Peterson Team Real Estate Blog

Most new home buyers get sucked into the glamour and excitement of new construction and don’t take the time to do their homework. Too many times new home buyers realize after it’s too late they’re in over their head when buying a new construction home.  

In the video above and below I'll discuss the TOP 5 Biggest Mistakes MOST Buyers make when purchasing a New Construction Home.

Currently in the Sacramento Region, about 14% of ALL home purchases are new construction homes. Chances are if you are in the market to purchase a home, you will be drawn to tour one of the many perfectly designed and decorated model homes in the area. 

Buying a new home can be a super fun and exciting time but more often than not, Buyers make critical mistakes that can cost them big time!  

Mistake # 1:

Assuming builders prices are set in stone.
This is Totally False! New Construction Homes are negotiable, just like resale homes.  The Builder’s sales reps will try to convince you otherwise, because in reality, They WORK for The BUILDER to make them the MOST money! There are several terms you can leverage when negotiating new construction homes such as downpayment, contingencies, financing, upgrades and others.  DO NOT Go into a model home without an expert on your side!  Having a great agent that knows the new construction homes can be a big help when it comes to negotiations!

Mistake # 2:

Not Doing Your Research or Due Diligence.
This is a Critical Mistake and it can cost you THOUSANDS of dollars, huge headaches and even regret.  I think this happens a lot because when people just get started they might stop at a new construction development that they saw online or drove by to ‘check it out’ and they end up falling in love and buying the thing without knowing anything about it other than what the builder’s sales rep tells them… The builder’s sales reps are just that, sales reps that are hired to highlight the POSITIVES. What about the negatives? 

Let’s discuss what you should research! I’ll discuss these points in more detail in a follow up video, so make sure to subscribe on my youtube channel to get notified when it comes out, but for now here’s a quick overview-

A few of the biggest things you should research are...

1. Resale Values - what are homes already built in the development selling for on the open market?

2. Costs of upgrades - there are smart and flat out ridiculous upgrades you should never get from a builder. And there are items such as landscaping back yards that almost NEVER come with a new home.

3. Builder Reputation - how often to they meet their timelines, what is their Quality of construction?

4. Schools - Schools can massively impact resale value and where your kids go to school.

5. Special Tax Assesments - Got Mello Roos? These can cost you thousands every year! Know what they are!

A good agent will make research easy because they’ll do it all for you :)

Mistake # 3

Not Using an Agent.
I know I’m a little biased, but WOW, around 50% of new construction homes in the Sacramento region are sold without an agent.  Having an Agent should be priority #1, it cost’s you NOTHING! Builders want agents to bring them buyers! And for the cost of $0, you get an advocate on YOUR SIDE that will provide expert advice, hopefully great negotiation skills, and a sounding board for upgrade costs, missed deadlines, community advice, resale advice, vendors and the list goes on and on.  There may be other developments you have no idea about that may be a good fit for you, so make sure you reach out to a great agent to help!

Mistake # 4

Trusting the builder will meet all timelines and deliver a perfect product.
There are a lot of factors that can effect the closing date when buying a new construction home.  Typically homes take 4-8 months to complete from ground up and I’ve heard many horror stories of builders delaying closing for months causing a ton of stress and hardship for buyers with homes they’re selling or leases ending and not having a place to live!

Some of the most common issues that cause delays are:

Permits, Weather, Change orders and Community approvals

When it comes to the “perfect product” Were all the upgrades done properly? Make sure you take the time to know the construction manager or foreman and do walkthroughs to check the Quality of work. If you need to make changes or you spot problems these things WILL take time to correct and can delay closing, so adjust your timeline wisely and stay on top of the builder to meet their deadlines!

Mistake # 5

Assuming you need to use the Builder’s lender.
Typically builders will offer you some incentives if you use their in house lender but this can COST you more than what you’re getting from the builder in incentives. Shop around, you don’t need to use their financing. Your RE Agent should be able to help provide you with a few lenders in your area so that you know you’re getting the best financing.  When in house and outside lenders compete for your business, you win.  

Those are the 5 biggest mistakes when buying a new construction home, I hope this helps in your pursuit of finding your perfect home! 

Check out this page for info on Builders in the Sacramento Area:

Sacramento New Homes 

If you have additional or more specific questions about homes in the area feel free to reach out to us by phone or email, we are always here to help! 

