Between you and me

Between you and me... buying new condos in DC isn't as simple as it seems. Developers make it so easy to contact a sales rep or visit a sales center... but before you do, read these insider tips! In our decade+ of new home sales & management experience, +12 years selling new construction as residential Realtors. And in that 20 years, we've amassed a ton of knowledge! We'll guide you through a successful new home transaction.

Partner With A Savvy Agent When Buying New Construction
  • Be sure your agent is expert in new construction. Just because an agent has represented buyers who have purchased new homes, doesn’t mean they understand development and its related risks.
  • You’ll want a buyer agent with training and first-hand experience in the building and sales processes. To be really effective, they’ll need to understand building quality, timetables, construction sequences, sales strategies and potential pitfalls so they can let you know if something is atypical. Knowledge of DC developers, their history and projects is also beneficial.
  • Ideally, your buyer agent will have actually worked for developers in the past, as we have. They’ll know how to protect your interests and set realistic expectations.
  • If your agent has to phone us for information, as many do, they're not expert in this area.
Did you know?
Making your first visit to a development sales center or talking with a developer’s sales rep without your agent present can allow developers to refuse to pay your agent’s commission? Always let your agent make new construction inquiries for you and be sure your agent accompanies you on your first visit.
Research “Preferred” Lenders & Title Companies
  • Who are the ‘preferred’ lender and title company working for? Lenders handling a developer’s project will have all the necessary information necessary to approve a new construction loan on that particular development, something that’s not necessarily true of another lender. But that doesn’t mean you should blindly accept the developer’s lender & title companies, even though they will offer you incentives or create penalties if you don’t. Research costs and quality before making a decision.
  • ‘Preferred lenders’ don’t always offer the best programs, rates or customer service to buyers. They’re chosen by developer because they understand new construction and are likely providing discounted services to the developer in exchange for bulk business. Your service may not match the developer’s. Your loan programs may not be as advantageous than they would be from a lender of your choosing, and your interest rate may be higher. So close your ears to the siren song of closing cost credits and carefully weigh penalties as you evaluate how the ‘preferred lender’ programs fit your needs. By law, buyers have the right to choose their title company and lender. If the developer is punitive in a quest to force buyers to work with preferred lenders and title, perhaps their development is not the best choice. What can you do? Get apples-to-apples estimates and worksheets from three lenders in addition to the ‘preferred’ lender. Ask your agent about the pros and cons of running concurrent loans. Do the math to make sure you’re not making a disadvantageous 30 year decision to save a few thousand dollars in the short term. We help buyers make smart loan comparisons and offer strategies for developer negotiation, timing and loan alternatives. We guide our clients through the process in order to assure as much as possible that the lender delivers the loan as promised, and that service is not inferior.
  • Lenders aren’t the only entity affecting your new construction purchase. Title companies can impact your transaction, too. Developers select a ‘preferred title company’ because they need their transaction-related company information managed under one roof. Because the developer is referring a large amount of business to this title company—often for multiple projects over time–loyalties tend to lean towards the developer rather than the buyer. ‘Preferred’ title companies are not chosen for their outstanding service or even for the quality of their product. It is usually a cost decision. In recent years, developers have begun tying payment of transfer tax to the use of their preferred title company and/or lender. Transfer tax is typically paid by the seller, while recordation tax is paid by the buyer. The amounts are similar and represent a significant sum of money. Your experienced buyer agent will help you navigate the developer’s title selection and work to ensure the best service possible.
Look For Red Flags In Developer Contracts

An agent experienced in new home construction will be able to identify red flags in developer contracts. Your agent should recommend that you consult an attorney if it seems necessary, and try to negotiate some beneficial provisions for you throughout the offer phase. A few red flags:

  • Are EMD funds being held outside of escrow, or with an escrow company owned by the developer?
  • Does the contract prohibit any inspections or visits during construction?
  • Is the developer funding a reasonable percentage of association fees?
  • Is there a scope of work addendum describing specs and materials?
  • What are the warranties and guarantees?
  • Is the project held in an LLC? If so, is the LLC transparent as to the name of the person controlling the LLC?
Did you know?
Developer contracts can run to 45 pages. These are just a few of the items you’ll want to scrutinize and understand to protect yourself in a new construction contract and home purchase.
Research The Developer’s Reputation & History

Developers, like all of us, have different styles, priorities and work ethics. Want ‘the best’? That may be a subjective term. Unfortunately, there are home builders everywhere whose quality is poor and whose attitudes towards their customers match. Ask your experienced new construction agent to share first-hand information about their experiences with local developers and builders. All have a few unhappy customers, but if a developer or builder has a reputation for poor product and customer service, you’ll want to know before considering their projects.

  • Quality is key and in that regard, show beats tell.  Look for signs of quality—or the lack of it. Are the buildings well constructed? Holding up as expected? Do existing homeowners in recently completed projects seem happy? Nose through the records, too. Are the associations levying special assessments to cure issues? Litigating against the developer? Are the developer’s projects appreciating well or stagnating a few years down the road? Find out how long the build you’re interested in has been in progress. Have there been delays beyond the expected? Why? This may indicate some financial or other weakness on the part of the developer that could prove to be a problem. Have the contractor, subs and expediters been paid in a timely manner? Can the developer complete the project, and with the level of quality promised? Don’t stop at the developer. Is the contractor reputable? How have their previous projects held up?  A recent super-luxe building in Georgetown had issues that required the owners to vacate for repairs. This is an example of new construction not meeting the standards promised–or possibly even building code. Regardless of price point, this can and does occur in DC. If purchasing a condo or townhome, you’ll want to invest in a healthy project because you’re not just buying a unit, you’re buying into the total project. Its reputation will help determine your home’s value long- term.
  • Collect anecdotal evidence. Talk to homeowners in one of the developer’s previous projects about their experience and issues following settlement–but be aware that the quality of some builders can vary from project to project–along with the price point and margins. Also understand that if the community is still selling, you may get feedback that paints an unrealistically rosy picture since buyers will want to protect their investment.
  • For condo and townhome purchasers: Ask the sales rep how many units are being sold per month. Your agent won’t be able to get an accurate count on the MRIS because builders don’t list them all. You won’t know what they sold for, or what the monthly sales rate is without doing some investigation on your own. Bring your BS detector.  We don’t want to say new home sales reps lie, but sometimes new home sales reps ‘encourage sales’ with less than forthright information and tactics. An experienced new construction agent will ask the sales rep for documentation and politely call them out when they are found to be omitting or embellishing.
  • Ask how many investors are purchasing in the community. Low investor ratio is important to your HOA health and future resale value. If the ratio threatens the warrantability of the project or limits financing options for new buyers, a purchase could be a poor investment.
  • Condo and townhome new construction purchases carry their own set of issues. Know what they are so you can make an informed decision.
Home Inspection: At Least One
  • Builders often try to discourage outside home inspections, and they can throw up a lot of road blocks to the process if they want to. Don’t be fooled by the standard new construction sales rep’s phrase: “You’ll have an inspection prior to settlement with our construction supervisor (or an independent company contracted by the developer).”  This procedure is not an inspection, it is a walk-through conducted by someone who works for the developer, not you. They're not typically invested in finding issues, especially major ones. In fact, these contractors may be bonused if they find zero issues. An inspection should be performed by a qualified, licensed and experienced general home inspector you hire.
  • Two inspections, possibly three, are recommended during the process: Pre-drywall inspection--If you purchase in the early stages of construction, a pre-drywall inspection may be possible, depending on your contract terms. This is the time when an inspector familiar with new construction can really see how the home is built and spot inferior or flawed foundations, framing, materials, wiring, plumbing, and so on. Some builders are reluctant to allow this inspection, or flatly refuse, usually with the excuse that their insurance carrier will not allow it. An experienced agent will know how best to try to gain agreement if at all possible. If you've been allowed a pre-drywall and/or post-drywall inspection and there were non-cosmetic issues that required correction, you should have the right to hire your inspector to return and inspect the corrections. A final walk-through should take place 5-10 days prior to settlement. This gives the builder time to make last minute corrections from  your punch list. It’s ideal to have all items completed prior to settlement. Builders will lobby to take it past that point and their contracts will say they can, but getting corrections made following settlement can be invasive, a communication time-suck, and a waiting game. In a well-managed transaction, these issues will be addressed during the contract phase and before settlement.
What New Condo Boards In DC Should Know

