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New Construction: The Solution to Low Inventory

New Construction photoNew Construction: The Solution to Low Inventory

A major problem plaguing the real estate industry is low inventory.  According to the Colorado Association of Realtors® we had 27.6% less homes on the market in February 2016 than we did in February 2015.   While this is great for those wanting to sell their existing home, it puts a lot of buyers in a difficult situation.  This is because there are less homes to choose from and an increasing number of buyers to compete with.  It is an all too familiar experience that home buyers will see homes go under contract in a short span of time, sometimes hours after being listed.  In addition, with the market being saturated with buyers, there will likely be multiple offer scenarios, often above list price.  This is frustrating to buyers that don’t have the additional funds to put into an offer.  In Northern Colorado, most areas are looking at less than two month’s inventory as we go into the Spring.  This means that if no new listings come on the market, the existing homes for sale would be bought up in less than 2 months.   Ideally we would like to see a more balanced market, closer to 6 months of inventory.  This would help to serve the influx of people moving to Colorado, projected to be 90,000 for 2016.

However, with a significant amount of people moving to Colorado and a small number of people leaving, the low inventory is only likely going to continue.  Further, home buyers are competing with investors that are trying to find fix and flips or buy and hold investments.   So what will bring relief to this problem?  New construction.  As the real estate market in Northern Colorado has improved, builders are returning to the area as it is once again profitable for them.  This is of great benefit to home buyers that are struggling with the multiple offer scenarios or that simply want a new home.

So what are some of the benefits of new construction?

Fixed Price:  You won’t have multiple offer scenarios where your offer may get outbid.  While there is competition, the price will always be the same for you and the next home buyer in line.  You can shop around with different builders and see which one is best for you and which one will give you the most for your money.  There will be some sense of urgency in that lots may be bought up before you make a decision but you’ll never be outbid.

Choices:  You’ll get a choice of available lots and the available models.  Some HOA’s do have restrictions as to which model will go in a particular lot.  This is to increase the heterogeneity of the street view so you don’t have the same model consistently down on the same block. In some cases, if you want a lot with a view or that backs up to a green way or open space, you may have to pay a premium fee but it may be worth it in the long run, depending on your budget.

More choices: You get to choose paint colors, counter tops, flooring and other finishes (unless it is a spec inventory home where they make those choices and build the home then you pick the one you like).  You can also choose whether you want a fireplace as well as air conditioning (these are not typically standard options).  With existing homes, you like it or you don’t.  Yes, you can always make improvements over time but with new construction you can get it done for you all at once.

New homes are more efficient:  New homes are built to modern codes that require more energy efficient products.  Most new homes come with a high efficiency furnace and are built with materials that are more efficient and durable.  This will save you money on your monthly utility bills.

Warranties:  A newly built home typically comes with a one-year warranty (sometimes longer) for materials and workmanship.  Additionally, there is a longer term warranty (typically 10-years) on major structural defects.

You can see how new construction can be a more attractive option than existing homes due to choices you have and the avoidance of heavy competition and being outbid.  Further, it’s a brand new house that comes with warranties.

 

2016 Northern Colorado Real Estate Market Forecast

 

About the author: Sean Gilliam is a Realtor® in Northern Colorado and is a Certified New Home Specialist™.  Sean can be reached at seangilliam@remax.net or by phone at 970-313-6706.  For additional articles see Sean’s blog or to search for properties see his web page.

Interested in buying a home or selling your current home?  I am committed to serving you in attaining your goals.

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