of many situations that O’Connor has faced as a new construction expert. She’s seen so many unexpected twists in the buying process that she is convinced new construction buyers should use a Realtor with construction experience—and a real estate attorney with the same background.

“A developer’s contract is so pro-developer,” says O’Connor. “A buyer needs an advocate.”

There are many ways a Realtor can help, but the two that can cause the most headaches: Warranties are required by the state, but some builders don’t offer them; and, some new construction contracts are written so that the buyer ends up with too much of the tax burden.

Now that the Great Recession is (mostly) in the rearview mirror, new condos, both gut rehabs and new construction, as well as new single family homes and townhomes, are going up in many Chicago neighborhoods. It’s easy to get swept up in the enthusiasm for buying new.

While some properties are being developed by well known builders and established companies, other developers are instant corporations put together to develop one project, then disband. Some are inexperienced or don’t care about the company brand or reputation, since they won’t exist when your pipes freeze. You can certainly find some wonderful contractors among the newbies, and a Realtor can help with that, too.

Here are some tips to keep in mind:

The problem with warranties. On new construction, one-year warranties are required by the state of Illinois, but a new, naïve developer may not know that, nor will a naïve buyer. “You also need a good real estate attorney,” O’Connor said, “because the wrong attorney won’t know that either. Later, if you have issues, you won’t have any recourse.”

Some developers, she added, “don’t even give you a developer’s contract, just a standard contract with no spec sheet. The buyers are just looking at just dirt. How do they know what they are getting? There are experienced builders with good reputations, but also others who can barely get the home up, let alone give you paperwork.”

Expect a spec sheet. A spec sheet is far more than a list of home features. It is an excruciatingly detailed list of exactly what a builder will provide inside your home and where it will be. If you want your drywall screwed, not nailed, and 2×6 studs on the exterior walls, it will list out those things exactly. If you want Wolf appliances, you will get Wolf and not GE. No matter what you were told verbally, without a spec sheet, you have no legal right to any of your expectations.

“If you are buying a million dollar home from scratch and have not requested specific baseboard size, a trim package and appliances, they could put in anything,” O’Connor said.

Beware of “broken” properties that have been foreclosures or short sales. Developments that got started but lost funding midway are now getting finished. That’s good news for the neighborhood, however, they don’t fall under the “new construction” laws, O’Connor said. The new owners may have no idea if mechanicals, plumbing or electrical were properly installed if drywall covers them. That means you won’t know either. And without a warranty, you have no recourse.

The problem with taxes. If you have ever bought or sold a home, you know that there will be lots of paperwork just for property taxes. But if you have not had an expert real estate attorney review your contract, you might get a surprise at tax time. In some cases, developers have written the contract so that the bulk of the taxes for the property are thrust upon the buyer, when in fact they should have been paid by the seller. Be sure to hire an attorney who specializes in contracts for new construction, not just in real estate.

Inspections. If you are buying new construction from the ground (or the floor) up, you should insist upon two professional inspections – one after electrical and plumbing are installed but before drywall, and a second before you close. During the second inspection, keeping a punchlist of final cosmetic items to be finished before you close gives you the upper hand on the little things.

Keeping realistic expectations. A new construction Realtor helps with managing your expectations. In the current hot market, virtually no one is getting a steal on housing, O’Connor said, especially in a hot building or neighborhood. But someone who knows the market well can help you make sure you get the best possible deal, and that what you buy is what you expect.

If you are interviewing an agent to guide you through the new home buying process, ask how recently and frequently they have worked with new construction. If the person is not an expert, he or she may be willing to align with an expert, and you can all work together.

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