In our latest entry regarding new home vs. existing construction, we will take one final look at the advantages and disadvantages of each, and how you can navigate through the options of each to come to an informed decision.
When it comes to buying real estate, may in be in southwest Florida or anywhere else in the world, the top three criteria in evaluating property comes down to three simple items:
1. Location – a good neighborhood with good schools, easy commuting distance, and good resale values will always be a better choice.
2. Condition – a house needing a lot of work can be a bad bargain, and one needing less work a better one – that goes without saying, depending, of course, upon…
3. Price – Price is king, even though I listed it last. A fixer-upper can be a good deal, if it is priced reasonably (the delta being less than the cost of repair). But price can’t really trump location. You can fix a leaky roof, it is harder to fix the neighborhood or school.
So how do these criteria apply to (A) existing homes, (B) homes for sale in a development, and (C) having a home built to order? Let talk about it.
1. Location, Location, Location
For Existing Homes, the market value of the homes is fairly well established by resale values. And that should tell you a lot about the neighborhood as well. So you can research this and figure out whether the location is right for you.
For new homes, this can also be the case – or not. In crowded urban areas, there are no places to build new homes – so newer homes may tend to be further out – meaning longer and longer commutes. And if the neighborhood is totally new, it is hard to gauge resale values and school systems – if they are still being built.
The first step involved here is to research the neighborhood. In particular, review home prices in the area first. Lookup property taxes to get a better sense of your total payout, as most of that information is available online. A brand new home in a brand new neighborhood could become a problem down the line if it’s built in a bad area. For example, if you build a $500,000 home in a county where the average home price is $150,000, chances are that it will be a very hard home to sell down the road.
You would think new homes would win this one, hands down. After all, everything is new, right? Wrong.
For new homes, usually the builder offers a warranty of some sort – and of course, before you take possession, there is usually a “punch list” of items to be fixed (more on this, later!). It can be commonplace for new home owners complain about a leaky roof, a backed-up sewer or appliances that fail. Yes, those are all nightmare scenarios, but they usually occur on the watch of the first owner in the first few years. Which is why it would be wise to look into a home warranty to cover some of these potential mishaps.
On the other hand, this does not automatically mean that a “used home” is always a better deal. A home inspection is always a good idea for a used home or a new one. For existing homes, the inspector can point out how long to expect things to last. In general, roofs, appliances, air conditioners, etc. all last about 15 years or so. If you buy a 15 year old house, and all these items are original, well, you have an idea what to expect – just as much trouble, if not more, than a new home. But if priced properly, and you can budget to replace these things, it may be a better deal.
A well-built home from a reputable builder with a good home warranty can be a good deal, but expect to have some “teething pains” in the first year or so. An existing home can be a good deal, but have a home inspection done to make sure there are no hidden defects either. And by the way, a home warranty for an existing home is not that expensive, and some sellers will offer it to induce people to buy. It never hurts to ask!
Upgrades are a problem, as the builder makes a lot of money on them. For example, if you want a deck installed, the builder will say “Sure” but quote you twice what a local carpenter would charge. So you see many of these new homes with no decks, because the house-poor buyer can’t afford the outrageous charge the developer wanted, but doesn’t have the cash to hire a local carpenter.
So, you may be able to use upgrades as a leverage – get a free or reduced price upgrade in the place of a price cut – the builder keeps his prices stable, and you get something.
Existing homeowners, on the other hand, are getting desperate – and many are facing foreclosure, short sale, or their homes are in foreclosure. There are super-bargains galore out there right now, in many markets (like southwest Florida) and in such markets, buying a new home may not work if one is inclined to purchase a short sale or a foreclosed property.
Before you decide to build, check resale prices on similar houses and make an informed decision – and expect cost over-runs on new construction, especially if you are having a home built to order.
This is a factor that was not mentioned previously, but makes sense to mention. If you buy an existing house, you can close in 30 days and move in, with the kids ready for school and your husband ready to go to work.
A new house takes longer to build than anyone thinks it will. And the hassles are enormous. Most folks report it is like having a second job, just monitoring the progress of construction, making decisions with your builder, etc. And if they say it will be built in a month, factor in three months. It usually works out that way.
So why do people build new homes? For many, it is emotional reasoning – “We get to have exactly what we want!” people say. But there is a problem with emotional argument. First, chances are, what you want is what other people want – and an existing home is out there that is pretty close to what you want. Unless you are building a Frank Lloyd Wright home, you will likely end up with a traditional home that will be remarkably like everyone else’s.
And this is a good thing, as oddball houses are very hard to sell, down the road. An Eco-Yurt or a Buckminster Fuller Dome Home may be very cool and eco-friendly, but very hard to sell. A medieval castle may be really cool, but one wants a home with a dungeon (well a few people do, and they scare me!).
So getting “just what you want” is a pretty specious argument. Odds are, you want what is already out there.
New is nice and all, but it becomes “used” in short order. So buying a home on the emotional logic of new paint smell or new sheet rock, is sort of a bad idea.
One other thing: Bear in mind a new home has no lawn, trees, shrubs, plantings, deck, or a lot of amenities. In many cases, you may not even get a driveway. Factor in those costs and hassles into the equation. Living on a bare lot with a scraggly lawn and no trees is no fun. An existing home may have lush landscaping and a lot of accessories that you would have to pay for.
And living in a construction site is never fun, and if you buy a home in a new development, you can expect a lot of noise and dust until it is finished out. Your home may be done, but what about the one next door?
So what’s the Answer?
The final answer really is: None! Each situation is unique. It depends on the location you are looking at what your preferences are.
My personal take is that I would look to see if there are motivated sellers in the market area I am looking at, and seek out a good deal. If there are lots of foreclosures in a particular area, I suspect you would get a much better deal on existing homes than new construction.
And finally, even if the price differential was neglible, I would think hard about the hassle-factor. What decision would be easiest, and less costly for you in the long run?