iNest Newsletter

Mysteries of Model Home Purchases Revealed

Dena Kouremetis
A veteran of the homebuilding industry, Dena Kouremetis is the foremost real estate columnist specializing in new home issues, trends, products and designs. Her columns appear in the New York Post as well as other newspapers throughout the U.S.

You can fall in love instantly. Beautifully decorated, tastefully furnished, with every detail designed to appeal to the potential homebuyer, a model home is a place that somehow has it all.

You sink into the family room sofa and stare at the beautifully manicured and landscaped view, trying to imagine what it would be like actually live in such seeming perfection. Then it occurs to you that some day this home will be occupied. So, you turn to the sales person and ask if the builder is planning to sell the model homes any time soon. “Yes,” says the agent, “as a matter of fact we are down to our last phase of homes and have just priced them for sale.”

How different is the purchase of a model home than that of a builder’s production house? The first thing to remember is that the house is not new. It is slightly used. The builder spent a huge part of its marketing budget to make it a tempting representative of its building prowess, putting its best foot forward for the home buying public.

If the model home is on a desirable location (and it usually is) there aren’t many negatives in considering the purchase besides the somewhat higher price tag. But the builder’s sales person will admit that the builder is not expecting to get dollar for dollar what they originally spent on the home. In fact, there are probably quite a few upgrades thrown in on the deal that you would never have otherwise spent the money on to make it look this way. The extra care and decorator touches the builder includes in its model homes are oftentimes not reproducible or even possible in his production units.

Builders display dozens of upgrade “opportunities” within their model homes to entice homebuyers to ask about them at the builder’s design center, enhancing their bottom line if buyers add them to their upgrade lists. These are usually indicated with individual plaques or stickers or a framed list on an entry wall.

Then there are the “decorator” touches that their design center will not duplicate nor even offer. Some of these may include custom paint, customized walkways, more lushly appointed front and back yard landscaping (how do they keep flowers blooming all year long?), pools, special decorative moldings, custom window treatments, wallpaper, built-in cabinetry, and furnishings the builder may throw in on the deal. These decorator nuances are not customarily available to the production unit buyer, making the model home an almost one-of-a-kind type purchase.

Model homes are usually sold “as is.” The model’s carpet and pad, although usually of exceptional quality and weight, has seen hundreds and hundreds of feet in its tenure, and has been repeatedly cleaned to keep it looking new and fresh. Builders will generally perform a touch up of paint and trim on the home’s interior, but there may be some damage caused by heavy pieces of furniture and props that the builder cannot or will not repair for a potential buyer.

To pin down the specifics of a model home purchase, ask the builder to list each upgrade to the base priced version of the model’s floor plan and assign a value to it. Builders like to list these, add them up, and then demonstrate just how much of a bargain you are receiving, especially when they are almost finished selling their homes there and are eager to unburden themselves of the monthly carry and maintenance of their model home complex.

To clarify what is included in the purchase price of a model, ask the sales person to enumerate the items on a sheet of paper, so that there are no unrealistic expectations on your part. If the builder’s sales office is located in the home’s garage, don’t expect the builder to agree to leave some of the decorating or even all of the windows, if they have been directed by the local building code authorities to convert it back to a garage area. You may make pose some reasonable questions, however, such as:

• What repairs will and will not be done by the occupancy date?
• How will the walkways be converted (sometimes they are linked to the next model home)?
• When will you permit occupancy, and if it is not within my timeframe, will you close escrow and lease it back from me? (If this is the case, be sure that they continue to pay for maintenance, utilities, and security, in addition to your principal, interest, taxes and insurance)
• If I wish, may I keep matching linens and custom-sized area carpets?
• May I purchase some of the furniture and if so, for what price?
• When does the clock start ticking on my new home warranty and the appliances and systems installed? (The model home may have already seen several years of service.)
• Are you sure the home will appraise at the sales price we have agreed to?

There are builders who try to sell their model homes early and arrange a leaseback, with an agreement with the new owner to give them a 30-60 day notice for the model’s conversion and/or lease termination. This arrangement lessens the builder’s monthly carry and gives the new owner a target date for occupancy. Although the builder will tell you that they would LIKE to be finished there by spring of next year, it will be difficult to pin him down for specific dates. Your occupancy date will depend on how quickly the neighborhood sells out, and that depends on the community’s popularity with homebuyers and market conditions.

Should you agree to purchase and rent back the model home and occupancy is still a ways off, you may have to arrange non-owner-occupied type financing if you are not paying cash for the house. Lenders will generally not permit an owner-occupied type loan on a model home purchase, since it will not be your principal residence, and you have effectively become the landlord. They also hypothecate that you may never occupy the home, opting instead to make it into a rental unit.

Model homes are the stuff dreams are made of for so many of us. They scream color, style, refinement, and fantasy, enticing us and appealing to our senses. Becoming the owner of a former model home may elicit a bit of envy from surrounding neighbors, even though the purchase may have forced you to wait longer then they did to occupy. But in the end, you may realize that it was well worth the wait. After all, while they are still getting their backyards installed and trekking to Home Depot every weekend, your landscaping may already be maturing, and your decorating is complete!