New home diligence

new home diligence
New home sales (infographic from nar.realtor)

It’s understandable that new homes are alluring.  After all, newly built homes are modern and efficient.  And there is the idea that new homes require minimal maintenance for the first year of ownership.  But new homes are not flawless.

Last week’s Florida’s Attorney General home builder settlement is the latest reminder that new home buyers need to exercise due diligence.  The multi-million-dollar settlement with PulteGroup, Inc came after a two-year investigation.  A simultaneous complaint alleges that the home builder violated the Florida Deceptive and Unfair Trade Practices Act by: failing to disclose to certain home buyers in Florida that the homes were being constructed in violation of applicable building codes; unfairly denying certain homeowners’ repair claims for various reasons: unfairly denying certain Florida homeowners’ repair claims without performing an adequate inspection of the home; and unfairly withholding a customer’s deposit in certain instances.  The details of the settlement can be found in the Florida AG’s December 28th news release (myfloridalegal.com). 

This settlement comes two years after the Florida AG entered into a settlement with KB Home in 2016 for similar alleged complaints. 

Home builder complaints are more common than you think.  In fact, Home builder complaints occur throughout the country alleging violations that may include (but not limited to): code violations, improper warranty denials, and improper handling of deposits. 

Maryland’s Attorney General fined NVR Inc in 2012 because it was alleged that required warranty protections were omitted from their subsidiary new home contracts.  A number of other home builders were fined that year for failing to register with the Consumer Protection Division’s Home Builder Registration Unit.  And in 2016, the Maryland AG filed charges against a Rockville home builder for alleged violations of the Home Builder Registration Act, the Maryland Express and Implied Warranties Act, and the Consumer Protection Act.  And more recently, the Maryland AG filed charges in September against a Baltimore County home builder for allegedly “failing to comply with Maryland’s Home Builder Registration Act, Consumer Protection Act, and the Custom Home Protection Act.”

Unfortunately, many home buyers let their diligence lapse when buying a new home.  New home builder reps are friendly, helpful and often appear to be on your side, so it’s understandable how a home buyer may misconstrue the builder rep’s loyalties.  However, when buying a new home, you should conduct your due diligence.  You should also consider hiring a Realtor and a licensed home inspector to assist you through the new home buying process.

When buying a Maryland new home, you should know that the state regulates home builders.  Before considering a home builder, make sure that the home builder is registered with the Consumer Protection Division’s Home Builder Registration Unit.  Before entering into a contract with the home builder, review and understand the contract.  You may want to consult an attorney to make sure that your Maryland new home contract complies with the state requirements. 

You should also keep in mind that Maryland has established a Home Builder Guaranty Fund that is overseen by the Consumer Protection Division. The fund allows consumers to seek recourse “for losses resulting from an act or omission by a registered builder who constructs a new home for a consumer.”  For additional information about due diligence when buying a new home and obtaining the handbook “Buying a New Home, Consumer Rights and Remedies Under Maryland Law,” contact the Maryland Office of Attorney General’s Consumer Protection Division (marylandattorneygeneral.gov/Pages/CPD).

Original published at https://dankrell.com/blog/2019/01/03/new-home-diligence

By Dan Krell. Copyright © 2019.

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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

New homes allure is neurological

new homes
New homes (infographic from candysdirt.com)

Last week I mentioned that new home sales jumped 18.7 percent year-over-year, which is a ten-year high.  It should come as no surprise that new homes are selling like hotcakes.  After all, existing home inventory has been and remains historically low, which doesn’t give many options to home buyers.  But there are other reasons for the allure of new construction.  Some of the home buyers’ motives are apparent and some are not so obvious.

The idea of buying new construction goes beyond the “new home feel.”  Buyers of new homes are attracted to modern designs and trends that are incorporated into new houses.  New home construction takes advantage of modern building techniques and materials that allow for the open floor-plan concept that many home buyers prefer.  Many of the materials used in new construction are “engineered” for efficiency and longevity.

