The New Construction Solution to Low Inventory

Couple shaking hands with Realtor.

When markets are tight, direct buyers to new homes for more, better options

Limited inventory has frustrated homebuyers for years. Resale inventory remained at a four-month supply across the U.S. in August, according to the National Association of Realtors. That’s far below the six-month supply of a normal market. Some markets are even tighter, making it tough for real estate agents to help their buyers a home. A newly built house may be the answer.

“New home construction in our area is up to 10 to 15 percent this year, which is a huge help for buyers and agents,” says Cindy Jez, vice president of Long & Foster Real Estate in Richmond, Va.

Yet some buyers avoid looking at a newly built home, primarily because they think they’re too expensive or will take too long. Understanding the dynamics of new construction can help you talk to clients about this option.
“A newly built home is more on trend even than a home built four or five years ago,” says Alex Rezende, agent / owner of The New Home Dude brokerage in Houston. “It’s important to show your buyers both resales and new homes so they can see the difference and then talk to your buyers about what’s most important to them. A resale might have a bigger yard and bigger bedrooms, but a new home will have an open floor plan and is more likely to be designed to fit how they live.”

Price shouldn’t be an obstacle

While newly built homes usually are initially more expensive than a resale, buyers need to put their housing costs in perspective. First, Rezende says, you can point out that a $50,000 price difference won’t make that much difference in their monthly housing payment, particularly if they have a 30-year mortgage.

“A new home tends to be more expensive, but buyers forget to factor in the upgrades, repairs and remodeling that they need to do when they buy a resale,” says Gabriela Isip, senior marketing manager for Miller & Smith, developers and homebuilders in McLean, Va. “You can personalize a new home and choose a floor plan that’s tailored to you without it costing as much as it would to remodel an existing home.”

Newly built homes meet higher standards for energy-efficiency, which saves money on utility bills. In addition, because all the systems and appliances are new, buyers don’t have to be concerned about replacing them for many years, Isip points out.

The fact that new homes come with a warranty provides peace of mind and savings, says Rezende. For example, replacing an air conditioning system can cost $5,000 to $10,000.

“People think remodeling is easy because that’s what they see on TV,” says Rezende. “As an agent, it’s a good idea to have an estimate of what it costs to replace some of the major components of a house and about how much a couple of remodeling jobs cost on average, such as opening up and renovating a kitchen. That information is valuable for buyers to look at the real numbers when comparing homes.”

About the only project that new home buyers may need to take on is establishing their landscaping, says Jez, depending on how much the builder has planted.

Timeline constraints can be mitigated

While the average time to build a house from contract to completion varies from three months to about nine months, there are options available for buyers in a hurry. Many builders have spec homes or immediate delivery homes that can be moved into within 30 days. These are homes deliberately built to accommodate buyers with a tight timeline or they are homes built for a buyer whose contract didn’t go to settlement. 

“Sometimes people start making their choices on a house and then their current home sells so fast that they take a different home that’s closer to being ready,” says Rezende. “In that case, the new buyers may not be able to personalize their home.”

Spec homes that have been built on purpose tend to be neutrally finished, says Rezende, with design choices made by professionals based on the most popular finishes and fixtures chosen by other recent buyers.

“We also offer a ‘Your Way Home’ program, which are homes that will be ready for occupancy in 61 days or less,” says Isip. “We build the house to the drywall stage and then allow buyers to choose their cabinets, fixtures and flooring so they can still personalize their new home.”

Isip says other builders have similar programs.

Professional help for design choices

Some buyers find the number of choices they need to make for a new home overwhelming, especially because those choices sometimes need to be made on a tight timeline, says Jez.

Builders have experienced designers and sales managers, says Isip, who can narrow choices and keep on buyers budget.

Potential resale value

The average tenure in a home is now 10 years, according to the National Association of Realtors, compared to as short as five years prior to 1985. 

“When you think about selling the house you buy now in 10 years, realize that instead of selling a 10-year old house, you could be selling a 20 or 30-year old house,” says Jez. “The investment potential is better with a new home because the condition of the home will be better and the style of the home is likely to feel more modern, too.”
Builders today incorporate trends into their homes that are popular with buyers, says Jez, like barn doors, floating vanities and open shelving, things that older homes don’t have.

Advice for agents selling new

Real estate agents should be aware of the timeline for various communities and homes, says Jez. Builders work in phases to avoid overbuilding, so agents need to know which lots are ready for construction, with the lot recorded and utilities in place. In addition, agents should develop good relations with the builder’s sales staff, she says, and treat them like allies rather than adversaries.

“Agents who are new to selling new construction should go out and walk around new communities, go to the welcome center and check out the models before taking customers there,” says Rezende. “That way, when you arrive with customers, you look like you know what you’re doing and you have some knowledge to share.”

Most buyers are willing to look at both new and resale homes, so it pays to know about all the options in your area.

About the author 

Michele Lerner

Michele Lerner is an award-winning freelance writer, editor and author who has been writing about real estate, personal finance and business topics for more than two decades. She writes for regional, national and international publications in print and online for a variety of audiences including consumers, real estate investors, business owners and real estate professionals. Her work has appeared in The Washington Post, The Washington Times, Urban Land magazine, NAREIT’s REIT magazine, National Real Estate Investor Magazine and online at Bankrate.com, HSH.com, The Motley Fool, DailyFinance.com, Insurance.com, Fox Business, MSN, Yahoo, Investopedia.com, MoneyCrashers.com, GetRichSlowly.com and in numerous state and local realtor association publications.

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