The Insider's Guide to
New Homes

What every shopper should know before buying new construction

by Barry Pearce

Though interest rates have been ticking up and signs of a slower housing market have begun to emerge, Chicago real estate, especially new construction, is booming. Today's city buyers have an unparalleled array of new condo developments, townhouses, single-families and especially lofts to choose from. Why people buy new (or virtually new vintage) varies from one buyer to the next, but the top reasons seem to be the same: superior amenities, greater efficiency and technology, faster appreciation and the ability to customize.

"I love the look of vintage but my schedule is too busy to say let's knock down a wall or put in a new kitchen - or to deal with contractors," says Jeff Barwick, who worked with Koenig & Strey sales agent Jeff Holly in looking for a new home. He bought a new single-family on a corner lot in Ravenswood and was able to watch his home being built - and to have a say in how it was built.
While buyers are often quite clear about the advantages of new construction, their home buying experiences are frequently less than they had hoped for. A study based in Los Angeles by J.D. Power & Associates found that 24 percent of buyers' problems with their new homes were never resolved by their builders, and 22 percent of problems took three or more visits to repair. The vast majority of buyers in the survey said they would not recommend their builders.

Curiously, first-time buyers were less likely to be happy with their builders than more experienced consumers. Although the opposite might be expected, the phenomenon makes perfect sense, especially in new construction. Move-up buyers know what to expect. They know that building a home is an imperfect process at best and that disparities between their imaginations and the final bricks and mortar are inevitable.
The lower satisfaction among first-timers also points to the importance of being prepared and knowing what to look for in shopping for a new home. Advice from family and friends - tales from the front - may comprise the most helpful advice. Our own brief list of helpful hints follows.

Why buy new?
Whether buying new construction is better than buying an older property depends on the buyer. Some buyers insist on a brand new home while others believe the older the better. Still others have definite criteria in mind - a certain style, various amenities - and whether or not they buy new or old is immaterial.
Perhaps the most commonly cited reason for buying new is the lack of maintenance on a new home. The typical face brick and vinyl siding on today's new homes is much easier to care for than older wood siding or old brick that may need tuck pointing. The roof on a brand new house should be maintenance-free for years, and it's under warranty if problems arise. The furnace, hot water heater, all of the major appliances - and potential headaches - are newer and more efficient than what are typically found in old homes, and they come with their own manufacturer's warranties.
In some ways, however, older homes may be the better maintenance bargain.

"In general, the quality of new construction overall is below what I expect," says Tom Corbett, of Tomacor, a home inspection company. "We routinely find that contractors and developers skip many of the necessary details when converting or building new. A lot of new construction is maintenance-free in design, but so much of it is inadequately put together that the maintenance fears are eclipsed by the here's-another-problem reality."
Stuart Packer of Lincoln Park Associates says there are advantages to both new and old, but he agrees that construction standards were generally higher earlier in the century.

"A used house has withstood the test of time," Packer says. "Are there going to be inherent things that go on with a house that's past half a century old? Of course. But you won't find solid masonry construction today or what was considered solid masonry 40 years ago. Today's masonry is cinder block with a course of brick veneer only on the face. Materials were cheap years ago, and the older homes are solid brick, with full dimensional lumber, knee walls; sometimes they're steel reinforced."

One advantage to buying something built today, however, is that architects and designers have today's lifestyles in mind when they shape your home. Newer homes generally have more electrical outlets and better energy efficiency. They frequently have more and larger bathrooms and popular design features such as multiple decks and open kitchen / dining areas.

If you decide to buy in a new development, check out other projects by the same developer. Ask him or her for references and the names of previous buyers. The reputations of the architect and general contractor are equally important. In fact, an inexperienced developer with a top notch architect and contractor is probably a better bet than an experienced developer with a rookie architect and fly-by-night contractor.

Lofts: old and new
The lofts that have come to dominate Chicago's current real estate market are, according to some, the best of both worlds, benefiting from the strength, endurance and materials of old construction but with the modern convenience of brand new amenities and mechanical systems.
"I love (lofts); they can take a hit from a B 52," Packer says. "It's the best of both worlds. It's a place that's been taking forklift traffic, so you know it's structurally sound, and now they're converting them into urban homes, and the mechanicals are all new. Most (lofts) I've inspected have been spectacular."
The concrete or brick and heavy timber construction of lofts is about the most solid available. The units also tend to lay out in dramatic open spaces with high ceilings, capacious floor plans and charming industrial leftovers, such as exposed brick, wood beams and ductwork.
Loft buildings vary widely in both how well they are suited to conversion to residential usage and in how well they are converted. Following are some tips for the quirks of loft shopping.

• Consider the depth of the building and size of the floor plate. Many massive new loft conversions have what one developer calls "bowling alley lofts," units that are extremely long and narrow with windows only in front. The extra or "bonus" rooms in back are sold that way because they receive little natural light and ventilation.
  
• Investigate sound transmission. The best loft developers use lightweight concrete and sound insulation to float new hardwood floors in lofts. Lesser systems can leave problems with sound transmission. Signs that junctions and electrical outlets are not well sealed or a lack of sound batting material or drywall between walls also translate into noisy units.
  
• Take note of where the vents are and make sure the heating and air conditioning systems are adequate. High ceilings, large spaces and lofted areas can translate into low comfort levels and uneven distribution of heat. The insulation value of brick is extremely poor. Consider the size of your outside walls and the quality of windows.
  
• Make sure that the roof is a complete tear-off and not merely a patch job. The term "as needed" in reference to roof repairs or tuck pointing should be a danger sign.
  
