New Home Upgrades and Warranties
|Your Dream Home|
New Home Upgrades: Opportunities or Obstacles for Saving?
After 14 years of saving every penny, we are planning to buy a new home. We want to be as smart as possible and are wondering what people's opinions are on the upgrades that the builders offer like tile, cupboards, etc. Is it worth it to purchase from the builder or do we hire an outside contractor after we move in? We can't do it ourselves.
Check out Consumers Report
The current edition of Consumers' Report list various upgrades and rates them as to how much they increase the value of the house.
Advice Concerning Warranties
I work in warranty service for a custom homebuilder and I often deal with customers who choose to use another vendor or who do certain parts of the building themselves. You should be aware that any item that is provided by a homeowner or an outside subcontractor is not covered under any warranties. For example, if you bring in an outside vendor to do wood flooring and a plumbing leak damages the floor, neither the builder nor the outside vendor are required to warrant the total cost of floor repairs. However, if the builder's subcontractor did the floors, all repairs will be covered.
Such warranty is usually only for one year, so it would be best to let any problems expose themselves in that year and then you will have to take full responsibility for all repairs anyway. This issue is particularly important in damage from roof, window, or plumbing leaks, tile cracks, electrical/lighting repairs, countertop scratches (that may occur while under construction, but are still not covered), etc.
Sometimes it is more cost effective in the short term, but there is a risk you assume when you go outside the system for your extras.
New Home Upgrades to Consider
My husband and I purchased a brand new home last year and had the same concerns. Basically, we considered our lifestyle and how we saw our house being used. We chose to upgrade the tile, carpet and carpet padding through the builder. It was actually cheaper to purchase it through them since we had tile and carpet throughout the whole house. When you purchase them through your builder, you have the benefit of a warranty, which you may not have through an independent contractor. We've actually had to use the builder's warranty on the upstairs bathrooms regarding the tile. Depending on what you're offered, you may wish to choose extra outlets outside (for outdoor projects, holiday lights, etc.) and if you're getting a garage, extra outlets come in handy there, too. If you entertain in your yard a lot and barbecue like we do, we had the yard plumbed for a gas grill. Usually the selection of the cabinets and countertops is pretty decent (we had nice choices) and we didn't see the need in upgrading them. Another tip, ask the builder to raise the bathroom vanities 6 inches to minimize back strain when washing and brushing your teeth since it's free! We also live in Arizona where the water isn't the greatest. We had the house pre-plumbed for a water softener at a very nominal cost. This saved us over $500 to have someone come in and do it after all the plumbing was in. Also, if there are light fixtures you don't like that may be included with your home, you can request that they not be put in and the builder will credit that amount to you for other upgrades. It can be less expensive to purchase new ones at Home Depot or Lowe's. We did that and were able to upgrade the outdoor lights instead at a small increase.
Upgrade Hardworking Items
Just a couple of thoughts on whether a home buyer should go with upgrades offered by their builder: First, if you have the extra money to invest in upgrades, you'd do well to upgrade the components that can actually affect your wallet over the long term. For example, upgrading your heating/cooling system to a higher SEER rating than the standard builder's grade system will save you a lot more money on utility costs over the long haul. Upgrading to a better quality dishwasher should provide you with a unit that will continue to perform reliably and more quietly long after the builder's grade model will have conked out. Ditto for flooring, all major appliances, and windows. In short, any component that is hard working, that can materially affect one's wallet, and which would be costly to replace on the short term.
Given the choice between upgrading a strictly cosmetic improvement such as decorator tiles in the kitchen, or a better quality faucet for the kitchen sink, the faucet would probably be the wiser choice, particularly if the buyer were looking to minimize replacement or repair costs over the long term.
One thing the buyer may want to do is talk with folks living in homes constructed by the same builder, which are now 3 or more years old. The builder should be able to furnish a list of the developments or neighborhoods he or she has built homes in. Visit these neighborhoods and knock on a few doors. Get these buyers' inputs on what they would do differently if they were buying their home from that builder today. Have the appliances continued to perform reliably? How well is their carpeting and flooring holding up?
What, if anything, would they upgrade, if they could turn back the clock? Most people are happy to share their experiences, good and bad. The insights obtained might be very useful in deciding which upgrades to invest in.
Say No to New Home Upgrades
Don't buy the upgrades from the builder. The builder marks up all the materials, and then you pay for those upgrades for 15-30 years on your mortgage.
We bought our home new in 1988. We did not put any options on it or upgrade anything, figuring we'd wear out what was in it and then have it replaced. We had two children at the time, and have had two more since, yet the carpeting in the main areas lasted six years. The bedroom carpets are now ready to be replaced. The sink fixtures are just starting to go, and three years ago we replaced the vinyl flooring with wood. We save up and pay cash for all home improvements.
Though it was the hottest summer in years, we did not even put a/c in the house, because the builder wanted over $3000 for it. The heating and a/c contractor who put in a/c units for the builder came to us soon after we'd moved in and offered to install the same unit on our house for $1300 cash. We agreed, and that a/c unit is still humming.