Call us at 916-500-4410

iBuyers are swooping in to buy properties and may not have your best interest, what you should do instead...

You’ve probably seen Opendoor advertisements everywhere!  Facebook, Google, even in the mail! They are spending A LOT of money advertising, and it is drawing a lot of attention! You Might Be wondering, is this a scam? How does it even work?

Who is Opendoor?

Opendoor is what we call an iBuyer, or an internet Buyer.

The bottom line??  They are a highly funded real estate investment company, they buy and sell homes for a PROFIT. Opendoor has been around for a few years now, but they just recently came into the Sacramento market in 2018.  They have bought and sold over a hundred homes in the Sacramento metro, some for a major discount and profit, several have been a loss. Once they acquire a property they will make a few repairs, usually carpet and paint, put it back on the market for 10% or more than they bought it for and attempt to sell it under their own brokerage.  You may have seen their ‘self tour’ homes and blue signs around your neighborhood.

What types of homes will Opendoor buy?

According to their website they only buy single family houses and townhouses, but in some markets they will buy condos and duplexes.  I haven’t seen any condo’s or duplexes sold in our market yet by Opendoor but that can certainly change. They apparently DO NOT buy homes over $500,000.

If you have a rental your need to sell...They will NOT buy homes occupied by tenants! It must be owner occupied or vacant. If the home has major damage or is located in a flood plain they will also not purchase the home.

They WILL however buy a home that is listed with a real estate agent. Your agent should be versed in getting offers and negotiating with Opendoor.

How does their offer process work?

In a nutshell, you will fill out a form and answer a few questions about the condition of your home then opendoor will respond within a couple days with an offer for your home close to market value, but typically under the real value by 1-2%. What you will need to be aware of is additional fees they charge, around 8% or sometimes more. Moving forward, if you agree on the price and sign the contract, you will enter an inspection period in which they will have inspectors come out to the home to point out repairs needed and request that repairs be done to the home OR they may add additional fees in order to complete the repairs needed. All of this accounted for, between the lower offer price and additional fees.... you might be selling your home for 10-15% below market. On a positive note however, if you do decide to move forward they can typically close in less than a week or when you decide works for you.

Here is a breakdown of the Pro’s and Con’s of selling to Opendoor:

Pros:

1. Convenience
2. No Selling Prep
3. Quick Sale - Close on your timeline

Cons:

1. Slightly Under Market Offer
2. Fees upwards of 8% or more
3. Additional fees for major and minor repairs needed.
4. Profit leaves the local market into a large corporation’s pocket.

What should you do before getting an offer from Opendoor or any other cash buyer?

The simple answer is talk to an experienced real estate agent to get a clear understanding of:
1. The value of your home

2. What your home selling goals are

3. What you would expect to net from a traditional on market sale

4. How the agent can help you get offers from other Cash Buyers and investors.

5. How each option compares and which option will accomplish your goals as a Seller.

In Conclusion, Opendoor is not a scam, they are however in the business of making money and not representing your best interests.  Your local real estate experts are held to the highest standard, look to them for expert advice and to arm yourself with all your options.

------------

If you have additional or more specific questions feel free to reach out to us by phone or email, we are always here to help! Our number is 916-500-4410.

Are you thinking of buying your first home but terrified by what it may cost?  You might be wondering how much money you need to save up in order to buy a home and  What unexpected costs should you expect?  

Buyers in today's real estate market have it pretty good, in fact, it can be easier to buy a home then to find a good rental home in the Sacramento California market.  There are a lot of misconceptions when it comes to how much money you actually need in order to buy a home.  As a first time home buyer you may have heard that you will need to save enough money in order to put 10 to 20 % down but the truth is there are SEVERAL programs such as FHA, VA and even Conventional programs where you only need about 3% down. 

Now, if you’re having a hard time coming up with that much, there are several downpayment assistance programs available as well that you may qualify for.  I’ll be going over those with a lender partner in an upcoming video so make sure to subscribe to our page or feel free to reach out for details on that.

Something to be aware of is that costs can fluctuate a lot from county to county as well as starter home to luxury home right now, I’m going to go over, step by step, all the costs you may expect for an average starter home in the Sacramento area…. 

