Due Diligence: Dos and Don’ts When Buying a New Construction Home
Understanding the Basics of Due Diligence Research for New Construction Residential Real Estate
Buying a home is exciting, but the idea of spending so much money can also be nerve wracking. Doing your due diligence, like research, can help you avoid a bad investment and put your mind at ease about making such a big purchase. Here, we’ll be discussing some things to consider if you are thinking about buying a newly constructed home, though many of these factors can also apply to older homes too.
DO: Research Your Builder
When considering a new home, think about the builder or contractor behind the project; this is true if the home is a one off project or part of a larger planned development. If you are considering a new home purchase but don’t know who the builder is, for instance if a developer is marketing the project, ask! This is the type of information that a developer should be willing to share, if not, there may be other concerns.
Look up both the builder’s company name and personal name. Even a quick google search may turn up news articles about problems with the construction or, on the positive side, awards that the builder’s projects have won.
DO: Check and verify that the builder is properly licensed.
How can you check if a contractor is properly licensed in Louisiana?
To check and see if the construction company is licensed as a Louisiana business, you can visit: https://coraweb.sos.la.gov/commercialsearch/commercialsearch.aspx.
Here, you can search by business name or by a person’s name and see if they are in good standing with the State. If a builder or construction company is not “in good standing” with the Secretary of State, it may mean that they are not properly insured or will be unable to properly warranty their work. If nothing else, it shows the contractor has a problem keeping up with paperwork. Next, verify that the contractor is licensed.
How can you check if a contractor is a licensed Louisiana contractor?
Check if a contractor is licensed to perform work in the state by visiting the Louisiana State Licensing Board for Contractors at https://lslbc.louisiana.gov/contractor-search/.
Here, you can search by business name, personal name, contractor license number, as well as by locality. Verify that your builder is licensed and the type of work that they are licensed to do. For instance, if a contractor is only licensed as a home improvement contractor, they should not be the prime contractor for a new home build or any other work exceeding $75,000 is value. Be wary of builders who appear to be under licensed for the work they are performing.
What if a contractor is licensed in another state, but not Louisiana?
Contractors performing work in Louisiana must be licensed in Louisiana. This is true even if, for example, the new build project is in Slidell and the contractor is licensed in Mississippi. It is fine if a contractor is licensed in multiple states.
Why is it important to hire a licensed contractor?
Hiring a licensed contractor is important because it means that he or she has met the necessary qualifications and follows local regulations and industry standards. Licensed contractors are more likely to carry proper insurance, protecting against liability and workers' compensation issues. Additionally, using a licensed contractor may give you more legal options in case something goes wrong later.
DO: Ask about the builder’s history.
How long has the company been building homes? How long has the builder been licensed? What are other projects that the company or builder has been involved in? You’ll use this information in the next step.
DO: Visit Other Projects
Builders should be proud of their work. Visit a builder’s older projects and take a look at the homes, even if only from the outside. Do the homes appear to be in good shape? Are there obvious condition issues? In cases of a new home development, do many of the homes seem to have the same issue (like cracking stucco)? Don’t ignore your intuition or observations. Additionally, if there are any homes for sale in a builder’s older developments, take a tour with a realtor or during an open house so that you can also check out the inside.
If there is a show home available for the development you’re considering, make sure to take a tour, but a show home is unlikely to tell you much about how a builder’s homes may age.
DO: Ask for Insurance Information
You can request the builder’s insurance policy information for the project. You can also verify that any subcontractors employed on the job are covered by insurance. This is another step that you can take to do your due diligence and ensure that your rights are protected.
DON’T: Rely on a Builder's Inspection Report
If you move forward in purchasing the new construction property (or really, any property!), hire your own independent inspector to do your due diligence. Many builders or developers will offer new homes “pre-inspected” meaning that they have paid an inspector to assess the property and create a report. Though this type of information is always useful, you should never rely on a builder’s inspection report. Do your research and hire a home inspector who you feel comfortable with and who will conduct the types of inspections you want. For instance, some inspectors will use thermal imaging during a home inspection to identify potential air leaks or water infiltration, but many will not.
DON’T: Assume that a New Construction Home Means No Maintenance
You wouldn’t buy a new car and then never change the oil. The same is true for a new construction home. All homes, even new ones, require routine and preventative maintenance. Things like cleaning the gutters and HVAC maintenance need to happen routinely no matter the age of your home.
DON’T: Forget to Ask about Warranties
Does the builder or developer offer a warranty on the home or parts of the work? If so, ask about the terms or conditions and get this information in writing. Check and make sure that new components, fixtures, or appliances also have any available warranty information available. Does a product need to be registered for the warranty to apply? Try to gather all of this information before closing on the property.
Keep in mind that there are also some warranties, like the New Home Warranty Act, that are provided by law regardless of whether or not a builder believes that they offer a warranty.
DON’T: Ignore Problems Once You Buy a New Construction House
You may want to just pretend that your new home is perfect, but ignoring small issues can only cause you bigger problems down the line. In Louisiana, you only have a limited amount of time to take legal action related to your new home warranty. For some issues, that time period is only a year, so it is important to speak up and document problems that you may find as soon as they become apparent to you. I am frequently contacted by homeowners who ignored a small issue with their new construction home and found that, in the end, it became a much larger and more expensive problem to fix. Protect yourself by acting earlier and keeping your legal options open and protecting your rights.
If you are having problems with your new construction home, contact the Stow Firm for a free consultation and to discuss your options. Buying a home is a big achievement that you deserve to be proud of. Careful due diligence before purchasing is just one step in making that a reality for you and your family.