When we bought the house, eliminating options and upgrades kept our mortgage balance down, which was important because we wanted to pay off the house early. This past March, we did just that. Living debt-free feels better than we ever imagined.
Check Competitive Prices on Upgrades
Being in the construction industry for all of my life, I'd recommend you take the builder upgrades, only after you check out competing prices for yourself. Usually a builder will send you to a specific store to pick out what you want, such as lighting. If you go to that store and discover that the prices are considerably higher than you would pay if you were going to replace a fixture, you should tell the builder you will be supplying the light fixture and you would like a reduction. You'll then be able to discover what the builder was really charging you. You can still use the electrical subcontractor that the builder was supplying. A lot of fixtures that are used in dining rooms may cost you $400.00 at the builders supply store, but the builder actually paid only $200.00 for the fixture. You might be able to locate a fixture you'd like a lot better at a Home Depot for $150.00. The same situation applies to bathroom fixtures.
Sometimes, the subcontractor will insist on supplying the materials if he is going to do the job. The sub can obtain the materials at a reduced price, mark it up and it becomes part of his profit margin. If this is the way the sub is making money, you may have to pay increased labor costs by supplying your own materials.
If you are willing to shop around, you may be able to obtain ceramic tile cheaper than the cost from the subcontractor. Usually, however, vinyl flooring and carpeting are more expensive if the consumer buys them than if the contractor supplies them.
Whatever you do, don't buy the appliances from the contractor. This amount is then included in the mortgage and you are paying for the appliances over a 30-year period. It is definitely better to buy the appliances yourself and supply them to the contractor to be installed by his crews.
Advantages to Taking Builder's Upgrades
I work for a homebuilder. When a builder prices upgrades, they factor in a profit for themselves, usually a percentage. Generally, it is a 40 to 60% mark-up, or is priced based on market conditions, as other commodities are. However, this is above their pricing, which is usually lower than a contractor would charge a private homeowner because the contractor's price to the builder is for many homes (think bulk price discount).
There are advantages to buying the upgrades from the builder:
- The upgrade will be installed when you settle on your home, so you'll avoid the very stressful, messy, noisy "remodeling" while living in the home.
- The upgrade will be included in the new home warranty, so you'll have more consumer protection should your upgrade be substandard or flawed.
- The builder has the worry of checking out the contractor, negotiating price, insuring his licenses and insurance is up-to-date, making sure the contractor finishes on time and on budget, scheduling, correcting mistakes, getting permits and inspections where necessary, etc. You won't have headaches such as if your contractor quits mid-job and you have to hire a new one. Worse yet, the contractor does poor work, and you then have to pay another to fix it.
- You can roll the costs of the upgrades into your mortgage (unless, of course, you are paying cash). A mortgage has lower interest rates than most other types of loans.
You do pay more to buy the upgrades from the builder, but you are getting something for those extra dollars.
Calculator: How Much House Can I Afford?
Working for a builder I see a lot of houses under construction. I would say if you can afford the ceramic tile do it during construction because doing it after you move in generally requires more than one subcontractor, especially if you aren't very handy. You have tile, trim, caulk and paint plus if it meets carpet then you have to cut and restretch carpet. If your builder will let you opt for credit on closet shelves. After closing, take your closet dimensions to Home Depot or Lowe's. They have closet systems to help maximize your storage. Typical production homebuilders put up the minimum (as far as shelving) and if you ever change you have annoying caulk lines and or holes in your walls. As far as cabinets go I would get what you feel you need and can afford. I prefer the custom on site stained or painted cabinets as opposed to pre-finished cabinets. Pre-finished cabinets are made with a plastic skin or "veneer" and are impossible to repair without replacing. Real wood veneer can be filled and stained fairly easily. Light fixtures are simple changes that you can make after you close and they really personalize your home. Builders generally buy the least inexpensive brass fixtures they can find. With a trip to Home Depot, you can learn to safely change a light fixture. It's not rocket science and you don't have to have be an electrician to do work on your own house.
Take the Next Step
- Make sure you're not overpaying on your mortgage. If you haven't looked for a lower mortgage rate in the past year, use our simple tool that compares different lenders to see what your monthly mortgage payment could be. It's private, only takes a minute and could show you how to save thousands!
- Could spending 5 minutes reading a newsletter twice a week save you time and money every day? Dollar Stretcher Tips readers think so. Subscribe and find out how many ideas stretch your day and your dollar! Subscribers get a copy of our ebook Little Luxuries: 130 Ways to Live Better...For Less for FREE.
More Money-Saving Tips for Your Home
- Should I use a HELOC for home remodeling and repairs?
- Should I refinance my mortgage?
- Compare HELOC rates
- Check for a lower homeowners insurance rate
- 3 ways to use a mortgage calculator
- Mortgage calculator: Calculate your payment and more
- Home equity calculator: HELOC vs. line of credit
- How much can additional payments save me on my mortgage?