All right, so this video is all about buying a brand new home and what the builders aren't going to tell you. If you're thinking about buying a home here in Temecula, California or any of the surrounding cities, you're definitely going to want to watch this video. We're going to talk about some of the hidden costs and talk about some of the things that you as a home buyer probably aren't thinking about and some of the things that the builders probably aren't sharing with you quite upfront. Let's go ahead and get into it.

Hey, guys. Hey, again, my name is Justin Short. I am a realtor and team leader for the Short Real Estate team, and this video is all about buying a brand new home and all the things that the builders aren't necessarily going to tell you right up front and what some of those hidden costs are going to be. We're going to get into it. I've bought actually a couple brand new homes myself over the last couple of years, but I think I can give you guys a really good perspective. We help dozens and dozens of clients buy new builds over the years, so I think we can tell you from an insider's perspective on some of the things that you're going to want to pay attention to and talk about what some of the pros and cons are. But the first thing, if you are liking videos like this and you want to know more about the Temecula, Murrieta, or Menifee real estate market I would love if you could do me a favor and hit like and hit subscribe.

We have videos that are coming out like this each and every week. We try and talk to you guys about your best neighborhoods, worst neighborhoods, where you want to buy, where you don't want to buy, all that good stuff. If you want to see more, please hit subscribe. Or if you have any questions or anything that we can help you out with, I definitely would love to hear from you. I have people that reach out all the time. You can feel free, you can call, you can text, you can email. You're going to see all my information there at the end. Myself and my team would of course love to help you with your search if you're thinking about making a move here. Let's go ahead and get into it. Again, we're going to be talking about brand new homes, brand new builds.

It's really about the city of Temecula, but it's really going to apply to any of the surrounding cities, so Temecula, Marietta, Menifee, Lake Elsinore or Wildomar, Winchester, any of the surrounding valley here. Just set some background, so I have lived here in the Valley for over 20 years. Went to high school out here. I really grew up out here, so I've been here for a long time. I think I can give you guys a good perspective there. Then in addition to that, actually over the last two years, myself and my family, we have bought two different brand new homes here in Temecula. We've been through the whole process from picking out a lot to getting assigned a lot to picking out finishes and extras and moving in and closing and dealing with construction timelines, all that type of stuff.

I think I can give you guys a really good perspective on what it's like as an actual home buyer as well, besides just a real estate agent where we've helped a lot of clients over the years as well. Really the biggest thing when I'm talking with a client and we start to consider new builds, it's always something that most home buyers are going to want to at least consider. I think for most people, they look at it and say, "Hey, if I can buy a resell house, like a used house, or if I can buy a brand new home, I would love to have a brand new home. I would love to buy a home that's brand new and no one's ever lived in before." The layouts are... Because they're new, it was built here now, 2023 or whatever year it is, the layouts are going to be nice and open and modern and what's in style today.

There's going to be a lot of attraction there. Plus, you're going to go and you go to take a look at a new build. You're going to go into these model homes and they are beautiful. They're decked out. They have interior designers who've picked out all the finishes and all the decorations and all the wall art. They're beautiful. Who doesn't love a brand new home? Every time you walk into a new build community, you're always going to love it. People get paid a ton of money to make sure that you fall in love with it, so they're always going to be awesome to look at. But there there's going to be some downsides. Again, so I think you guys might think that I'm just talking down on new builds and I'm going to make it sound like maybe new construction is not a good thing for people.

That is not how I feel. Again, personally, we bought a couple of brand new homes just myself. We've helped many clients over the years. I understand the process very well, and just there's going to be pros and cons to everything. There are some pros to new builds. Far as, again, you get a new home, no one's ever lived there, you can pick out the finishes that you want, et cetera. Also, at certain times it can be easier to get your offer accepted on a new build. That's actually why we ended up buying a brand new home is at the time when we were looking to move, it was a super crazy seller's market. Really the first time it was like 2021, and I could not get my offer accepted on a resell home. We wrote five or six offers, and our offer was not strong enough to get accepted by a home seller.

