Getting Started

Buying versus Building

The road to home ownership usually starts with renting a property but eventually ends with the decision to buy an existing house or build a new home. How does a person determine which option is best for them? Understanding the pros and cons of each choice is a good place to start.

Building a new home may not be for everyone. It probably sounds strange to read that from a contractor who is engaged in the business of building new homes, but it is important to be candid when discussing the process and whether it is right for you. To be frank, it can be a miserable experience for the contractor and the client both when the client chooses to build a new home then comes to regret that decision during the process simply because they made an uninformed decision.

Most people who decide to build a new home have previously purchased and owned as existing home. While building a new home can be the ultimate experience, buying an existing home has several advantages. First, you can have it now versus waiting months for a new home under construction to be completed. Without making a moral judgment our society increasingly seems to gravitate towards buying decisions that offer immediate gratification. Building a new home does not offer immediate gratification, but buying an existing home does. Second, buying an existing home gives you a greater choice of location of where to live. You can choose to shop for a new home in the exact neighborhood or area where you want to live. When you build a new home you are somewhat limited to finding a lot in relatively new subdivisions.

Third, it is usually easier and requires less time to get financing to buy an existing home. Procuring financing to build a new home usually involves two loans and two closings. One loan and closing for the construction loan and one loan and closing for the permanent mortgage once construction is complete. Buying an existing home requires one loan and one closing.

Fourth, because of inflation buying an existing home allows the buyer to get more “house” for less money. Who hasn’t heard an older relative tell stories of buying candy bars for a nickel or gas when it was $0.29 a gallon when they were younger? The fact is a house that was built a few years ago was cheaper to construct than the same house today. This is due to inflation and continual changes in the building code and regulation. If you want more square footage for less money then buying an existing home is your only choice.

Fifth, buying an existing home generally provides for more flexibility in the negotiation of the purchase price because the existing owner has most likely seen the value of their home appreciate over time and has room to negotiate the price. Most people think contractors attach huge margins to newly constructed homes and while some probably do, the fact is most contractors do not. They take the sum of their costs and add a margin for overhead and profit usually in the range of 15% to 25% with the overhead usually representing 8% to 15% of that margin. A contractor will not be in business very long if they sell their product for less than the cost plus, at minimum, a margin covering their overhead. Logic dictates that there is a limit that a contactor who wishes to stay in business can cut from their price when negotiating the sale of one of their properties. An existing homeowner does not face the same pressures. Over time and through appreciation they generally have more room to negotiate the purchase price of their home; although the recent down turn in the housing market has had some negative affect on housing values particularly in over built metropolitan areas.

There are some very big disadvantages to buying an existing home. First, you get stuck with other people’s choices. Why did they put the cable jack there? Why did they choose that awful color of pink to paint the walls in the dining room? Who chose the 1970’s green shag carpet for the living room? Questions like this have been asked by millions of perspective buyers when previewing existing homes for sale. The fact is some people don’t like to settle for other people’s choices and that is one of the advantages to building a new home which we will discuss later.

Second, buying an existing home is a journey into the unknown, even when you do a home inspection prior to the purchase. It is impossible to know when the HVAC system or the water heater is going to break and need to be replace or who might be buried in the crawl space or back yard. No matter how much research you do buying an existing home is like making a bet in a Casino, sometimes you win and sometimes you lose, but be clear on this point the sale of existing homes is usually “As Is” meaning there is no warranty. You as the new owner bear the cost of repairs. Repair and replacement cost can be enormous, and according to Murphy’s Law, generally come at a time when you can least afford it. Buying a newly built or custom home, by Law, comes with at least a one year limited warranty which can provide peace of mind and financial protection that is not present when you buy an existing home.

Through the process of discussing the disadvantages of buying an existing home we have touched on some of the advantages of building a new home which we shall now explore further. Building a new home is really about freedom. The freedom to choose and alter your plan, the freedom to choose your specifications like lighting, trim, cabinetry, flooring, and paint colors. It is the freedom to do whatever you want as long as you can afford it. Your new home is just like a canvas waiting to be painted with anything your imagination can conjure.

Another advantage of building a new home is that it must meet or exceed the current standards of the Building Code. Many of the hazards that are present in older, existing homes have been eradicated through changes and updates of the Building Code. Advances in other areas of building science have also increased the durability and livability of new homes particularly as it applies to energy efficiency and the use of green materials in construction.

It is estimated that over the next few years the cost of electricity may triple or even quadruple. Energy efficiency will become increasingly more important as the cost of electricity starts to climb. Existing homes, particularly older homes, are usually very energy inefficient. They lack proper insulation, have oversized and leaky HVAC systems, and do not have thermal insulated double pane windows and doors. The cost to heat and cool an older home can be excessive.

Another advantage of building a new home is that many of the materials used for construction are more earth friendly (green) which is helping to reduce the impact of new housing on the environment. For those who champion environmental issues, building a new home is the only way you can ensure that only earth friendly materials are used in construction. Finally, new homes, by their very nature, require less maintenance than existing homes, at least in the early years. In addition, all new homes are required by Law to have at least a one year limited warranty. Some contractors will even offer extended warranties. A warranty provides excellent peace of mind and financial protection from the unknown.

Home ownership is an important part of the American Dream. Hopefully the information presented will help you make an educated choice between buying an existing home and building a new home.