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Navigating the upgrade game when buying a newly-built home

You’ve been looking in earnest at resale homes, but on a tour of the outskirts of town, you see something off in the distance. A series of signs and banners are everywhere, leading Hansel-and-Gretel style to a brand spanking new set of stunning, lit-up model homes. The curiosity is killing you, so you take all the requisite turns to reach the model home sales office. There, you are greeted by a friendly salesperson (usually a licensed real estate agent) who works exclusively on behalf of the builder.

You are handed a brochure and a price sheet, but pay little attention to it at first. Instead, you stare down at a structure in the middle of the sales office that appears to be a miniature layout of the neighborhood. Called the builder’s “top” (topographical) board, it contains pre-planned cul-de-sacs, a space for a neighborhood park, a future school — it’s all there. Now it’s time to walk through the model homes. There is that new home aroma of new furniture, paint and flooring, uncovered windows letting every bit of light in, and accessories and artwork you know you can’t buy during a quick trip to HomeGoods.

You are unwittingly being romanced at every turn, making you feel like a kid in a candy store. Former CA-based new home sales trainer Dena Kouremetis offers her advice to buyers in this series on the ins and outs of the upgrade options offered to new home buyers. Questions include (1) Should you settle for only the amenities the builder offers in the base sales price and then add your own upgrades later on? (2) Why/when might it be prudent to use the upgrades offered by the builder’s design center? (3) Should you compare the costs of everything you can get at Home Depot or Lowe’s for similar items before signing on the dotted line? (4) What amenities are ALWAYS best to get on your own, after close of escrow?

But first, let’s cover the topic of how this upgrade/design center thing works. The homebuilder offers its 2415 square foot single-level, 3 bedroom + office/den, 3 bath home for $530,000. Included in that price is either a carpeting option throughout most of the home (except for the entry, laundry, bathrooms and kitchen) or LVF (luxury plank vinyl flooring) throughout. The included appliances, windows, interior paint, lighting fixtures and standard electrical and plumbing features are all listed on the builder’s slick brochure in your hand. In order to physically find any of the standard items within the model home, it may take several more visits, but they are usually somewhere in one or more of the models.

As you walk through the prototype of the home that interests you, there are disclaimer tags on walls and items saying things like “I’m included!” But most of them read, “Available feature!” or even one that explains that the case goods and furniture throughout the place is not available at all, since it was a staging company that placed it all there. You’re attracted to the 8-burner Wolf range, would die for the built-in SubZero refrigerator, salivate over the wine fridge, love the idea of a whole house speaker system, and have only dreamed of the telescoping folding glass doors that open up the entire family room to the backyard covered patio (which in the model includes an outdoor fireplace). They’ve got you baited for sure. As you can imagine, the builder’s design center is no doubt a gleaming theme park of upgrade possibilities. The stage is set, however, and now you’ve got a visual handle on what it might be like to live in a home like this.

Once you commit to the house itself (you’ve studied the area, the commute, the schools, the builder’s reputation, etc), the salesperson’s next duty (if you’re not paying cash) is to make sure you are fully pre-approved for the mortgage. Knowing you may add some upgrades here and there, they try to qualify you for the max amount — certainly one over and above the sales price. They explain that for each $1,000 increment you add to the price of the house for upgrades, it adds X amount of estimated dollars to the monthly payment you’ll make. That extra $100 per month to your payment (depending on the interest rates at the time) may only amount to a month’s worth of Starbucks runs in the big scheme of things. But for your future home it means hardwood floors as well as upgraded appliances -- that is, after the builder credits you for the amount their (included) flooring allowance would have covered —at their cost, not at retail. After all, although they buy in bulk, they do intend to sell it to you for a profit.

So now your mind is at work. If amortizing the amount of your upgrades over the life of the loan, how much might that cost you by the time you either sell your house or pay it off? Might it have been more prudent to just live with vinyl on the floor, cook on the standard 6-burner stove for a while and look into fancier versions later? At that point, would you pay cash for it, would you be financing it all through a credit card, or refinancing when it became cost-effective to do so?

“Your new home salesperson may not cover all these ‘what ifs' with you,” says Kouremetis. “They don’t want to pry too much into your financial situation when you begin making decisions regarding upgrades. But they may have some suggestions for how to proceed if you prefer NOT to add upgrades through the builder, such as paying for the house to be PREPARED to receive extra electrical and plumbing options later on. They may also offer some food for thought on how it may be wiser to go through their design center for some of the options.”

"Buy a Home", Construction, "First-Time Buyer"