Protect yourself with a new construction inspection

Builders of new homes offer or are required to warrant their work for a specified period.  Municipal inspections are generally required during different stages to "ensure the life, health, safety, and welfare of the public" but even if something is missed, the ultimate responsibility for building to code belongs to the builder, even if the municipal inspector misses something.

There are four basic stages of residential construction including:

1. The foundation stage begins with excavation, footings, foundation walls or slab, waterproofing, backfill, compaction and underground rough plumbing and electricity.  Municipal inspections are done prior to pouring the foundation while items are visible.
2. The framing stage includes the wood or steel framing, exterior walls and roof sheathing, exterior trim and siding, windows, doors, and roofing.  Depending on the municipality, there could be inspections of the rough framing separate from the roofing. 
   Next in this stage comes rough plumbing including water, waste, and vent piping, rough electrical, rough mechanical, ductwork, wiring, and electrical panel installation.  Municipalities will usually inspect plumbing and electrical separately.
3. The wall insulation and drywall installation are done and inspected depending on the municipality before tape and texturing are done. 
4. The final stage of construction includes flooring, cabinets, millwork, countertops, tile, mirrors, electrical trim, plumbing trim, and mechanical.  Some builders will not install appliances and HVAC until the last stage to protect against theft.  Municipal inspections are made in the final electric, plumbing, and mechanical.

A "Final Inspection" is done after all the periodic inspections have been completed and passed.

Defects that manifest themselves during the warranty period are the responsibility of the builder.  Unfortunately, some things may go undetected until after the warranty expires leaving the repair expense as the sole burden of the buyer/owner.

A safeguard that the purchaser will not be out of pocket for repair expenses is a home warranty which shifts the liability to the warranty or service contract company.  This is a negotiable item that can be paid for by the builder or the buyer.  However, this warranty will have a time limit on it and to continue the coverage, the buyer/owner will have to renew it by paying the additional annual premium.

One more safeguard for the purchaser is to hire their own inspector, to conduct periodic inspections during the different phases of construction.  Unlike an inspection made on an existing home, the inspector will have to visit the site multiple times during the process.  For that reason, construction inspections are more expensive.

When hiring an inspector for new construction, ask at what stages do they inspect.  A typical new construction inspection might be at the end of the foundation stage, another at the end of the framing and rough plumbing, electrical, and mechanical, and the final inspection after the home is completed.

A provision allowing a buyer to hire their own inspector for periodic inspections should be included in the sales contract.  Your agent can not only help you get that included but assist in negotiation of any issues that arise because of the periodic inspections.

If you value this extra level of protection in the purchase of a new home, it is important that you have your agent first accompany you to the models so they will be registered as your agent.

Higher Interest Rates May be the Help You Need

Like opening and closing a faucet increases and decreases the water flow, lowering interest rates increases home sales, and raising interest rates decreases home sales.

When home sales increase during periods of limited inventory, demand increases, and prices go up.  Contrarily, when home sales decrease, demand could lessen and prices moderate. 

There is opportunity with higher rates because it affects sales and demand, which in turn keeps prices in check.  By waiting for rates to come down, and no one knows by how much but certainly not to the 3-4% range, buyers' pent-up demand will affect the already low supply and cause prices to increase.

Let's look at a scenario where you could buy a home today for $400,000 with a 90% loan at 6.5% for 30-years with P&I payments of $2,275.44.  If interest rates drop to 5.5% in one year but in that same period, the price goes up by 10%, the price would be $440,000 with a 90% loan at 5.5% for 30 years with P&I payments of $2,248.44.

The payment would go down by $27 a month but the price would have risen by $40,000 which would be equity of twice the down payment for the person who purchased a year earlier with a higher rate.

The takeaway in this example is that a person may experience more loss from unrealized equity during periods of high appreciation than waiting for a nominal drop in the interest rate.  With rates being a deterrent to buyers that have led to sales slipping 22% year over year in March 2023, sellers may be willing to negotiate.

Lawd have mercy!  I’m really rooting for you buyers but you are making it hard.  As bad as people talk about real estate agents, we are like parents.  It’s our job to guide you safely, but you’d rather listen to your little friends because they have all the answers.  Then when they fail you, we have to bail you out.  Realtoring is interesting. Especially when clients listen to and believe everyone's advice except us.  "Well, my uncle's best friend said I should do this because  when he purchased a home it went like this…" or, "I think I will wait for the bubble bursts so I can scoop up some foreclosures."