Buyers of new homes like the feeling that there will be minimal maintenance for the first year.  Everything is brand new and there is sense of confidence that the home’s systems won’t need major repairs or replacement.  Being the first owner of a home also gives assurance that they won’t have to deal with the poor maintenance habits of the previous owner.  This is a plus for home buyers who don’t have a lot of financial reserves to address home maintenance emergencies.  Instead, they can begin to save and budget for future repairs and replacements that should be years down the road.

New home builders take advantage of current trends in green building practices.  Many new home builders tout their LEED certification, demonstrating their commitment to energy efficiency and sustainable resources.  Green building practices are not only used when the home is built, but is actually built into the design.  Home owners seeking LEED certified builders believe they will have a smaller impact on the environment and save money on energy costs.

A new trend that buyers are pursuing is the “healthy home.”  The healthy home concept emphasizes the quality of the air inside the home.  Home buyers are becoming aware of the physical and environmental benefits of good indoor air quality, which can improve their emotional well-being and reduce the potential for respiratory distress.

But there is another reason why home buyers are attracted to new homes, and it lies within the brain.  Research has demonstrated time and again that consumers respond to novelty.  This means that home buyers have a tendency to want “new.”  This can be interpreted into making an old home new by renovating a kitchen, bathroom, etc.  Or it can mean buying a newly built home.

new homes
the desire for new homes may start with the limbic system (infographic from success-mohawk.com)

The novelty seeking behavior of the home buyer isn’t just a choice, as some may argue, it’s neurological.  Basically, the desire for a new home lies within the brain.  A study conducted by Nico Bunzeck and Emrah Düzel (Absolute Coding of Stimulus Novelty in the Human Substantia Nigra/VTA; 2006; Neuron 51, 369-379) demonstrated that the hippocampal region of the brain responds to novel (new) stimuli.  The hippocampal region is part of the limbic system, which is noted for being responsible for memory and emotions.  It has also been associated with motivation.

The study also discusses the idea that novelty seeking behavior isn’t just emotional, but it is also rewarding.  This means that there is a behavioral loop for seeking new things, including buying a new home.

Home sellers need to take note of these findings.  Translating this study to home buyers may mean that a home’s feeling of “newness” is important, regardless if it’s construction, renovation, or even how the home is decorated.  Understanding what attracts and motivates home buyers can be the tipping point to get a home sold.

Original published at https://dankrell.com/blog/2017/12/08/new-homes-allure-neurological/

Copyright© Dan Krell
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3D printed homes

3D printed homes
3D printed home building

Imagine a time when you can print a new door knob, a sink trap, a cabinet, or any other house component right in your home.  That time is rapidly approaching, thanks to 3D printing technology.  3D printed homes may be your house of the future.

When Sean Mashian recently wrote about the potential of 3D printing technology (The impact of 3D printing on real estate; Cornell Real Estate Review; 2017. 15, p64-65.), he was correct to say that the technology has the potential to change the home construction industry.  3D printing may also be the ultimate affordable housing solution, printing on demand homes and apartments at a fraction of stick-built homes.

Mashian stated:

Currently, 3D printing is most often used in the real estate industry as a way of creating scale models for new developments. As the technology grows and becomes more commonplace, there may be huge changes coming to real estate from this emerging technology…Right now, 3D printing is expensive and still in rudimentary stages. As we learned from the explosion of e-commerce just a decade ago however, a rapidly growing trend can quickly become a way of life. If 3D printing continues its swift rise to prominence, real estate will change and well positioned assets stand to benefit.

But 3D printing is already making an impact on housing design and construction, as Eric Schimelpfenig wrote in 2013 (Design and the 3D Printing Revolution; Kitchen & Bath Design News; 2013, p20).  He talked about one New York company that was already manufacturing personalized 3D printed bathroom fixtures.  Besides custom faucets, 3D printing tech will also bring us on-demand custom cabinets and other fixtures too.  Schimelpfenig said, “that future isn’t far away… and it’s going to be awesome.

