In early January, Cassie and Garhett Stafford put their names on the waiting list for land at Hawthrone at the Meadows, a new community built by Richmond American Homes in Castle Rock. The couple, who currently live in a townhouse in that same community with their 10-month-old son and large dog, wanted more space, privacy and a yard.
The price of the land and the new house – $640,000 in total – was a selling point. (According to the Denver Association of Realtors’ January Market Trends Report, the average home sale price in the area at the time was $540,000.) “We thought it would be affordable,” Cassie says. about the 2,400 square foot property. But two months later, when the Staffords received a call that the yet-to-be-built four-bedroom, two-and-a-half-bathroom home was theirs if they wanted it, the cost soared. at $715,000.
As Cassie recalls, Richmond explained that the price hike was due to a confluence of factors: the rising cost of building materials, growing demand from buyers, market instability caused by the Russian invasion of the Ukraine and the fact that the Staffords chose not to use the builder. internal lender. (Editor’s note: Richmond did not respond to multiple requests for comment.) Still, the couple felt attached to the property and went ahead with the purchase with the help of their realtor, Kim Norton of Kentwood Real Estate.
The next step was to select the design components. Cassie, 27, and Garhett, 28, opted for specific cabinetry, tiling and other features that were different from the base option offered and added an additional $60,000 to the cost of the home. In total, they paid nearly $800,000 for the house, a substantial increase over the original sticker price. “It’s just a big difference,” says Cassie. This almost made the house unaffordable for the couple.
The Staffords’ experience buying new construction in the Denver area is not unique. For many new homes — which are popping up everywhere from Castle Rock to Littleton to Brighton — the advertised price is “usually much lower than what you’re actually going to pay,” says Jill Schafer, a Kentwood broker and Denver member. Metro Association of Realtors. That’s partly because many builders advertise properties before they’ve even started building them, and by the time they start development the cost of materials has gone up, so they then raise the price of the house accordingly.
Tim Leighty, CEO of the Homebuilders Association of Metro Denver, which represents 134 local builders, says lack of available land, labor shortages and rising material costs are all contributing to the rising cost. new construction and the prevalence of waiting lists.
Schafer gives the example of a client who found a new build for $387,000. “She was all excited,” says Schafer – until Schafer called the builder and learned that the units were actually selling for $550,000, and there was only one building left, for which there was already a long waiting list.
Any new construction in the metro area will likely incur additional fees above the base price, says Bret Weinstein, founder and CEO of Bret Weinstein Real Estate in Denver. A great example is lot fees, which are often separate from the base cost of the house. These can range from $20,000 to $50,000 as a starting point, Weinstein says. “You could pay $70,000 more and even up to $120,000 with some of these builders right now,” he says. Some builders, he adds, even ask buyers to blindly bid on lots. “Whoever has the highest bid wins the lot,” Weinstein says. “It could be $30,000; it could be $150,000.
Plus, many builders charge extra for basic features and appliances, like landscaping, window treatments, garage door openers, refrigerators, and washer/dryers, which can quickly add up. drive up costs. Then, if your builder lets you choose design details like carpets, counters, flooring, and backsplashes, like the Stafford builder did, you can expect to pay even more. “The more customization you can do, the higher the price will go,” says Schafer.
Another factor making new construction less affordable right now are mortgage interest rates, which recently topped 5% last month for the first time in more than a decade. Typically, buyers don’t lock in their interest rate until the last month before closing, and with many new homes, buyers may be under contract for month before the sale closes because lenders won’t mortgage until a property is complete and has a certificate of occupancy, Schafer says. This means that people who were originally qualified to buy new construction when interest rates were low may no longer be eligible now that rates have climbed.
With all of these caveats, how can buyers interested in new construction best navigate the market?
Weinstein advises working with a real estate agent to get on as many waiting lists for new homes as possible; he has seen these lists number 150-200 people with a wait time of 2-10 months. When you find a property you’re interested in, talk to your lender upfront and figure out when you can lock in an interest rate, advises Weinstein. Due to the recent increase in interest rates, buyers should ask lenders to increase rates by one or two percentage points “just to make sure that if rates increase significantly over the next two years with inflation, you can afford this house”. Weinstein said.
Also important: “Just know that there are good builders and there are bad builders,” adds Weinstein, who lives in new construction himself. He suggests buyers speak candidly with real estate experts and current owners to determine the quality of homes and customer service from the builder they are considering.
Leighty with the Home Builders Association agrees that buyers should do their due diligence when buying new construction by asking questions and asking for references. “You want to make sure you’re with a good builder, that you understand the process, and that you’re not going in with your eyes wide shut but with your eyes wide open,” he says.
Schafer, for his part, recommends coordinating your own inspection on a new construction property. “A lot of buyers assume that since the city has inspected the property, everything is fine,” she says. But mistakes slip through the cracks, especially when properties are built in haste and on a massive scale. Schafer remembers a new house she saw where the furnace was installed upside down and another where a construction worker had flushed a concrete bucket down the toilet and plugged it. Leighty hadn’t heard of reports like this and says builders are putting houses up as fast as they can with a good job.
Final tip: keep in mind that in addition to additional costs, you may face a long wait time with new builds, especially given the ongoing supply chain shortages that can delay construction . The Staffords, for example, were told their property would be ready to move in by the end of this year or early next year, but crews hadn’t started as of late April. “It’s been almost two months since we signed, and nothing has happened,” Cassie says. “So it’s a little worrying.”
Yet despite the bumps they endured during the new construction process, Cassie reiterates her and Garhett’s satisfaction with their future new home. Even with the substantial price hike, the property still seems like a bargain, as the couple have seen older, similarly sized properties in the neighborhood sell for around the same price, Cassie says.
“At the end of the day,” she said, “we’re really excited.”
(Read more: 13 tips for buyers navigating the Denver real estate market)