For a round number we’re going to use a purchase price of $300,000

In negotiating the purchase there are ways to adjust terms in the contract to help lower the cash out of pocket at closing. Typically, only experienced agents know how to do this well and it’s usually a give and take situation. For example, a buyer will come up $X on the purchase price if the seller agrees to pay $Y in closing costs. 

After successful negotiations, you will hopefully have an accepted contract!

At that time, the 1st check you will be writing is the Earnest $ deposit. The deposit will be made payable to the escrow company that manages all the money for the transaction.  

A typical deposit in this price range is $1000.  The deposit is a credit toward your funds due at the close of escrow. However, keep in mind, the purpose of the earnest money deposit is to secure the purchase contract... and should you default on the purchase, that money could be at risk.

This is where contingencies come into play! Contingencies protect you from losing that money should you find any issues with the house during inspections such as issues with the appraisal value, if something happens with your ability to obtain financing, you find any problems with the house, or run into issues with financing during your contingency period, you have the ability to pull out of the transaction or renogotiate without losing that money.

With that being said, your next step in a transaction is your due diligence period or time to inspect the property for defects.  We recommend that you get a pest AKA termite inspection, home inspection, and roof inspection. Some companies will have packages that cover all of those but you’ll want to make sure to hire a competent home inspector and pest inspector.  If the property has a pool or septic it’s always a good idea to get a professional to check those critical systems for you as well.

Inspection costs can range from $100 to $200 for pest and $300 to $600 for home inspection based on size, location and type of foundation. 

For our example we will assume it’s a townhome.  Townhomes are mostly maintained by and Home Owners Association or HOA that you’ll pay monthly dues for. HOA’s typically cover the roof and exterior structure maintenance so you can have an inspector visualy look at it and if there are issues, get a letter from the HOA stating they will make those repairs.  For townhomes and condos termite companies will often do a limited inspection of just the interior for under $100. For our example we'll assume the HOA fee is $350 per month. 

More often than not, inspectors will find things that need repair or upgrading.  At that point you can re-open negotiations to ask the seller to make repairs or credit $ back for the repairs needed.  

Let’s assume for our example that there were a few electrical issues and minor plumbing leaks that needed repair.  A good agent can then get an estimate from an electrician and plumber to have those issues corrected and use those estimates as leverage for negotiation.  For our example let’s assume it would cost $500 for the repairs and we got the seller to agree to credit $500 toward closing costs. 

Within the first week your lender should order an Appraisal to make sure the value is there to secure your mortgage.  Traditionally your lender would have you pay that fee directly but today that is typically paid through escrow so you will not have to write a check for that seperately.

Inspections are usually the only thing you’ll need to pay for OUTSIDE of Escrow.

All other closing costs your lender will want to see paid through escrow... you will receive a document from your Escrow company called an Estimated Settlement Statement that line items all closing costs AND credits.

Here’s an example of what the Estimated Settlement Statement looks like so we can discuss what other costs to expect when you buy a home.

(scroll to bottom for full size )

This might look pretty confusing but if you look at the columns at the top, the Credit section is where you will see all funds going toward the purchase, such as your deposit, your mortgage and seller credit.  

Now, Debits are items that ADD to your COST such as the purchase price, taxes and fees. At the bottom of this column you can see what the TOTAL COST of the home is, including the closing costs.  The total cost in our example was $305,500.

Let’s do a little math to show you how much money is actually needed to buy this home: 

If we take the Downpayment of $9000, the difference between the mortgage and purchase price and add up all the other closing costs of $4500, the buyer paid only $13,500 through escrow! This doesn’t include the $500 or so you would expect to pay outside escrow for inspections.

Let’s break down the closing costs so you understand what you’re paying for and why.

Under the Financial Section you can see the purchase price, $300,000 in the Debit column, in the CREDIT column your deposit of $1000 and for the loan product in this example we used a 3% down conventional loan so the mortgage is a credit of $291,000. 

Moving down to prorations and adjustments there’s an HOA credit of $50 which might seem odd but down further you’ll see a debit of the entire $350 HOA fee for the month and the credit is prorated because closing is 6 days into the month.

