How do you pay for a new home? Are loans for new homes the same as they are for other homes? The new home experts at Build Collective of Coldwell Banker Realty have the answers for you! Watch and learn about the financing options when you build a new home and which one is best for you.
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Thought about building a home but don’t know where to start?, That’s why you need the new home experts at Build Collective to help you! Mike Hines breaks down the step by step process of building a home. Whether you’re wanting to build in Madeira, Montgomery, or any where in the Cincinnati area, we wanted to create this video to give you a starting point, reference, and resource to building your dream home!
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Or click the link below if you’re interested in scheduling a time to talk with our team about building a home
If you’ve built a custom home or are just thinking about building, you’ve probably heard the word ‘allowances’ thrown around. Typically, the term is used to describe one of the most confusing and overwhelming parts of the building process, but that shouldn’t be the case. I’m here to explain how allowances work and how to best capitalize on them with your builder.
So, what is an allowance? Well, just think of it as CASH!! What’s better than cash? When a custom builder prices out a home, there are several items that can’t be defined or selected up front. An example could be the cabinets or countertops. Since you can select virtual any item under the sun, a builder gives you a cash value that you can utilize to pick out items for your home.
Here’s an example: A builder offers you a $7,000 allowance for countertops. This could go towards whatever you pick: granite, quartz, cultured marble, soapstone…you name it! You’d head to a granite or countertop supplier, typically one the builder recommends (they tend to have preferred vendors), and make a few selections for them to price out.
A few items in the home that are often allowance based are:
Flooring (Carpet, Hardwood, etc)
IMPORTANT NOTE: When reviewing if an allowance is adequate, try to do some research! You can hop online, but more importantly, go to the vendors and suppliers. They can provide accurate estimates that include labor, materials, design, etc. You can also compare builders to one another keeping in mind that it’s VERY difficult to compare apples to apples unless you’re looking at the exact same plan, spec and allowances!
The good news is allowances are often traded amongst each other. Think of all of your allowances as separate buckets of cash. You can take money from one to help pay for another. If you’d rather spend your money on a high end appliance package because you’re a gourmet chef, then take a little bit off a few other less important items like landscaping or lighting.
Tips for managing your allowances:
If you know an allowance isn’t adequate, increase it! This can be through negotiating or adding cost to the contract. If you go over your allowances, you often have to pay cash at the end of the build. Why not increase it slightly and finance that amount. You always have the option of putting more cash down at the end, but at least you’re not backed into a corner!
Ask your builder for a list of suppliers and vendors. Go and meet with them briefly to discuss what things cost. A few meetings can give you peace of mind in knowing where you stand.
Tour Homes! Chances are your builder has a few recent homes that you can tour. Ask them what they spent on the kitchen cabinets, bath fixtures, etc. If it was built within the past year, those numbers should be relatively close.
Watch out for the internet! Chances are most items are cheaper online. You can buy everything on Amazon, but do you really want to outfit your house on there? Local Suppliers and Vendors might be a bit more expensive, but your builder uses them because they more reliable, they include installation (most often), and you know you can call them if there’s an issue. Builders always dread the statement, “I found this cheaper online!” so beware!
ALTERNATIVES: If you’re not comfortable with Allowances, there are alternatives that builders can occasionally offer. They’re not as common in custom building and often a little more restricting, but some builders might offer packages of selection items. This is common in production or semi-production builders. They offer lighting packages, countertop packages, or potentially option A,B,C packages that you can choose from. This is easier to manage and keeps you for over-spending, but are limiting because you can’t select anything under the sun! There is a time and place for this type of selection process so try to know yourself before jumping into this type of situation.
If you’re still with me now, that means you’re an allowance expert and you have nothing to worry about! Chances are you’ve selected (or will select) a great builder and will do the necessary research to feel comfortable. If you’re still a little weary, reach out to a new construction specialist/agent in your area! They can save you TONS of money!
Did you realize that the Fall market is already here! It snuck up on us. It might not feel like it with these 90 degree days, but now that Labor Day has come and gone, we’re in the heat of the Fall market. Literally.
Over the years, we’ve seen an incredibly strong market in September and October because of lack of inventory and increasing demand. This year is no different, but there are some trends in the market that you’ll want to keep an eye on so you can see how they might effect your selling and buying plans.
To understand the market though, we first to explain how we view and track the local real estate market. We’ve all heard that real estate is all about location and that’s never been more true. We like to use the term “Hyper Local”. What does this mean? Well, each neighborhood has it’s own ecosystem if you will. Demand and supply can be different from one neighbor or another…heck, from one street to another. Monthly, our Build Cincinnati team reviews the sales, listings and trends for each area we focus to understand the health of that market. We even go as far as breaking each area up by price point.
An example would be looking at Montgomery and Hyde Park. Below, you’ll find a quick breakdown of home sales and listings at different price points and their average days on market. By going hyper local, we can best advise our clients on how to position their homes or buying plans.
