Difference between types of New Construction Homes
Let’s preface this count of things to know about new construction homes with: The Differences Between PreSale Homes And Custom Built Homes.
When consumers are looking at new construction, there are several types. I’m going to explore the differences between a PreSale Home and a Custom Build Home.
A little background: Back in the day, builders would get construction loans and built “spec” houses . . . and create subdivisions both large and small. When the market tanked, these “spec” homes just sat and sat and lenders took a large loss. A “spec” home is short for a “Speculation” — a home constructed with the speculation that it will sell once already built and move-in ready.
Lenders are leery of loaning out on “spec” homes these days. The fall-out from the mortgage meltdown is that builder borrowers are not being approved for these types of “spec” loans as easily as in prior years. The type of new construction, at least in my area, is being replaced with PRE-SALE homes.
Pre-Sale: A home that is NOT built yet. The lot and the improvements (i.e., the property itself) are pre-sold to the buyer, and then the builder takes the Purchase Agreement / Sales Agreement / Contract to the bank for their building loan.
Custom Built: A home that is NOT built yet. The lot and the improvements (i.e., the property itself) are OWNED by the buyer who hires a contractor to build their custom home.
10 Differences Between Pre-Sale and Custom Built Homes
1. Builder Owner / Contractor – Who is going to build the house?
Pre-Sale: The builder/contractor is typically the owner/seller. They will build the house. Buyers do not select who the builder is.
Custom Built: The buyer selects and hires the builder/contractor.
2. Lot Selection – Where is the lot located?
Pre-Sale: The lot is where the lot is, typically, in a sub-division. The buyer selects the lot within the platted sub-division. The buyer can not select a lot outside the sub-division.
Custom Built: The lot is where the lot is, typically, a single lot. Good luck finding it in the Portland Metro area, however. The buyer selects their own lot.
3. House Design – Who has the house “plans”?
Pre-Sale: The builder has the plans all drawn up and the lots are designed with various floor-plans and model homes selected by the builder/owner.
Custom Built: The buyer has paid an architect, in most cases, to design their house plans. Builders follow the plans given to them, and they may help in some of the design phases. Buyer owns their drawings/plans.
4. Permits — Who is Responsible for Permits?
Pre-Sale: The builder is responsible.
Custom Built: The buyer, who may delegate this to their contractor. But, ultimately, it is the buyer who is responsible — this also includes any city, county or local design review committee approvals.
5. Utilities – Who is responsible for getting utilties hooked up to the site and paying for them until close?
Pre-Sale: The builder is responsible. They coordinate with the utility companies to have utilties installed. They are also responsible for paying the utility bills until the sale closes.
Custom Built: The buyer is responsible for utilties to the building site. They may delegate this to the contractor and they are responsible for paying for utility costs during the site build
6. Interior – Who selects the interior components of the new build?
Pre-Sale: In many cases, the buyer may select many of the interior components including: flooring, paint colors, doors, fixtures, etc. The buyer MAY NOT select room designs which have been previously made by the builder with their plans. The buyer MAY NOT select where anything is going to go, Example: The light fixtures will be placed according to the builder/owners design plan, for example.
NOTE: The buyer selects from the builder/owners samples. If the buyer wants to have bamboo flooring installed, as opposed to the builder/owners choice — the buyer may opt to pay for this out-of-pocket and it’s going to be considered an UPGRADE.
Custom Built: The buyer is responsible for selecting the interior, from flooring to light fixtures. They are also responsible for paying to it too. Depending on their construction loan, even some of the custom built interior options may be a cost over-run.
7. Exterior – Who selects the exterior design of the new build?
Pre-Sale: The builder/owner is responsible for the design of the exterior of the home and has already made the exterior part of the original design. Buyers may be able to select paint colors, light fixtures, but they MAY NOT be able to change the foot-print of the property, or make other alterations of the pre-existing design plans.
Custom Built: The buyer is responsible for all elements of design and may change exterior features throughout the custom build.
8. Change of Plans – Who Can Change the Construction Plans?
Pre-Sale: The builder/owner can change plans, but they probably won’t. They are responsible for the property, and they own it.
Custom Built: The buyer may change plans during the build, providing they have the financial resources to accommodate
9. Landscape – Who designs the landscaping?
Pre-Sale: The builder/owner will typically landscape the front of the property, but the buyer will be responsible for the back yard. This may include fencing, but not always. The buyer MAY be able to get UPGRADES, such as: in-ground sprinklers, special lighting, fencing, etc., but they will pay for it in addition to the price of the home.
Custom Built: The buyer is responsible for the landscaping, including sprinklers, special lighting and any other type of feature they would like included. The buyer may select their own landscaper. They do not need to go with their contractor’s recommendation.
10. Ownership Costs – Who is Responsible for Costs?
Ownership costs may include; taxes, insurance, maintenance costs, etc.
Pre-Sale: The builder/owner is responsible for all costs associated with the property that have been incurred up to the close of escrow.
Custom Built: The buyer is responsible for all costs incurred.
Other Things to Consider with New Construction Homes
Lenders don’t loan on dirt. On custom built home plans, the buyer must either own the lot, paying with cash, or have ALL their Oregon Ducks lined up prior to approaching a lender. This will include: having architectural designs, local city/county approval for the new build, permits pulled, etc. They will go for a construction loan, and must be as prepared, if not more prepared, than a builder on a Pre-Sale.