Here you see the seller credit for closing costs of $500 and lastly the county property tax owed for the remainder of the tax year of $352.  The tax year runs from July 1st to June 30th and is due in 2 payments in December and February.  Most lenders like you to pay through an escrow account which means you’re paying the property taxes with your mortgage payment every month and the lender will pay the taxes when they are due.  It’s a REAL good idea to have these tax impounds, that way you won’t have a giant lump sum to pay when the tax bill comes!

The next section breaks down all the 'Lender Charges'.  The first line is prepaid interest of $805, and since the rest of the month is paid and your payment is due at the end of the month as interest accrues, the first mortgage payment won’t actually be due for nearly 2 months. Woo Hoo! That’s a relief! The next charge of $525 is a lender fee, called points that get paid to your lender. Then the appraisal fee of $450, Credit report $45, Flood certification $8, Tax service fee $85, and a Condo cert of $247.  These fees can fluctuate a lot depending on your lender so keep an eye on those.

Lastly the lender CREDIT of $450 is a discount from the lender offered to help offset the fees.

For the next section, 'Impounds', the property taxes are pre-paid for 5 months to an escrow account ($1520). The reason for this is because the first tax payment due in December is paid in arrears, starting July 1st. The next payment in February pays for the remainder of the year up to June 30th meaning the escrow account needs to be padded to cover the entire year’s taxes, hence the prepayment of taxes.

The next section ‘Title and Escrow Charges’ are fees charged to manage the Escrow and pay Title insurance to ensure a clean transferable title to you and your lender.  Each county is different on who pays for these fees, so check with your agent or title company on that.  In Sacramento county the seller will traditionally pay title and escrow but it’s a negotiable term.  In this example the Escrow fee is paid by the Seller and the Buyer only pays half of the Title insurance $583.  For signing loan docs the notary fee is $100, and loan servicing fee is $430.

Lastly, the 'Miscellaneous' section... here you see the HOA Fees were paid for the month ($350).

Another often overlooked but important cost is a one year Home Warranty, most of the time in our area, we can negotiate that the Seller pay for it, however, if you can not come to an agreement with those terms, expect the cost to be around $400 - $850 depending on the size of the home, upgrades or coverage on things like appliances, pool/spa equipment and HVAC systems. 

I hope this answers a lot of your questions about the costs of buying a new home! 

If you're considering buying a home, give us a call! 916-500-4410

We'd love to help guide you through the process.

James Peterson

Online Home Evaluations or better know as Zestimates or Home Value Estimates may not be giving you an accurate value for your home...

There are a hundred online real estate sites out there.  It seems like most of them are offering some sort of online home evaluation, be it Realtor.com, Zillow.com, Redfin, Trulia, you name it, they're going to have some sort of online home evaluation tool to tell you what the value of your home is.

Which one is the most accurate?

It's really hard to say, each market, even down to the neighborhood level can be different.  I've seen discrepancies as much as 15% on the value of some homes. The reason there are discrepancies like this is because:

1. These sites use a computer generated model that uses county data which can include sales to family members, off market distressed sales, so it's not the most accurate data.

2. They use really broad data, including different neighborhoods. Some neighborhoods sell for much more or less than others which could tie into the values you're seeing on these site which could increase or decrease the value of your home.

3. These sites don't take into consideration the condition of your home or amenities and upgrades you might have which is very important in determining the value of your home.

In conclusion, these home evaluation tools are not a bad way to get a general idea of your homes value, just understand they are going to be 5 - 10% off on average.  If you're just curious go ahead and check them out.

If you're serious about selling or refinancing your home, you will want to get an accurate valuation of your home to understand your equity position.  The best way to do that is to talk to an appraiser to get an appraisal on your home, or talk to your real estate professional and we can run comparable sales that best match your home's features and amenities in the right neighborhoods to give you a more accurate evaluation.

The best way to keep an eye on the value of your home and local market is to watch the sales happening in your neighborhood.

Our website does an amazing job of keeping you up-to-date on a very specific range of properties comparable to your home in your neighborhood.  You'll see on a monthly basis, all the new listings, what's selling and how much they are selling for.

Visit our website today at www.PetersonTeamRE.com we're more than happy to put together a custom market update for you so you can keep track of the value of your home. If you have any real estate questions whatsoever regarding your homes value, or you’re thinking about selling, give us a call!

916-500-4410