Because of that, a new build became a lot better option because once the lot was available, we can go in. We didn't have to deal with bidding wars. We didn't have to deal with multiple offers. It wasn't a big deal that maybe someone was putting 5% more down than I was. The lot was available, I wanted it. They shook my hand and we were good to go. It was an easier process from that perspective, but as far as there are definitely some cons, and it's not going to be a great option for everybody. That takes me into point number one, the biggest thing that potential home buyers don't know when they go to buy a new home is there's definitely some hidden costs there when you buy a new home. The biggest thing is really going to be extra taxes and HOA fees.

Again, we're here in Temecula, so you can look at one home that is in a low tax area, and let's say that's a 1.1% tax rate. Let's say it's an $800,000 home. 1.1%, that's about 80 to $100 a year in property tax, which is not by any means a small amount of money. But that would be a low tax home, that is not going to be a new build. If you go look at a new build, that's probably going to be closer to about a 2% tax rate. It might not sound like that big of a difference, but 1.1% to 2% in property taxes each and every year is a big deal. That's 0.9% extra that the new build is going to have because they have what are called special assessments or Mello-Roos. Basically those are tax bonds that the builder is passing off to the homeowner.

When a builder goes in, they're going to buy a big plot of land. They're going to subdivide it into this community, and they're going to put all these tract homes that are there. Maybe they're going to build a thousand houses, let's just say. When they go to buy that land and they want to build houses, they can not only just build houses, they have to really build out a community. What that means is they have to bring out utilities. They have to bring out water, gas, electricity, sewer. They're going to have to put in curbs. They're going to have to put in gutters. They're going to have to put in sidewalks. At least in Temecula and most of the surrounding cities, they're going to have to put in parks. A lot of times they're going to have to pay for a fire station or sometimes they're going to have to pay for a school or part of a school to go in or school bonds or things like that.

What the builders will do is they'll take a large chunk of that cost to pay for the infrastructure and they pass it off to the homeowner in the form of special assessments, basically on your taxes. Special assessments or Mello-Roos, but their tax bonds that get passed off to the homeowner. That's how you go from a 1.1% tax rate all the way up to a 2% tax rate is you have those bonds for all that different infrastructure that the builder's going to pass on. Let's say it's called an $800,000 home. Let's say that's 0.9%. I should have done the math before, but that's going to be probably somewhere right around an additional $7,000 in extra taxes for that 0.9%. I'm sure you guys can double check my math there, but let's say it's $7,000, so it's each and every year.

That means per year you're paying additional $7,000. You divide that up by 12, and that's going to be an additional probably 550, 600 bucks a month and extra taxes. That's a huge deal. When you as a home buyer and you're trying to factor what type of home you want to buy or how expensive of a home you're going to buy, you're going to factor in a certain amount of property tax you have to pay. If all of a sudden the new home, the taxes are an additional five, $600 a month higher, that's a huge deal. That's going to affect your affordability. You may no longer be able to afford that expensive of a house or want to have that expensive of a house because the affordability has changed because the taxes are different. That is the biggest thing that most people don't pay attention to. In addition to that, a lot of the new build communities also have HOAs.

When you go to buy a new home, you're looking at purchase price, you're looking at taxes, and you're looking at HOA amount because that's a monthly bill. You got to factor into that if you're going to be a home buyer. They could be as low as $40 a month and they could be up to $200 a month or $220 per month. Those are just things that you need to pay attention to. What are taxes? What are HOAs? If you're thinking about buying a new home. Number two is besides just those fixed costs that are part of the house, there are a lot of extra costs that are really behind the scenes with a new build. These are things that you don't necessarily think about as a home buyer. But basically the way it works, when you go buy a brand new home and when you go to move in the day you close escrow, what you have is you have a house that you have designed and picked out these finishes, and we'll talk a little bit about that and the options that you've picked out.