If you're purchasing a new condominium in DC, be aware that the typical structural warranty runs only 2 years from the date of the first sale. Read our article on DC Condo Associations, structural warranties and remedies for defects.

DC Associations

“Flips” aren’t new homes. They’re homes that have been purchased by a rehabber and “improved” for quick resale. Unfortunately, a good number of flippers focus more on cosmetic aspects of the home and less on its structural integrity or soundness of electrical, plumbing and mechanical elements. Their goals are speed and profit, not care and concern. And that’s the good news. Some unscrupulous DC and NVA flippers have been caught drywalling over serious structural issues that later became homeowner nightmares. While some flippers do a good job, flips are an area of great concern and should be approached with extreme caution. Their popularity has exploded in DC in the last decade, as have the number of serious construction issues and lawsuits.

  • With little regulatory oversight for permitted and unpermitted residential construction in DC, bad behavior can be commonplace. Anyone can decide to start flipping houses, whether they are qualified or not. Permits may or may not be pulled, and permits can be vague regarding scope. Work beyond the permit scope is often performed. DCRA inspections are often ignored when permitted work is completed. Without the inspection(s), you have no way of knowing if the work was performed properly and to code.
  • When work is not permitted and inspected so the permit can be closed out by DCRA, the new owner becomes liable for the work. You can be cited, fined and even forced to remove the work.
  • Flip properties are typically held as an LLC to limit liability, so there may be little or no legal recourse if you experience problems.
  • Flips are classified as renovations rather than ground-up construction, so they’re subject to spotty regulations rather than the more rigorous building code to which new projects are expected to adhere.
  • Some of our clients have purchased flips against our advice and recommendations. When this happens, we encourage multiple inspections by the good providers. It is never enough. Inspectors can not see through walls, floors and ceilings. They aren’t able to alter or damage property to perform an inspection, nor are they able to perform acts which have the potential to cause damage, no matter how slight or cosmetic. General Home Inspectors are not structural engineers, surveyors, master plumbers, master electricians or roofers. Even specialty experts can not adequately assess a home without performing some disallowed invasive acts. Additionally, buyers sometimes decide they don’t want to pay for every inspection allowed them and/or choose inspectors based on price instead of expertise and service types.
  • Buyers may not equipped to adequately assess permitting documentation and inspection results. All of this leads to risk-taking that may turn into a massive financial loss or protracted legal battle.
  • When creating an agency relationship with The Isaacs Team LLC, buyers will sign an acknowledgment pertaining to “flips” and renovated homes. Buyers must exercise their own due diligence in researching permits and construction values. This is not an agent’s area of responsibility. Our clients wishing to purchase fee simple “flips” or resales having recently undergone substantial renovation will be offered the option to include longer inspection contingencies and to add a structural engineer’s inspection along with their general inspection and specialty inspections. They will be advised to research permitting and permit inspections with the DCRA. We also recommend buyers work with a qualified contractor consultant so they might better access and understand research material and its implications. All these safeguards will not prevent bad “flips” and renovations, but hopefully they will call attention to a very prevalent, serious problem and create a more wary and diligent buyer.
  • Still thinking about purchasing a flipped home? Read these stories, then make up your mind: