Have you ever wondered what it would be like to buy a builder’s model home? Having started my real estate career in new construction, I can tell you a few ins and outs of a model home purchase to which few consumers may be privy.
In reality, the purchase of a model home is not all that different from the purchase of a re-sale (used) home. Even though no one has lived there (except the imaginary family depicted in paper photos around the house), thousands of feet have no doubt trod through its rooms in their quest for a new home or in an attempt to spend a lazy afternoon of pent-up curiosity.
Carpets have been well cared for but are nonetheless used, paint colors may not be exactly what you had in mind, selections for every bell and whistle are already in place and the location may not be superior within the neighborhood (but then again, the opposite may be true). That being said, there is much to recommend this type of purchase that would not be available to the rest of the homeowners in the new home neighborhood – at least at the price the builder is asking.
Builders customarily don’t ask full retail for upgrades or the cost of decorating done by their design firms when selling their model homes. Nor do they usually charge top dollar for items like lavish landscaping, sound systems, custom window coverings, security systems, pools, spas, crown molding, granite counters, fancy light and bathroom fixtures, jetted tubs, decorator tile or customized driveways they may have installed -- not only because it was probably written off as a marketing expense -- but also because, like a resale home, they know they can’t get 100% of their return on investment. Similar to the depreciation hit that occurs when driving a new car off the lot, builders know that they won’t get their return on all the money they poured into their model homes.
What you’ll have to possess as a model home buyer, however, is both patience – since the builder will tell YOU when they’re finished using the place to sell other homes – and in many cases, the ability to purchase the home and lease it back to them. This is not always true, since some builders market the models as the project ends. But many more builders prefer the feeling of knowing that their models are spoken for well ahead of time, so that they can move on to other projects and get out from under their model mortgages and upkeep. Keep in mind that lenders will offer non-owner-occupied types of loan programs for this kind of advance purchase, which is usually a higher interest rate than what you would get when instantly moving in when escrow closes. Still, check with your accountant if the write-off helps offset the added expense for the length of time it will be continued to be used by the builder.
In this type of purchase, the builder should pay what is called “triple net.” This means that not only do they cover every imaginable expense tied to using the model home before you take possession of it (all utilities, security, and maintenance of the interior, exterior and landscaping) – they also compensate the purchaser their monthly principal, interest, taxes and insurance costs, sometimes even throwing in homeowner’s fees, if any. In other words, you have no risk of losing your renter and you can get 100% of your monthly outgo for the purchase. Quite a deal when you can get it.
Creative “wiggle room” for negotiation can take place because this is a unique type of purchase, so ask the builder to discuss the following:
When blasting out the walkways, can the builder match other existing customized concrete (if any)?
If it’s something that interests you, will the builder leave the garage area room-finished, perhaps with existing ceilings and lighting?
Will the builder throw in some or all of the furnishings or permit you to purchase them at a hefty discount? If so, you can sell some or all pieces on consignment even if you don’t want to keep them all. These days, when builders are building fewer communities, it’s likely they’ll throw in the furnishings if you want them.
If bed linens and comforters match custom window coverings, will the builder permit you to keep them as well? Ask the same question about custom cut area rugs and other things they may not re-use in a future model home.
Although model homes are usually sold “as is,” will the builder perform touch up tasks such as paint and trim on the home’s interior or damage caused by heavy pieces of furniture? What repairs will and will not be done by the occupancy date?
To pin down the specifics of a model home purchase, ask the builder to list each upgrade to the base priced version of the model’s floor plan and assign a value to it. It’s not uncommon for a builders to enumerate these, add them up, and then demonstrate just how much of a bargain you are receiving.
On the flip side, to clarify what is automatically included in the purchase price of the model, ask the sales person to list the items on a sheet of paper, so that there are no unrealistic expectations on your part.
Again, if it interests you and it is indeed permitted by your local building authorities, find out if the all part of the garage must be converted. For instance, with a three-car garage, can the third stall be finished into a separate room for – perhaps an office, extra bedroom or home gym?
What is the target date for occupancy after conversion is complete and how much notice will you be afforded?
When does the clock start ticking on the new home warranty and the appliances and systems installed and how much of the warranty periods are left? (The model home may have already seen several years of service.)
If the home does not appraise at the sales price you and the builder have agreed to, are they willing to make an adjustment? This is an important factor in a market where values have been plummeting.
As you can see, the purchase of a model home is indeed a unique one. Finding model homes for sale and not already spoken for may not be that easy, so start inquiring early. Just think, though. While others in the neighborhood are still getting their backyards installed and trekking to home improvement stores every weekend, your model home landscaping will already be maturing while much of your decorating is not only complete, but professionally installed!
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