You have just a base house. Obviously there's no furniture, but there's no window coverings. Out in the backyard, it's going to be all dirt, so there's no landscaping. You have some just standard drought tolerant landscaping that's going to be in the front yard and really that that's it. Anytime you go buy a brand new home, you're going to have to pay for window coverings. You got to know that. Depending if you're going to do shutters, those are more expensive as opposed you just do some cheaper blinds from Home Depot or one of the other vendors. That cost can vary drastically. Then if you're going to do a backyard, most HOAs are going to tell you you have to develop your backyard in a certain amount of time. You're going to have to pay for that too.

The cost of a new build and doing a backyard as opposed to buying a resale home where all that landscaping and hardscaping is already done can be pretty drastic. The cost of a backyard could cost you anywhere between 15,000 to $50,000 depending on what you're going to do. Or if you want to do a pool, it's going to be a heck of a lot more than that. Those are a lot of costs that people don't think about. Again, we bought a new home recently this last year. I was actually just talking to one of my neighbors two weeks ago, and he was talking about his designs and what he wants to do. He's like, "You know what? I actually didn't even budget anything to do my backyard. We didn't really think about it, until he moved in we realized we had all dirt."

I was like, "Well, yeah. If you had a real estate agent helping you out, they'd be able to point that out to you." But it's just a learning lesson for everybody is you got to know you're going to have to put in the backyard as well. Those are an extra cost there. Also, when you're buying a new home in California, that home must have a solar system on it as well. That's a code item now from California, all new homes must have solar. They want to be green, they want to be efficient. But when when you're looking at pricing online and starting prices and all that type of stuff, they do not factor in solar system. It's really a forced option that everybody has to buy. Let's say you're looking at, again, an $800,000 home, once you decide on the lot that you want and all that, your name is assigned and you shake their hand and you're excited, great.

Then the next question is, "Okay, great. Well, what type of solar system would you like to put on there?" Then most people are like, "What are you talking about?" You must put solar system on there, so you can either lease it or purchase it. If you lease the system, you're going to have to pay per month to lease that solar system. The cost is going to vary. It could be anywhere between $110 to $180 per month to lease that solar system. Or you can go ahead and purchase it, and you can wrap it into your purchase price and put it as part of your mortgage. If you do that right currently, you do get a tax write off. Look into that, you can talk to your CPA about the details. The percentages are always changing, so that's really the best way to do it.

But those systems, usually they're between 18,000 to $30,000. That that's a big deal. If you are not already factoring in that cost when you're looking at an $800,000 home, if you're going to add a $30,000 system, all of a sudden you're at 830. Those numbers start jumping up really, really quickly. We're not talking about a thousand here, a thousand there, we're talking about tens of thousands of dollars. Those are things you're going to want to know. Then really the other hidden cost there is all the cost of the upgrades through the builder. When you go to a model home, you're going to walk in, you're going to be blown away. They have all these cool awesome things. They got quartz counters, super cool cabinets, probably extra cabinets. They have beautiful wood flooring or vinyl plank flooring.

They have upgraded bathrooms and showers and all this cool stuff that's in there. Really that's what you are going to fall in love with when you walk in, it's going to be beautiful because of the designer design it all. That's great. But once you actually get your lot, the pricing that you're being quoted does not include any of the options. That's why they're called options. Those model homes usually have between 80 to a $100,000 in options that are part of them. With that, that's a huge difference price wise. Most people, you're not going to go into design center and spend that much money in options. But on average, when talking to the new home reps, most people spend between 25 to $35,000 in options at the design center. Those are big deals.

The thing is, when you are going through the builder, your only option is to go through their construction team, their design center and at their cost. They're the ones that dictate the pricing. For some of the items, it's really reasonable as far as what you're paying, and some of the items are super, super expensive. When you are buying a new home and you're going through that builder's design center, a lot of the charges they give you are just ridiculous. For example, we were buying a new home. We wanted to put some flooring in, what was standard. It was just base linoleum and a base real cheap carpet. We didn't like it, we thought it was ugly. It's not what we wanted in our new home, so we wanted to upgrade. We wanted to upgrade to a luxury vinyl plank LVP, it's very common.

