One of the biggest pitfalls of new construction is making change orders which can be costly. I would ask the builder for references and look at few other houses that he has built. If you have a friend or relative who knows about construction, ask him to come along.
Unless there is a compelling reason not to go with the agent's contractor I think you'd be better off going with someone who has already built a similar house before as he already has the plans and does not have to start from scratch. If you hire a new contractor, you'll have to pay for a new design as the new contractor cannot just copy the plans of the other contractor (that could be a copyright violation).
If you find during the inspection period, that you don't want to build after all, you can cancel the contract as long as you have not removed your contingencies. I would discuss your options with your agent.
Make sure you qualify to buy the more expensive house. Get your loan agent involved in the discussions. Getting a construction loan is different from getting a loan for the purchase of a house that already exists. There are usually two phases. The construction phase and the post construction phase and many times you can lock in the rate for the final loan when you get the construction loan, but I don't know if that's a good idea as interest rates may go down between now and when the house will be finished. You may want to find out ahead of time what your options are if the rates go down after you have locked in a rate.
You also want to discuss with the builder what happens if the completion of the construction is delayed. Construction delays can cost you money and unless there is a penalty clause in the construction contract, you have not automatic recourse against the builder. Good luck.
As you can see, there quite a few things to consider. You may also consult with a friend or relative who has gone through building a house.
Take a look at what the Realtor has to offer. The way to make changes and not get crazy contractor pricing is to get breakdowns of what each item will cost, such as, how much material and labor to install an electrical outlet, or how much to install a sheet of drywall that is 4' x 8'. What will really help you alot is to go to a major hardware such as Lowes or Home Depot, and get an idea of what material costs are. This way when you talk to a contractor you are speaking the lingo and have a sense of at least the material costs, and can then make sense of the labor cost.
The website noted has advice on avoiding pitffalls. If you email me I can send you a spreasheet to get you rolling so you can go make an offer on the land and have a fun and reqarding building experience.
Uta, (or anyone, for that matter!) can you explain what is meant by your comment ...."If you find during the inspection period, that you don't want to build after all, you can cancel the contract as long as you have not removed your contingencies."
I don't understand what it means "if you have not removed your contingencies..."
Also, when is a lot inspected and how is that done? I know I sound ignorant, and I know about home inspections, of course, but what is inspected on a lot and by whom? The builder and realtor will be walking the lot with us, but do we need to get someone else to inspect it for us? Also, what contingencies would we have if we are not going to get a mortgage?
Thanks again for your advice!
If the Realtor sells you just the lot, they earn commission on the land only. If you use the Realtor's builder, they will earn a commission on the building package, too. The builder will have to include this commission in pricing your house. This may be money well spent, as they will offer you services during the construction process.
Just a clarification on the plans from a builder's perspective - many builders purchase ready-made plans from an architect, rather than commissioning an entirely custom plan. They often do not purchase exclusive rights to that plan, just the rights to build the home either once or as many times as they wish. Because of this, another builder may be able to purchase that same plan from the same architect and build it as well.
But there are many things that a builder does and can do to make their homes unique: they might do extra decorative work that's not in the plans, increase or decrease room sizes, add a walk-up third floor, use rounded corners instead of traditional (and less expensive) square corners, and include many more changes from the original floor plan to make thier product unique. Thus using another builder to build the same set of plans does not necessarily guarantee that you'll get the same house.
I'm glad you were able to get the home you wanted!