Most people don't understand the full scope of work involved in purchasing houses affected by a 'crash.' In most cases, purchasing a foreclosed home is much more expensive than the sticker price that catches the eye. For starters, there is a level of carpentry skills or cash reserves to hire a contractor to take care of the number of issues like a fried electrical box, massive termite damage, stolen pipes, foundation issues, etc.... The 'purchase a foreclosure plan' has become a bottomless rabbit hole where people jump in only to cry later about losing your proverbial shirt “messing with real estate.”  But, only if a trustworthy expert could have advised them, someone like perhaps their realtor or finance team.             

Rule of thumb: Hire the expert, and trust their advice. Investing in yourself through buying a home requires knowledge, strategy and willingness to ACT.  It also requires an open mind with an open wallet.  I’m not telling you that you can’t by a distressed property, what I’m saying is it’s not that easy.  

NEWSFLASH! The DC, Maryland, and Virginia area market is solid and thriving. While other markets yo-yo on fad trends we are tried and true. The average price of a single-family home sold in the DMV is well above $500,000. Even “The Great Recession” of 2007 didn't shake things up as it did elsewhere. Overall the home values continued to increase, just a bit slower. At times it plateaued for a while, BUT it bounced back with force. Note…the key there is timing. Of course, there were some areas in the DMV affected. Those areas were further out from the city and in communities that didn't have any or fewer economic drivers(another tip for you). In another post, we’ll talk about what has been done to mitigate that kind of impact in the future. Back to the subject at hand. Owners held onto their homes if they could. Post-recession, their home value paced at the predicted rate of increase as it would have had there been no recession.  

'Why,' You ask?

It's all about the history- of the market! Historically, the real estate market has hands down been one of the most robust investments, standing strong even during recessions. There are two times that it did not. During the great depression, the housing market plummeted, leaving many people with a home value far less than the loan amount they purchased it for. So did everything else. Unless you already had money to take some risks by buying building pennies on the dollar, it was a wrap. Reportedly, by 1933 the daily foreclosures peaked at a whopping 1,000 daily. Secondly, while the DMV area endured the 2007 financial crisis, some areas nationally experienced a mudslide in the aftermath, 2008-2009, and home prices saw a drop of an estimated average of 20% globally. As you can see from the charts below the median equity growth was over $250k in just 11 years. We don’t know anything about that major loss lifestyle.

To sum things up, when it comes to purchasing a foreclosure, most people sincerely prepared to do so are companies or a group of real estate investors. They are a few steps ahead of the average buyer who is 'waiting on the market to crash. They are prepared because investors know the market and understand its value. Investors are market savvy with cash in hand, along with move-up buyers(people who sell and buy in the same market creating ready capital), which makes for tough competition for the average buyer. That gives them leverage to beat you on any home - not just in the foreclosure market! They understand the power of strategy: purchase the first property, then, the second property, then, combine the profits into larger, available cash down payments; while you’re still deciding on whether you’ll get everything you’ve ever wanted and not settling. This sets them apart. In addition, they are not trusting the advice of Uncle Larry, who doesn't own a home. Maybe think of trusting some different uncles like Grant, Robert, MG, Warren, or better yet, your qualified local real estate pros. “The proof is in the pudding”...actually the wealth.

Receive the Latest Local Market Stats

Curious about local real estate? So are we! Every month we review trends in our real estate market and consider the number of homes on the market in each price tier, the amount of time particular homes have been listed for sale, specific neighborhood trends, the median price and square footage of each home sold and so much more. We’d love to invite you to do the same!

Get Local Market Reports Sent Directly to You

You can sign up here to receive your own market report, delivered as often as you like! It contains current information on pending, active and just sold properties so you can see actual homes in your neighborhood. You can review your area on a larger scale, as well, by refining your search to include properties across the city or county. As you notice price and size trends, please contact us for clarification or to have any questions answered.

We can definitely fill you in on details that are not listed on the report and help you determine the best home for you. If you are wondering if now is the time to sell, please try out our INSTANT home value tool. You’ll get an estimate on the value of your property in today’s market. Either way, we hope to hear from you soon as you get to know our neighborhoods and local real estate market better.