Schimelpfenig’s future is unfolding before us as 3D printing technology is rapidly advancing.  The technology has come a long way since the first 3D printer was created by Charles Hull in 1983.  Originally, 3D printing was used for 3D modeling.  As the technology become cheaper and widely available, 3D printed modeling become a hit with hobbyists.  However, the potential in commercial applications didn’t really make strides until the turn of the century.

Although, 3D printing is not yet widely used in home construction, there are companies already 3D printing entire homes.  Apis Cor (apis-cor.com) not only builds 3D printed homes, but claims to be the first company to develop a mobile construction 3D printer capable of printing an entire building completely on site.

We are the first company to develop a mobile construction 3D printer which is capable of printing whole buildings completely on site.
Also we are people. Engineers, managers, builders and inventors sharing one common idea – to change the construction industry so that millions of people will have an opportunity to improve their living conditions.

Apis Cor 3D printed a home in Russia last December in 24 hours.  The one level home was rudimentary, and had 38 square meters (about 409 square feet) of living space.  But this was a demonstration of the flexibility of the 3D printing technology.  The endeavor not only showed how a home can be 3D printed on site, but that it can also be done in the cold of winter.  The company claims that 3D printed homes can be any shape, and designs are only restricted by the laws of physics.

Apis Cor states that 3D printed homes can also cost less because an onsite 3D printer “frees up resources.” Construction costs are lower because there is a cost reduction in labor, construction waste disposal, construction machinery rentals, tools, and finishings.  They claim that one 3D printer “can replace a whole team of construction workers, saving time without loss of quality.”

Original published at https://dankrell.com/blog/2017/09/03/3d-printed-homes/

Copyright© Dan Krell
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Disclaimer. This article is not intended to provide nor should it be relied upon for legal and financial advice. Readers should not rely solely on the information contained herein, as it does not purport to be comprehensive or render specific advice. Readers should consult with an attorney regarding local real estate laws and customs as they vary by state and jurisdiction. Using this article without permission is a violation of copyright laws.

Lot premium value on new home

lot premium and new home
Buying a new home (infographic from jeffruttbuilder.com)

There is an ongoing debate about the lot premium.  Essentially, is there a value of paying a “premium” for a home site when buying a new home?  Certainly, the home builder is seeking to increase their profit margin.  But for a home buyer, there is a question of future value at resale.

A home builder will typically sell certain home sites within a community at a higher price, effectively increasing the price of a new home.  Some home sites are deemed to be more “valuable” because of the lot’s characteristics and/or location.  A lot premium may be charged if a home site is larger, flatter, and/or more symmetrical than others in the community.  Lots tucked away from the main road or close to common areas are typically premium priced as well.

Don’t hate the home builder for charging a lot premium on your new home.  Home builders are trying to sustain a business by recouping the cost and financial risk of land development.  Placing a premium on home sites has become a science, and research consultants typically provide data on developing home sites and pricing.

However, there is also an economic factor.  When the housing market was still reeling from the Great Recession, charging a lot premium was not common.  However, home builders added lot premiums when sales recovered.

John Burns, CEO of John Burns Consulting, wrote about the rising premiums on home sites as the new home market recovered in 2013 (Lot Premiums Are Back!; realestateconsulting.com; May 23,2013), stating “Our consulting team has noted a significant trend in the market: lot premiums are rising substantially!” Burns broke down lot premiums based on region.  And, of course, lot premiums increased according to how the region’s housing market recovered.  For example, lot premiums in Florida were about 10 percent at that time; While Southern California was trending to include the premium in the list price to help stabilize prices.  Also, the DC region’s housing market was still recovering and home builders were only charging 1 to 2 percent for a lot premium.

Burns also noted that buyer demographics can also dictate lot premiums.  At that time, it was reported that home builders in Southern California were charging a 5 percent premium based on feng shui and home site orientation.  And a 20 percent premium was charged for home sites with “good feng shui” that were located on a cul-de-sac.

