A home is usually the single largest investment that a person makes. Most buyers end up spending lots of time and energy either searching for or designing "the perfect home" before signing any contracts. Location, price, market trends, property taxes, homeowners association fees and the condition of the property are factored into the house hunt. Also, each buyer typically has a wish list that includes specific needs (the things the buyer absolutely has to have) and wants (the features the buyer would like but could do without if necessary).
While the home-buying process involves a number of important choices, one of the very first decisions buyers need to make is whether to shop for an existing home or build a new one. Each path has its advantages and disadvantages. Here's a look at both sides.
Buying an Existing Home
There are two primary advantages to buying an existing home: convenience and cost. Once you are pre-approved by your lender, you can shop around, pick out a home and make an offer. (For more, see: Pre-qualified versus pre-approved: What's the difference?). A qualified real estate agent can streamline the process by helping you find appropriate properties, guiding you through negotiations and assisting with the paperwork. Once your offer is accepted, you may be able to close and move in within a month or two.
Even though the process involves numerous steps – such as financing, viewing homes, making offers, home inspections and closing – the convenience of being able to move in right away is compelling enough for many people to choose an existing home over a build. This may be especially true for buyers on a tight schedule, such as those relocating for a new job or whose children will be starting at a new school.
Then there's cost. In many (but not all) cases it's cheaper to buy an existing home, according to data compiled by the National Association of Home Builders. Once you've found a prospective, existing home, use a mortgage calculator to get a better estimate of the total cost of purchasing that home based on today's interest rates. Depending on your target real estate market, prices for existing homes may still be quite favorable in the aftermath of the financial crisis and housing bust that significantly lowered real estate prices across the nation
Convenience versus Customization
Another reason an existing home may be a better option is if you would like to be in a particular established neighborhood – near work, school, friends and/or family. Odds are, too, that the home will have mature landscaping, so you won't have to worry about starting a lawn, planting shrubs and waiting for trees to grow. And if you want to live close to town, your best bet will be an existing home since most, if not all of the land, will have already been built upon.
On the flip side, the biggest disadvantage of buying an existing home may be that you won't get exactly what you want. You may not be in love with the floor plan and may wish that half bath on the first floor was a full bath or that there was another bedroom on the main floor. Older homes, in particular, may be functionally obsolete, no longer meeting the needs of most buyers. For example, an otherwise beautiful four-bedroom house may only have one bathroom, or the kitchen may be too small with no room for expansion.
Unless you find an existing home that has exactly what you want and is in perfect condition, you will have to spend additional money on remodeling, repairs, decorating and/or landscaping. These additional expenses should be factored into the overall price, especially when choosing among various properties or comparing the cost to building your own house.
Building a Home
Building a new home doesn't offer the same convenience as buying an existing house. Not only do you have to find the land, which may not be in an existing neighborhood, you also have to factor in the time to find an architect or builder, and choose every element of the new structure. Joining an existing development can streamline the process, though it may limit your degree of choice. You also need to worry about systems, such as whether the land gives you access to municipal water and sewage, or requires a well and septic system, along with any environmental and other permits.
The big advantage is you are much more likely to get exactly what you want. For many, this factor alone is enough to choose to build over buying, but there are other advantages too. "A new home is more efficient, especially with the new energy codes including better HVAC [heating, ventilation, and cooling], insulation and air filtration standards," says Guy Burtt, principal with Riverstone Development Group, Inc., a full-service, licensed general contractor and construction manager engaged in commercial, residential and renovation construction projects. Better efficiency is good for the environment and can save you money on your utility bills each month.
Another perk? A new house may literally be better for you. "A new home is less likely to have the health concerns or toxic materials of an older home – things such as asbestos, lead paint, mold, etc.," says Burtt. And it can be built with certain materials making it better for the environment. "Green appliances/Energy Star rated appliances, and more efficient toilets, plumbing fixtures, and electrical fixtures allow you to build "green" for a more sustainable home in the long run. And you have the option to install, sleeve and/or wire for future technology upgrades, such as home automation and solar," says Burtt.
Even though the upfront costs of building can be higher, it may be easier to recoup your investment. "You can have more significant profits with the resale of your new home. A newer home is typically more appealing than an older home to most people," Burtt says. In addition, a new home will require fewer repairs and less maintenance, which can save both money and time. And, as Burtt points out, you'll have a warranty with a new home, so even if something does go wrong, you may still be covered.
Money and features aside, building a house can lead to a level of satisfaction that you can't achieve through buying an existing home. "There is a definite feeling of an emotional connection to living in a new home that you have created," says Burtt. "The new-home smell, no one else has stepped foot (or pets) on your carpet. This is your creation that matches your style and personality, that you created from scratch."
Time and Money
The biggest drawbacks to building a house tend to be the higher costs and longer timeframe, both of which can increase throughout the home-building process. That said, you can limit the risk that your house will go over budget or take longer than you expected by working with a reputable builder and having a good contract in place. "Have your potential builder provide references and then check their past homeowner references," says Burtt. To avoid unexpected price increases, "try to use a lump-sum contract, instead of a cost-plus contract." A lump-sum contract specifies a fixed price for construction, putting the risk of cost overruns on the builder instead of the buyer.
In addition, your contractor should work with you to help you reduce costs. "Your builder should provide a list of cost-saving items, if requested," says Burtt. Substituting different materials and fixtures can save thousands of dollars, so if costs are a concern, ask ahead of time if there's a cheaper alternative. And keep in mind that anything out of the ordinary is going to cost more. "Custom colors and ornate shapes of materials are certain ways to go over budget," says Burtt.
(If you're buying a builder home, be sure that everything you need is included. For details on what to put on your checklist, see New Construction's Hidden Costs Can Burn Buyers.)
To control the timeframe, "try to have a contract that includes a construction time duration," says Burtt. "Avoid the open-ended deadlines, and have a game plan and schedule." If you are out of state, you'll want to make sure your builder keeps you up to date with the progress. "Ask if the builder will provide progress photos on a regular basis, and determine who will be your main point of contact throughout the process," says Burtt.
In addition, to save both money and time, maintain good communication with your builder and make sure you are happy with the design/specs before the build begins. It's not good for you or your builder if you change your mind about the color of the granite countertops after they've already been installed.
The Bottom Line
Even if you start off your home search set on finding the perfect existing property, you may end up deciding to build to get exactly what you want. Conversely, you may plan on building and later decide an existing home is a better fit. In either case, working with a qualified and experienced professional – whether that's a real estate agent or a general contractor – can help ensure the process goes as smoothly as possible.