It looks nice, kind of looks like wood. We like the color and the style, so we picked out what we wanted. Okay, cool. They went ahead and they gave us a quote for our house, which was just about 2,600 square feet, the one that we were buying, and they were quoting us $50,000 to put vinyl plank flooring in. It was just some astronomical number. What we ended up doing is we closed escrow with the cheap base flooring. As soon as we closed escrow, we had our contractor come in and put all new flooring in for us, and they ended up charging us $12,000. From $12,000 that we paid to the $50,000 they wanted to charge us. That's a huge deal. We're not even in the same ballpark. It's almost a $40,000 difference price wise.

It would be idiotic to pay the 50 grand for the same material. There's things like that. That's not the case with all of their options, but you got to pick and choose and you got to be a smart buyer or have representation that's smart enough to tell you to be like, "Hey, the flooring to them is ridiculous," or, "Pay attention to these costs." You want to pick and choose your battles and pick and choose what you're actually willing to buy through the builder. Those would be the big things. The third point that I wanted to make is just about timelines. Because when you're buying a new construction, usually it's a piece of dirt that you're buying, and there's a completion date for that home, it's not going to be perfect for everybody's schedule.

Usually when a builder comes in and they're going to release a lot for sale, the build time is usually between six to eight months out. When you originally get your name assigned to that lot, you're not going to get the keys for six to eight months, which means you have to plan your life around that on not actually moving for six to eight months. A lot of times people are in all types of situations. We have a lot of clients that reach out to us that are relocating from out of state. If that's the case, maybe they've just sold their home and they have a two-week target period where they need to move in. Well, that two week target period might be sometime in the next month and it's not six to eight months out. If they wanted to buy that new home, they're going to need four to five months of temporary housing.

That's a big deal. That's expensive. Where do we do that? How do we do that? What are we going to pay per month to do that? It's not an easy problem to solve. Because of that, the timelines aren't going to match up for everybody. That's something you really want to pay attention to is when is that new home going to be completed, and will that fit into what my current life situation is for my move for myself and my family? If you didn't necessarily have any time constraints, then you're going to have that flexibility and maybe that's not going to be such a big deal for you, but it's definitely something you're going to want to know. Number four is about incentives, so you always want to know as a home buyer that the incentives are always changing for you as a home buyer.

It really depends on how much inventory the builder has and how much demand they have for their home. Over the course of a year, I'll typically see that incentive change from no incentive that a builder's offering [inaudible 00:17:59] hey, there's no incentive right now. The price is the price. All the way up to... I had a client that actually just got a $20,000 incentive and a free solar system that was an additional $16,000. They just picked up almost a $40,000 incentive. That's going to vary a lot. When a home is built or nearing completion of construction, the builder's going to offer more and more incentives to make that home desirable and then try and get it sold. When a home is being released and there's four people on a waiting list, well there's probably not going to be much out there.

But because of that, I really recommend that you work with a real estate agent, someone that can try and find out what those incentives are. Make sure you get all the best deals and get all the best incentives that are out there for you. But they're always going to be changing, and they change month to month. Sometimes they're a pretty hard line on, hey, if we wait a week too long that they're not going to give you that incentive that was there last week. That's definitely something you're going to want to pay attention to. The next thing I want to talk about, and really this is point number five, is just about the builder's in-house lender. When we talked about incentives just a minute ago, if the builder's offering any incentives, which I would say is relatively common, usually there's something out there that they're going to be offering.

