Production Homes - Mindy and Steve Higgins

Building a Production Home

Production Builders are the most common form of new home construction in Columbus and Central Ohio. Typically, it is the most cost effective way to build a new home.

They generally:

Provide the best value for a newly built home due to the Builder's ability to control labor.
There are limits on selections and changes. One way that Builder's control their cost is by limiting the selections you can make. Some Builders will market themselves on added flexibility with customers.
Production Builders control the majority of build able lots in larger subdivisions.

Tip: If you are thinking of buying a new build you may want to look at homes that are only a few years old.

Choosing Your Production Builder

Even though there are a large number of Columbus and Central Ohio Homes Builders available in your area, you may find you only have a limited number to choose from.

Once you've focused on a certain area and price range, there may be a limited selection of Builders available. If you have particular subdivisions in mind, because of school district and/or price, or proximity to employment, you most certainly will have fewer Builders who own lots in those subdivisions.
Some Builders offer more home for less money. How? If all else is equal and two Builders have the same size home but one is less expensive than there can only be a few reasons
- They are willing to make less money
- They have a greater ability to control costs.
- They will limit your selections to increase construction productivity.
- Their quality is poorer. If you see something that looks too good to be true, be careful about the quality.
Other expenses in your contract (like normal Seller closing costs) may be shifted to the Buyer so that the Builder's costs of sale are minimized.
Analyze what is in the base price. Some Builders may pay for title insurance (Insist on Alta 98) as part of the price and some may not. One house may seem a better deal until you finally notice that it does not include air conditioning in the base price and that it is an additional $2,000.
Some compete on warranty. Be careful, as some warranties may be voided if you don't have the property inspected regularly. Other warranties are transferable but there is a charge for it.

Building For Resale

One day you will sell your house, so thoughtful design and finish decisions made now will allow you to be competitive later. This is where an Executive Buyer's Agent will add the most resale value to your transaction.

Remember:

Keep in mind how the next Buyer will evaluate your home. It is your home but to keep it competitive you will also want to consider how it will appeal to the market at the time of resale. What will the marketplace of Buyers think? Why will someone fall in love with your house?
Work with your Agent to make the right choices for upgrades. There are always items that you are going to want that are not included in the price. There are two issues to keep in mind.
- To be competitive at resale you will have to have the appropriate upgrades for your particular market. If everyone in your price range has a master bath with separate tub and shower, you will need it too.
- Certain upgrades will not add proportionate value to the home. If you over-improve, you may not recoup your investment. If no one in your market has a fireplace and you spend $2,000 for one, it will not necessarily add $2,000 to the value of your home. If you are going to do it, make sure you really enjoy it.
Be aware the the Builders normally make large profits from upgrades. It would not be surprising that the percentage profit is higher on upgrades than it is on the house itself. They deserve to make a profit because they have to manage the building process.
Lot choices: think resale. This is the one place that you want to be the most careful. Think about evolving traffic patterns and adjacent development. Don't assume that the large empty lot behind you is going to be more single family homes. It may be something that creates a negative impact on your future value. Don't select a lot that backs up to the freeway just because it is $5,000 cheaper. That may lower the value of your home by more than $5,000. Spend the money to get the best lot.
Most inexpensive houses come with a minimum of included features. It's not surprising on entry level housing to see a low advertised base price but you have to spend another $20,000 to get the features you should have for resale. If every other house has a half bath on the first floor, you should have one too. You will pay dearly at resale if you compromise the wrong features.
"Spec Homes" or inventory homes are usually the best way to get the best deal on a new build. Usually, a spec home is one where the original Buyer is no longer able to purchase the home. The best values are found when the original Buyer has overbuilt for the market and selected too many upgrades. The Builder will usually discount them and it is a good opportunity to get upgrades without paying the full price. The downside of spec homes is that you may not get "exactly" what you want.

Financing Your Production Home

Builders will often market the home based on a low initial down payment. Builders will often market the home based on a low initial payment. Be cautious of the financing benefits because you may be taking on more financing risk than is appropriate. SOme important points include:

Financing incentives are buried in the price, Many production Builders add on 3-5% to the price of the home for the great financing. On a $200,000 house, that means you just paid $6,000-$10,000 to the Builder to give you that great rate, buy down, or low introductory fate. The real value of the house is 3-5% lower.
Why is the payment so low for a new build? The large print giveth and the small print taketh away. Never shop for a home based on payment. If the house costs $150,000 and the payment for the Builder's 30-year fixed mortgage is lower than if you bought an existing home at $150,000, it is most likely because you are paying for the extra financing.
Risk of adding expenses to the mortgage if you are a short term Buyer: If the Builder added in 3% for financing to the price of the home the benefits of the lower payment will be justified after 4-7 years. If you have to sell the house quickly, you may lose money because the true value of the home on resale may not cover the over-payment you made for financing incentives.
Benefits of a long term rate lock: This is one of the best benefits of Builder financing. They will lock the interest rate during the entire construction process, which is usually around 270 days. If you are nervous about rising rates, than this feature will be hard to beat. Most lenders can lock in the rate but they will charge a premium for long-term locks.
Shop to see if it's truly a benefit. Get a good-faith estimate from the Builder's lender. Ask how much they would drop the price of the home if you got financing on your own. Ask other lenders if they can compete if they are also using the same financing premium. Only then will you truly know if you are getting a good deal.
Short term mortgages are used to decrease the initial payment. The low payment you see in the paper may change at the end of the year and adjust every year thereafter. If you are going to live in the house for a short time then a short term adjustable mortgage may be appropriate. Short term mortgages can be risky, so make sure you get the mortgage that is appropriate for you because the payments can adjust upwards.