Less Than $400,000 – 10 Listings
$401,000 – $700,000 – 26 Listings (2 New Construction)
$700,000+ – 40 Listings (18 Resale or Completed Homes & 22 New Construction)
Less Than $400,000 – 28 Listings
$401,000 – $700,000 – 18 Listings
$700,000+ – 25 Listings
Most people are under the impression that each of these areas are Seller Markets, meaning the lack of inventory gives Seller’s the edge. That might be true some cases, but in many, there is actually a growing amount of inventory. Before you worry though, Cincinnati in general only has 2.1 month absorption rate. This means that if there were no new listings, all of the homes would be sold in 2.1 months (theoretically, of course). A balanced market in Cincinnati is 4.5-5 Months, so we’re still well below that.
Here’s what this means to you:
For Sellers: the market is strong! Home prices are up 7.4% across Ohio. However, Sellers and Agents need to be care not to become over confident in a home’s ability to sell at any price. When pricing your home to sell, we need to be ever vigilant in finding that sweet spot on pricing. The first two weeks after listing are the most important and you only have one chance to do it right. We always arm our clients with list price range and of course, a suggested list price. When reviewing the competition and sales, be sure that you’re being objective.
For Buyers: Inventory is low in most cases, but there are great properties that come on the market (or we find through back channels) routinely! Our team is hungry to find new homes, lots and opportunities for our Buyers, but we all have to work harder than ever to find them. This means making yourself available as much as you can to see homes the moment they hit the market and being pre-approvaled! We’ll be sure to take care of you on this front!!
Building Buyers: Cost is going up so get it now before it gets even more expensive to build! Over the past 12 months, the cost to build has gone up 8-10%. That’s purely the cost of materials and contractor work. Lumber, hardwood, labor, roofing, you name it! The longer you wait to build, the higher likelihood that the cost will go up even more. Land and lot opportunities are more difficult and more expensive to find too. If you’ve considered building, now might be the time to explore it a little more seriously.
With that, we’ll leave you with an interesting statement that sums up what many are seeing out there and to calm any of those that are throwing the term bubble around…
“We’re seeing the first indications that price appreciation may be slowing, but the underlying fundamental housing market conditions support a natural moderation of house prices rather than a sharp decline.” -Mark Fleming Chief Economist at First American
If you’ve started to interview builders, you’ve likely started to see the difference on how they operate. They each have areas they thrive in and other’s not so much. But no matter their skill set or competitive advantages, you’ll ultimately get to the big step of reviewing and signing a contract with one of them. Even though this might be months from the first day you meet with them, it’s important to start asking questions early on their contract!
I bring this up because we’ve seen deals fall apart after drawings are finished and bulldozers are at the site because the Buyer or Builder didn’t agree on some facet of the contract. So, don’t wait until your 2nd or 8th meeting with the builder to review the contract, start EARLY!
And when you do, you need to know about the different types of contracts! Forget about the fine print, the overall premise of the contract is what’s most important in the beginning. What I mean by that is, how are you paying your builder? Is it a cost plus contract or a fixed price contract? This is a VERY important item to ask.
Below are the types of contracts and how each works:
Fixed Price Contract – The cost of building a home is essentially the sum of all the parts from foundation to countertops! A fixed cost contract puts the risk on the builder to price out all of the items accurately to be sure he has ample cost and profit in the deal for him. When you execute a Fixed Price Contract, the builder bids out the plan (typically) to all of his vendors and suppliers, adds allowances for items you need to pick, adds his profit margin and then gives you a price. The profit margin might be fixed on his initial pro-forma (which they may or may not share), but ultimately it will slide up and down based on the cost of each non-allowance based item. The spec sheet guides his choices to be sure he doesn’t skimp on anything in the house.
The Builder’s responsible for any overruns (not caused by the land).
You know your price from Day 1 of contract signing!
Your bank can easily give you a loan based on a for sure number (minus allowance overruns)
The builder will try to save money where ever they can.
It’s on you to stay in line with your allowances and be sure they’re adequate for your taste.
You might not see what your Builder’s profit margin is.
Cost Plus Contract – The alternative to a fixed priced contract is cost plus where you see each and every item that is needed to build a home. The Builder will get bids for each item and then take on a fee for themselves. This fee can be a cost plus or a management fee. Examples might be a 15% cost plus or $100,000 management fee added to the cost. Sometime it can be both! They can be floating depending on how the scale of the build carries out. The responsibility is on the builder AND the client to review the bids to make sure they’re accurate and there is enough buffer to make sure you’re covered. These contracts can fluctuate in price drastically depending on how things go on the building site and how well your builder priced each of the categories.
Full transparency because you can see each of the costs
You know exactly what your builder is being paid!
You can influence each item if you care to.
Builder profit can be tied to how much YOU spend.
The builder is less concerned about keeping price under control.
The price is always moving – positively or negatively!
As you meet with Builders, be sure to talk with them about how they operate on this regard. If you have a preferred way to go about it, you’ll want to be sure you let the builder know that from the get go! No sense wasting your time if you and the builder can’t agree on the framework for a future deal!!
As a bonus, here are a few questions to ask your builder about their contracts…
What is the deposit and when do I give that to you?
How long does it take to build a home and will the delivery date be added into the contract)?
Ask about their financial capacity to pay subcontractors and how quickly they are paid.
If there are issues with construction, timing, execution, how are they handled?
Do you finance the construction or do I need a construction loan?
I know this seems a bit overwhelming, but it’s important! An as always, feel free to reach out to Build Cincinnati to help guide you through the new construction buying process.