• Some dust is inevitable in lofts, but a poor cleanup job after sandblasting can create a lingering annoyance. Simply rubbing the walls with your hand to see how much dust comes off can be telling. Also keep an eye on floors and furniture in model units for evidence of excessive dust and particles falling.

Passing inspection
The first advice of home inspectors is, understandably, hire a home inspector. Granting that this might not be the most objective tip, it is a fairly smart one. The average home inspection costs about $300, a bargain considering the cost of new homes today. The investment often pays for itself in problems avoided or discovered, saving headaches and major expense later, and sometimes resulting in a renegotiation of price.



Home inspectors will check everything from crawl space to attic, wiring to windows, and give you a detailed assessment of your new house.
Home inspectors generally want the buyer present when they do the inspection and consider the process an education for the consumer. The most important part of the inspection on new construction is coming up with a "punch list," a series of items for the developer to fix. These pesky things may range from a missed spot on the paint job to a serious structural concern.

On new construction, some home inspectors recommend an inspection in two or three stages. This costs more money but may be worth it. Tom Corbett, of Tomacor, likes to inspect new construction three times: just after the concrete has been poured, just before the drywall goes up and for the final punch list. Each phase of such an inspection might cost $200, but Corbett says it results in a much more thorough evaluation.

"You let your developer know that you're interested and he knows he's not dealing with a fool, but someone who will insist on quality control standards," Corbett says. "Shoddy workmanship is almost always covered with a layer drywall. We get a profile of the developer to give the buyer if we get in before the drywall. The expense is in the details - whether the plumbing is insulated against the studs, whether holes drilled in the framing and floor are insulated against fire, whether the building is framed in a way that provides enough strength."

Investigating the reputation of your builder is perhaps the most important element of buying a new home, but inspecting the inspector can be equally important. Increased competition has led many inspectors to turn for business to real estate agents, who though they may seem to work for you, legally represent the developer in most cases. In this scenario, a home inspector who gets referrals from a real estate broker may go easy on the developer or overlook problems for fear of wrecking a deal - and his next referral.

Unless the real estate broker involved in the purchase of your new home is a "buyer's broker," whose fiduciary duty is to you as buyer, you should find your own home inspector and ask about his relationship with the brokerage community as well as his experience and qualifications. Home inspectors are not licensed in Illinois, which means anyone attracted to what seems like easy money can call himself a home inspector.

Where'd my house go?
A funny thing happens between the time a new home is reserved and when it's built. It often shrinks substantially. No one is sure where all those square feet developers advertise during the sales pitch disappear to when the studs go up, but one guess is in builders' pockets.

The excuse for this problem used to be that no standards existed for measuring square footage in new homes. Should builders measure from the outside face of walls, or the inside face, or the mid-point? Should only finished basements be included in square footage or all basements or no basements at all? It's hard to justify the rationale that spaces outside the home, such as decks and patios, should be included in square footage but some developers have done just that.
A common standard was approved by the American National Standards Institute in 1995, but it has been largely ignored by the industry. One useful exercise in examining brochures and marketing materials for developments is to do your own rough calculations. Developers routinely lie about total square footage - and provide accurate room dimensions. Take the time to multiply room dimensions and add the totals. Realizing that awkward corners and curves and some areas legitimately open to debate may skew your calculations, compare your amount with the developer's number. If the difference seems significant (your 2,400-square-foot home has shrunk to 1,500 square feet, for example) meet with builders or their sales people to determine exactly what is included in their numbers.

Because of vast disparities in measurement, figuring out the price per square foot is not a good tool of comparison, but it may be helpful in other ways. Construction costs alone on new townhomes, for example, are around $80 a square foot. Add in acquisition and carrying costs, profit and other miscellanies, and it's generally not possible to sell non-subsidized townhomes for $130 a square foot unless the labor or land are exceedingly cheep. If either of the last two items are true, you might question what you're investing in. If land and labor costs aren't especially low and your unit comes out to less than $150 a square foot, the odds are good that the builder has misquoted the square footage.

Timing is everything
In buying new construction, it's often best to be early or late. The two times developers tend to offer deals are during "presales," before construction has started and during "closeouts," when only a few units remain.

In one way, the presale period is the best time to buy. In today's financing climate, developers generally must rack up a certain number of presales to show lenders the project is viable and get the cash flowing. To encourage sales during this critical time, developers tend to offer units at lower price points. If the development is well conceived and the market healthy, prices will be gradually stepped up as the project rolls along. It's quite possible to save 10 percent or more on your home by buying at this juncture.

The downside to buying early is that the risk is greater - the project may never get built - and the delivery time is farther out. It's always a little nerve-wracking to be the first one at the party, taking quick sips of your drink, nibbling a little too self-consciously at the veggie tray and trying not to look awkward. Still, if other guests soon arrive, and in today's market that seems to happen far more often than not, you have had your pick of the prime spots and saved a bundle.

Of course, arriving fashionably late has converse benefits. You have plenty of people to keep you company, the risk is considerably lower and you may actually be able to see and touch your unit - no small comfort when you're plunking down hundreds of thousands for it. Odds are that prices have already been raised, perhaps several times, but if you're late enough developers will be anxious to unload those last few units.

"(Developers) tend to be unyielding in terms of price points, but given the timing of where their project is you may be able to negotiate upgrades, so you negotiate differently with builders," says Sara Benson, of Benson Stanley Realty. As a buyer's broker, who unlike most real estate agents, represents the interests of the buyer in transactions, Benson says she often is able to win significant perks for clients at new developments.

"We can negotiate things like prepaid assessments or maybe a free basement," Benson says. "One person called me to negotiate her deal, and I had upgrades thrown in, including a free deck and fireplace. We got about 60 percent of what we asked for."