In early January, Cassie and Garhett Stafford put their name on the waitlist for a lot in Hawthrone at the Meadows, a new build community by Richmond American Homes in Castle Rock. The couple, who currently live in a townhome in that same community with their son and pet, wanted more space, privacy, and a yard.
The price of the lot and new home—$640,000 total—was a selling point. (According to the Denver Association of Realtors January Market Trends report, the average sales price of homes in the area at the time was $540,000.) “We thought it’d be affordable,” says Cassie of the 2,400-square-foot property. But two months later, when the Staffords got a call that the yet-to-be-constructed four-bedroom, two-and-a-half-bath house was theirs if they wanted it, the cost had climbed to $715,000.
As Cassie recalls, Richmond explained the price hike was due to a confluence of factors: the increasing cost of building materials, surging buyer demand, market instability caused by the Russian invasion of Ukraine, and the fact that the Staffords chose not to use the builder’s in-house lender. (Editors’ note: Richmond did not respond to multiple requests for comment.) Still, the couple felt committed to the property and moved forward with the purchase with the help of their realtor, Kim Norton of Kentwood Real Estate.
The next step involved picking out design components. The Staffords, who are both in their late 20s, opted for specific cabinets, tiling, and other features that were different from the offered base option and added another $60,000 to the cost of the home. All in, they paid nearly $800,000 for the home–a substantial increase from the initial sticker price. “It’s just a big difference,” says Cassie. It almost made the house unaffordable for the couple.
The Stafford’s experience buying a new build in the Denver area is not unique. For many new homes–which are popping up everywhere from Castle Rock to Littleton to Brighton–the advertised price is “generally much lower than what you’re going to actually pay,” says Jill Schafer, a broker at Kentwood and member of the Denver Metro Association of Realtors. This is, in part, because many builders advertise properties before they’ve even started constructing them, and by the time they start development, the cost of materials has increased, so they then raise the home price accordingly.
Tim Leighty, CEO of the Homebuilders Association of Metro Denver, which represents 134 local builders, says a lack of available lots, labor shortages, and increasing costs of materials are all contributing to the rising cost of new builds and prevalence of waitlists.
Schafer gives the example of a client who found a new build priced for $387,000. “She was all excited,” says Schafer–until Schafer called the builder and learned the units were actually selling for $550,000, and that there was only one building still available, for which there was already a long waitlist.
Any new construction in the metro area will likely have extra fees above the base price, says Bret Weinstein, founder and CEO of Bret Weinstein Real Estate in Denver. One prime example is lot fees, which are often separate from the base cost of the house. These can range from $20,000 to $50,000 as a starting point, says Weinstein. “You might pay an extra $70,000 and even up to $120,000 with some of these builders right now,” he says. Some builders, he adds, are even having buyers bid blindly on lots. “Whoever has the highest bid gets the lot,” says Weinstein. “It could be $30,000; it could be $150,000.”
Moreover, many builders are charging extra for basic features and appliances–like landscaping, window treatments, garage door openers, refrigerators, and washer/dryers–that can quickly rack up the cost. Then, if your builder lets you choose design details like carpets, counters, floorings, and backsplash, as the Stafford’s builder did, you can expect to pay even more. “The more customization you can do, the higher that price will go up,” says Schafer.
Another factor making new builds less affordable right now are mortgage interest rates, which recently rose above five percent this past month for the first time in over a decade. Typically, buyers don’t lock in their interest rate until the last month before closing, and with many new homes, buyers can be under contract for months before the sale actually closes, as lenders won’t give a mortgage until a property is completed and has a certificate of occupancy, explains Schafer. That means people who initially qualified to buy a new build when interest rates were low may no longer qualify now that rates have climbed.
With all these caveats, how can buyers interested in new builds best navigate the market?
Weinstein advises working with a realtor to get on as many different new home waitlists as possible; he’s seen these lists have 150 to 200 people on them with a waiting time of two to 10 months. When you find a property you’re interested in, talk to your lender upfront and figure out when you can lock in an interest rate, Weinstein advises. Because of the recent increase in interest rates, buyers should have lenders run rates one and two percentage points higher “just to make sure that if rates go up substantially in the next year to two years with inflation, that you can afford that home,” says Weinstein.
Also important: “Just know that there’s good builders, and that there are bad builders out there,” adds Weinstein, who lives in a new build himself. He suggests buyers talk candidly with real estate experts and current homeowners to suss out the quality of homes and the customer service of a builder they’re considering.
Leighty with the Home Builders Association agrees that buyers should do their due diligence when shopping for a new build by asking questions and requesting referrals. “You want to make sure that you’re with a good builder, you understand the process, and you’re going in not eyes-wide-shut but eyes-wide-open,” he says.
Schafer, for her part, recommends coordinating your own inspection on a new build property.“A lot of buyers assume that since the city has inspected the property, that it’s fine,” she says. But mistakes do slip through the cracks, especially when properties are being built hastily and on a large scale. Schafer recalls one new build home she saw where the furnace was installed upside down and another where a construction worker had rinsed out a concrete bucket in a toilet and plugged it. Leighty hadn’t heard reports like this and says that builders erect houses as quickly as they can with good workmanship.
Last tip: Keep in mind that in addition to extra fees, you may face a long wait time with new builds, especially given ongoing supply chain shortages that can delay construction. The Staffords, for instance, were told that their property would be move-in ready by the end of this year or early next, but crews had yet to break ground as of late April. “It’s almost been two months since we signed, and nothing has happened,” says Cassie. “So that’s a little worrisome.”
Still, despite the bumps they’ve endured during the new build process, Cassie reiterates her and Garhett’s satisfaction over their soon-to-be new home. Even with the substantial price hike, the property still feels like a good deal, since the couple have seen similar-sized, older properties in the neighborhood sell for about the same cost, Cassie explains.
“Ultimately,” she says, “we’re really excited.”
(Read more: 13 Tips for Buyers Navigating Denver’s Real Estate Market)