Doing ‘due diligence’ requires planning, thought, and patience. But, it can pay BIG dividends for persistent homebuyers.

Everyone talks about “due diligence” in home buying, but few potential buyers understand what that means.  Especially if you’re looking at new construction, it can appear to be all in front of you.  Here, a few professionals share their insights into what buyers – and sellers – need to know before signing any contracts.

More and more, it’s a great time to be house hunting.  Homes are exceptionally well-priced, low enough in some instances to be called bargains.  Even better, mortgage rates are very good.

That doesn’t mean prospective new home owners should jump at the first (apparent) good deal they find. 

There is a realm of things to consider before signing a sales agreement.  Because the home buying landscape is still changing considerably, we asked a few professionals what kinds of things they’d want to be sure of before seriously considering a new home.

David MacIntyre, head of Arizona Best Real Estate in Phoenix, and Lorraine Bond, of Long Realty in Tucson, both emphasized the importance of considering what type of community would best meet a buyer’s needs.

“You need a quality environment,” says MacIntyre, “and planned developments provide a level of insurance.”

“You’re buying a neighborhood,” Bond adds.  “Most buyers focus on the condition of the house, but it’s critical to learn as much as possible about the community itself.”

Begin with the builder, MacIntyre suggests, and review the other communities and neighborhoods in which the builder has constructed neighborhoods, as well as the floorplan options.

“The reputation of the builder is very important,” he says,  “as is the exact location of the neighborhood you’re considering. 

“You can take a look at the city’s or town’s 10-year plan to get an idea of what lies ahead in terms of parks, shopping centers, public services like police, fire stations and libraries will be.”

Bond advises that potential buyers review the zoning options for all nearby areas.

“You can learn what’s zoned for commercial development,” she notes. 

Through other public reports, buyers can review area crime statistics and school reviews.

Another key consideration is the financial health of the local Home Owners Association (HOA).  While reading all of the information related to the HOA can be difficult, that’s one thing a good real estate agent can assist with.

“You can’t skip over the boring stuff,” says Bond.  “This is where your (real estate) agent can help you make an informed decision, by pointing out to you the critical parts of those documents.”

Both MacIntyre and Bond advise that buyers need to have complete home inspections before an agreement is signed. 

Jeff Eschliman, director of construction for Maracay Home agrees.  “Diligent quality inspections throughout the entire construction process are critical to building a home that meets or exceeds both home builder and buyer expectations,” he says.

Inspections at varying phases helps to insure that potential errors are caught before they become mistakes that need to be redone, and that the house will stand the test of time.  These inspections need to be done by either a dedicated inside team or a certified outside inspector.

“At Maracay, we do inspections at pre-slab, pre-insulation, pre-trim and before the customer walk-through,” Eschliman says.

He also suggests looking for attention to detail in model homes during the home shopping process.  “The construction quality in the model is often an indicator of how the homes are built for consumers.  Look to see if the trim comes together squarely, that paint is smooth and nail holes are filled.”

Viewing models can also offer an early glimpse at the quality of materials the builder generally uses in construction. Here in Arizona, it’s especially important that builders use protective sealants or coatings.

Job site cleanliness and completion of each phase of development are other indicators of the kind of work a company will present. 

“A clean site indicates that the company is likely to be just as meticulous in attention to details in every home they construct,” Eschliman says.  “Here at Maracay, we do quality inspections as each phase is completed.  It helps us to be certain that everything is correct, fit and finished.

If he were buying a home, Eschliman admits, he’d likely also want to take a look at the soil preparation on the building site.

 “It needs to be certified by a geo-technical engineer,” he explains.  “The moisture content and density of the soil need to be right in specifications to insure that the soil won’t rise, swell or sink over time.”

Most new homes carry extensive warranties, giving new homeowners an extra level of comfort that any potential issues can be addressed quickly and efficiently.

It’s important for buyers to read their warranties carefully, making special note of those items that could fall under general home maintenance responsibilities.

“The warranty will often have advice and suggestions homeowners can use to prolong the beauty and performance of carpeting, flooring, tile, grout and countertops,” says Maracay Homes customer care manager, Shawn Hanks.

“Typically, home warranties offer full coverage for one year, with two years for workmanship,” Hanks says.  “Drywall and paint repairs, though, usually need to be surfaced during the first year.

“We schedule a 60-day and one-year customer care check up, just to assure both the new homeowner and our offices that all issues have been addressed.”

Frequently, he notes, appliances and air-conditioning systems will have manufacturers’ warranties that may extend beyond the home warranty itself. 

To meet any possible emergencies, homeowners want to be certain that the builder also has an emergency hot line, for electrical and/or plumbing emergencies.

In addition to critically assessing the neighborhood and builder, potential home buyers today also need to cast a critical and discerning eye on lending institutions.

“The whole landscape of lending has changed,” says Marla Murray, a branch manager with Wells Fargo’s builder division.

When considering lenders, she says, “The main thing is to be sure you’re comparing apples to apples.  When you get a good faith estimate from a potential lender, you need to ask if all the fees are lined out for you.

“Mortgage lending is complex from every point of view, and it’s more complex every day.  One key thing to remember is that, as important as mortgage rates are, comparing rates isn’t as valuable as comparing the APR, since that’s where more fees will be apparent.”

Murray points out that potential buyers need to be prepared to provide more concrete documentation than ever before, and to expect to provide it more than once during the lending process.

“Even with good credit scores, there’s much more that’s now required,” she says.

These changes also affect home sellers, Murray adds.  “The market aside, the financial aspects of home selling and buying are now taking more time. 

“Sellers need to give themselves sufficient time to market their home, and they also need to be prepared to invest as needed to be sure the home meets market expectations.”

Putting together a full list of all that potential buyers might need to consider or want to know about a home, neighborhood and community can give prospective sellers an edge, both MacIntyre and Bond suggest.

“Most home builders will have that available; they know the kinds of things buyers need to be aware of as they consider a home,” says Bond.

A Few More Things to Bear in Mind

It’s true there are great incentives and real bargains to be had in home purchases today, both David MacIntyre and Lorraine Bond say.

Interest rates are currently quite low, and there are both builder incentives and an $8,000 incentive from the Federal government for first-time buyers that’s available only until the end of November 2009.  Some homebuyers may underestimate the time it takes to build a home and miss the Tax Credit cut-off for a new build, but can still take advantage if the home is already constructed or near completion before November. 

Buying a home also means buying a particular lifestyle, based not only on the kind of home, but also on the neighborhood and community in which it’s located. 

MacIntyre and Bond both recognize that home buying is an emotionally charged decision, but urge that buyers remember to consider:

• the lifestyle choices represented by the neighborhood and community
• the quality of life presented through schools, churches, shopping, parks and recreational sites, and even the floorplans of the homes in the neighborhood
• the homes on surrounding streets (“You don’t want to be the single-story home in a sub-division of two-story homes,” says Bond.)
• the builder’s reputation, as demonstrated by their other communities and their customer service ratings

“Go next door to your prospective home, or down the street,” suggests MacIntyre.  “Ask what their experience has been, with the builder and the community.  You want to do business with people you can trust.”