But if they're offering any type of incentives, 99% of the time they're going to tie those incentives into you as the buyer using their in-house lender. Really the process usually plays out like this is usually when I'm with a client and we're starting our home search and we're starting the home buying process, one of the first things will happen is we'll get in touch with a lender. I have a great local lender who I work with a lot, or you can use your own lender, but we start and we work on a pre-approval. We get that pre-approval that's going to narrow down what we can afford price-wise, what the purchase price is going to be, what your mortgage payment's going to be. Make sure you're comfortable with that, what down payment is. You know relatively closely what the terms are going to be and what the parameters are for the home search.

But when you go into a new builder, they will let you use any lender that you want. But they'll say, "Hey, you can use your lender. But if you use ours, we're going to give you a $10,000 closing cost incentive." At that point, you as a buyer, it's like, "Why would I use this other lender when I can use the builder's in-house lender and pick up a $10,000 incentive?" You're right. It'd be silly not to, it would be silly to leave $10,000 on the table. But the challenge with that is you're now using an employee of the builder. You're in their bubble and using their in-house person. For me, as far as I'm concerned, I think it's really a scam how they do it because they really... It should be a price discount, but they wrap it into the lender. I think it's really unjust, that's how I feel, but they make that deal so good you really can't pass it up.

But the cons to that is just because this guy has a 10,000 price incentive, his rate might not be quite as good. His rate might be higher than your outside lender has and they won't let you use a combination of the two. Also, when you're using an in-house lender, they are usually under an incredible amount of stress as far as the volume of homes that the builder is selling. Because of that, their customer service is usually pretty terrible. That's just the way it is. They're not able to do the handholding for each and every client like an outside lender does. Because the outside lender, they're in the customer service business, so they're servicing the client and the handholding them and updating them.

They're also working with the realtors and updating them. They want a good experience for everybody so they can do more business in the future, that's good business practices. But when you are working with an in-house lender, they have a spoon that is feeding them at all times. The people are coming into the new builder every day, every day, every day, every day. They have a never ending stream of people that are coming to them. Because of that, the customer service piece, really honestly it sucks. The communication isn't great. I've had a lot of frustration with clients using the builder's in-house lender where it's just things are left out or things aren't understood. Things aren't explained right, can't get a call back, and it's just unfortunate. But because of the way it's set up because you get that incentive, it'd be silly for you to pass on that $10,000.

Even myself, again, we've bought new homes. We ended up using the builder's in-house lender because at the time we got a $15,000 incentive to do that. Even though a good friend of mine is a lender and most of my clients end up using him. In that case, it's like, "Hey, this is a ton of a money of incentives. It would be silly to pass up. It'd be a bad deal." It's just something to know is you're probably going to end up using the builder's in-house lender. Again, it's not really a great process when you have to do that. Then the last thing, it just talks about the realtor. Again, obviously I'm a real estate agent. I have a real estate team. We have agents that are on the team with me. Of course, we would love to help you out with your home search. But what is really, really important, if you're going to use us or going to use anybody else, if you're going to buy a brand new home, your realtor must be with you when you go visit that new builder.

If we are not with you on your first visit, we would not be able to help you through the process. That's a rule that the builders are going to have. They will not work with agents that are not with their clients on their first visit. It's a hard and fast rule. If you are working with a real estate agent, if you're working with us or you want to work with us, and you want us to help you through that process and help get you all the incentives or help talk about the pros and cons and be your advocate in that situation, you must set an appointment and bring us with you or whatever agent it is that you're going to use. A lot of clients don't know that until they've been through the process. Those are the tips for working with a new builder.

Hopefully it's going to be good information for you guys. I felt like maybe I was rambling a little bit there and got into some nuance. Maybe a little bit far down the rabbit hole, but hopefully it's good information for you guys. Again, I personally have bought in a couple brand new bills. I think new construction can be a great thing for people in the right situation, but it's not going to be a one size fits all. It's not going to be perfect for everybody, but hopefully that's going to be good information for you. Again, if you want to see more videos like this, please hit like, please hit subscribe. If you would like some more information or you want to talk with us about your home search or talk about what we can do to help, you can feel free and reach out anytime. You can see information, you can call, text or email, and hopefully we'll talk to you soon. Thanks.