The purchase of a new home is wrought with numerous decisions, sometimes each question compounds the previous one. In Seller’s Markets, where inventory is often tight, I am often asked Is buying a house cheaper than building?

A study by bankrate.com indicates that building a new home may be about $7,000 cheaper than buying a previously owned home, while others, like Zillow.com indicates that new construction may cost as much as 20% more than resales. Why the huge variance? The answer is that there are many factors to consider based on your wants and needs. One consideration is that of the land you build the home on. The size of the parcel, necessary utilities (septic, well, distance to electric, etc) and improvements required to make it buildable can significantly increase the cost of a new build. A big question for many buyers is: “are you REALLY someone that is willing to close on a home without all the frills and upgrades that you see in the model?” Typically, model homes are fitted with many upgrades and present a premium option, while the reality may be $30k-$50k less in upgrades and a much more “vanilla” experience. I’ve seen this first-hand and these “frills” are sometimes well worth the money and most end up spending it. If you are considering a custom build, consider that the cost of changes during the building process can be significant. Most buyers don’t begin the process thinking that they’ll make changes, but many do make changes and they can get very expensive once the process has begun. When considering new home construction, be mindful that the tax bill from the previous year may well be just the land and could increase significantly in a short period of time.

Building property to build your home

If you opt to build a home on your own land, be aware that the cost of a construction loan could be higher than that of a resale. In addition, the time for new build construction is often significantly longer than anticipated. While you may be okay with the wait, you should consider that interest rates and other economic factors could significantly alter the true cost of your new home.

Resale homes

Purchasing a resale may appear to be more expensive, but it can be difficult to determine. For instance, what is the size of the lot and what upgrades are present? Resales tend to be on larger parcels of land whereas many new builds are on postage stamp size lots. Has the previous owner already spent a bunch of money upgrading the home? The expense for upgrades is typically not recovered in a sale, making any previous upgrades the previous owner’s cost. Consider the age of the plumbing, roof and AC system: their age should be considered when determining the true cost as each of these items may cost thousands of dollars.

Utility expenses can further muddy the waters of determining a home’s true cost. Homes built after 2010 may have utility costs of around 3% of the homes value, while homes built before 1960 may have utility costs above 6% according to the National Association of Home Builders.

As you can see, there are many factors to consider and there is no “one size fits all” answer. The truth is, it depends on your situation and your wants and needs. In the short term, a resale may be less expensive; however, when considering the energy savings over a long period of time, the additional expense of new construction may be worth it. When considering both, speak with an experienced Realtor® that has experience with both new construction and resales to help you objectively consider both options.

Published on March 16. 2022 / no comments.