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12 Essential Terms to Know When Purchasing a New-Construction Home: Plat, Plot, CO, QMI, and More

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This article provides an alphabetized primer of common terms used in new construction homes for first-time homebuyers. It includes terms such as allowance, certificate of occupancy (CO), change order, plat, plot, quality management inspection (QMI), and more. It explains the importance of a CO, which is a legal document certifying that a home is safe and ready for occupancy, and the role of a change order in documenting changes in construction. It also highlights the significance of a plat, which is a map of a piece of land, and a QMI, which is an inspection process that ensures the quality of materials and workmanship in a home.

As mentioned in, for homebuyers venturing into the world of new-construction homes for the first time, it might seem like everyone around them is speaking in a code they can’t understand. What the heck is a plat, and how is it different from a plot? Why is a CO and CC&Rs so important, anyway?

While these terms are everyday lingo for builders and real estate agents who deal with new construction regularly, first-time homebuyers might find them mystifying at first. To help you approach this market as an educated consumer, has put together an alphabetized primer of some common terms you might hear when shopping for new construction. Consider this an important step to help you navigate your way to a great deal on a brand-new home.

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1. AllowanceAn allowance is a specific amount of money set aside in a new-construction contract by the builder for items that the homebuyer may select themselves. The items could include flooring, light fixtures, kitchen backsplashes, bathroom tiles, and more. “An allowance allows buyers to choose from a variety of options to personalize their home,” says Kimberly Garwood, director of marketing for Traton Homes. Just be aware that if you spend your whole allowance, anything else you add becomes an upgrade, which will cost you extra. So as Mom and Dad always said, it’s best to stick to your allowance if saving money is a priority for you.

2. Certificate of occupancy (CO)A CO is a legal document issued by a local municipality certifying that a home is safe and ready for occupancy. This is an important certificate that will be issued once a home has successfully passed all required inspections and meets the area’s building codes. (The codes are rules set by the local or state government regulating how a house can be built.) “A home cannot be occupied until this certificate is issued,” says federal construction and security contractor Charles Chadwick Jr.

3. Change orderA change order is an amendment to the original contract or work order that documents changes in construction, design options, schedules, and so on. “A change order may or may not alter the original contract, but can cause potential delays or speed up construction progress on a home depending on the scope of work,” says Chadwick. A change order can come from a homebuyer—usually at an added cost—or from the builder, who may need to alter the plans due to unforeseen circumstances.

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4. Closing costsClosing costs are the fees associated with the purchase of a home that are paid at the closing of a real estate transaction. These costs generally include loan origination fees, title insurance, appraisal fees, and more. “Closing costs can range from 2% to 5% of the purchase price, so it’s important to factor them into your budget,” says Garwood.

5. Covenants, conditions, and restrictions (CC&Rs)CC&Rs are rules that govern what you can and cannot do with your property. They are typically found in planned communities, such as a gated community or a neighborhood with a homeowners association. “CC&Rs can regulate everything from the color of your home to how high your grass can be,” says Garwood. “It’s important to read and understand these rules before you buy a home, to make sure you are comfortable with the restrictions.”

6. Down paymentA down payment is the amount of money a homebuyer puts down upfront when purchasing a home. The amount of the down payment can vary, but it is typically 3% to 20% of the purchase price. “The size of your down payment will affect your monthly mortgage payment and the amount of interest you pay over the life of your loan,” says Garwood.

7. EasementAn easement is a legal right to use someone else’s property for a specific purpose. For example, a utility company may have an easement to access your property to maintain power lines. “It’s important to know if there are any easements on a property before you buy, as they can affect how you use your land,” says Garwood.

8. EscrowEscrow is a financial arrangement where a third party holds and regulates payment of the funds required for two parties involved in a given transaction. “In real estate, an escrow account is used to hold the buyer’s earnest money deposit until the transaction is complete,” says Chadwick.

9. Homeowners association (HOA)An HOA is an organization in a planned community that creates and enforces rules for the properties within its jurisdiction. “HOAs can provide amenities like a community pool or gym, but they also charge fees and can be restrictive in terms of what you can do with your property,” says Garwood.

10. Plat and plotA plat and plot are both legal descriptions of a piece of property. However, a plat typically refers to a map of a subdivision, while a plot is a description of a single parcel of land. “It’s important to understand the difference between these terms, especially if you are buying land or a home that is not part of a subdivision,” says Chadwick.

11. Quality management inspection (QMI)A QMI is an inspection performed by a third-party company to ensure the quality of the construction. “A QMI can catch issues before they become major problems, which can save you money and headaches down the road,” says Garwood.

12. WarrantyA warranty is a guarantee from the builder that certain aspects of the home will be free from defects for a specific period of time. “Warranties can vary in length and coverage, so it’s important to read and understand the terms before you buy,” says Chadwick.

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