The availability of buildable home sites may also dictate lot premium charges in the near future.  A recent National Association of Home Builders survey indicated a shortage of home building lots (Lot Shortages Worse Than Ever According to NAHB Survey; nahb.org; May 26, 2016).  NAHB Chief Economist Robert Dietz stated, “We have monitored lot availability for the last two decades, and it is clear that the scarcity of building lots is growing… Whether due to land use policy, geographic constraints or other regulatory constraints, the lack of lots for residential construction will have negative impacts on housing affordability in many markets.”

To understand the relative numbers, NAHB stated “…this record shortage comes at a time when new homes are being started at a rate of under 1.2 million a year. In 2005, when total housing starts were over 2 million, the share of builders reporting a shortage of lots was 53 percent…”

If you pay a lot premium on a new home, however, it is not always clear that you would be able to pass on the premium when you re-sell.  But a recent study conducted by Paul K. Asabere and Forrest E. Huffman (The Relative Impacts of Trails and Greenbelts on Home Price; Journal of Real Estate Finance and Economics; May 2009; vol 38, p408) provides some data on what you might expect: home sites close to trails, greenbelts, and greenways can demand a price premium of up to 5 percent.  A similar effect can also be found in homes with a “view” or in a cul-de-sac; as well as homes that are adjacent to a golf course, playground, tennis court, neighborhood pool.

Original published at https://dankrell.com/blog/2016/12/29/lot-premium-value-on-new-home/

Copyright © Dan Krell
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Build your dream home and avoid a nightmare

by Dan Krell
DanKrell.com
© 2012
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custom homeThe fact that home sale inventory has dropped off compared to recent years is not news. The reduced number of homes for sale has made it more difficult for increasingly discerning home buyers to find the “perfect” home. And for some, a perfect home even goes beyond a new “spec” home or new home development; so they consider a custom home as a way to uncompromisingly have all the features they really want in their new home.

There are many pros and cons to building a custom home. As you might imagine, one clear advantage of building a custom home over buying a resale is that you can choose your home style and floor plan to fit your taste and lifestyle. Customizing a resale to fit your needs has its limitations; besides the physical limitations of the home itself, you may encounter issues with zoning and/or a HOA. Buying a spec home or a home in a new home development also has limitations; you are typically limited to the home styles and floor plans offered by the builder (and some will not comply with customization requests).

Planning to build a custom home takes time and money. Choosing the right contractor and architect is highly important. Designing the home you want requires time for permitting and construction. Weather is often an impediment; poor weather conditions can prolong the process and possibly increase your construction costs.

Next, you’ll need to find a place to build your dream home. Finding the perfect lot can sometimes be difficult, depending on the type and size of home you’re planning. Among the many things to consider: you need to make sure that the lot is zoned appropriately, as well as being large enough for the home you choose to build. Additionally, you should consider utility availability to the lot: is public water and sewer available; is natural gas available. Other issues that could affect your lot: clearing trees, easements, and/or protection areas.

Custom HomeIf an unimproved lot is not found to meet your needs, another option is to buy a “tear down.” A tear down is an old home that is torn down to build a new home on the existing lot. Of course, there are issues that need to be addressed when going this route as well. Besides encountering building issues similar to those of an unimproved lot, you may encounter additional zoning and permitting constraints with a tear down.

Unless you’re willing to pay for your project with cash, you’ll have to secure financing. Depending on your project, there are various loans are available so consult your lender about terms and qualifying criteria. Some loans may combine the acquisition of the land and the construction; and other loans could provide the loan for the construction, and then convert to a permanent mortgage.

Although it’s great feeling to build the home of your dreams, you should also consider its resale. Tastes vary, so your idea of a dream home may not be everyone else’s. A large amount of non-traditional customization could not only turn off future home buyers, but could very well hurt your sale price.

Building a custom home requires due diligence. The Maryland Home Builder Registration Unit (of the MD Office of the Attorny General)provides consumer information about purchasing new homes and the Home Builder Guaranty Fund (www.oag.state.md.us/Homebuilder/index.htm).

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This article is not intended to provide nor should it be relied upon for legal and financial advice. This article was originally published in the Montgomery County Sentinel the week of December 10, 2012. Using this article without permission is a violation of copyright laws. Copyright © 2012 Dan Krell.