Building a Custom Home Vs. Buying an Existing Home
Hey, Dave Edwards, Treasure Valley Dave here. Today, I want to discuss whether buying a new vs. existing Nampa, Idaho home is a good idea. So what are the pros and cons there? Let’s get right into it.
What started this whole new house versus old house thing was that I came across this story from realtor.com about why purchasing a new house construction can be an intelligent move for first-time home buyers (1). Well, anybody — it applies to a lot of people. So I’ll go through the story in a little bit. I also have some examples that might shed a different light on it, especially here in the Treasure Valley.
Hypothesis: A Brand-New House Costs More Than Existing House
The information in this article is that first-time home buyers nationwide assume that going with a new house near me will cost more. That’s not necessarily the case. “While it’s true that brand-new homes often come with a heftier price tag upfront, these properties can end up being a good–even a great deal–for first-time home buyers.” And why is that? “New construction homes, on average, are 10% to 15% higher in sales price than resale homes.” I don’t know if that’s true.
Claim 1: "Low inventory means first-time home buyers should explore all options."
That’s a good idea, but the existing home inventory is low, according to the existing home sales report. The nationwide list of homes already built and owned before is at the lowest level they have ever been. The problem is that homeowners in those existing houses usually want to wait before selling homes. If they do, they have to move somewhere else. And if they have been in their home for a while, they probably got a sweet deal on the current home interest rates. Of course, they want to avoid swapping the current interest rates for new home rates that might be two or three times higher than they have now.
Owners are staying put — we see a lot of that. That means we don’t have a build-up of existing inventory as we have in the past. On the other hand, builders had been building and building and building, trying to catch up with our record low inventory rate of new home construction near me.
Claim 2: "Builders can help first-time home buyers with better financing."
Even though home builders have had a glut of new home listings near me on their books, before the end of 2022, they offered deals like $30,000 to $50,000 off to get you into a new home for sale. By “off”, we mean incentives. Some programs would help with buydown rates, pay closing costs, and put in backyards, blinds, and other things like that to get you into their house. The reason is that they already have so many new home listings that they need to get off their books.
Now that the first month of 2023 has come, those new home buyer programs technically have gone away. But if you need some help with closing costs and buying down a rate, sellers — especially builders — are still helping with that. They come up with some money to make it easier for the buyer to afford the new home rate.
I did hear from one of the most prominent builders just a couple of days ago that by the 17th, they’d hit their quota for January 2023. Some house buyers probably waited for the holidays to be over before they started getting involved with buying their next house. And that’s precisely what they have done, so we see more demand for these house-build options.
What Does It Mean?
This increase in house demand means the price of a new home under construction can increase. Before the latter happens, we’ll see fewer incentives for buyers. But if buyers need help with closing costs, some sellers accept offers in the contract.
This guy from the realtor.com article also said, “What many first-time buyers most need are cash to close and monthly payments they can afford.” That’s what sellers and new home builders have been doing, in a way. I have seen a couple of previously built houses where the owner offers buydowns and other home buyer assistance programs.
Claim 3: "New construction can save you money on utilities."
Well, that’s true because a new house build is likely built to higher standards than an older house. But here in the Treasure Valley, our utilities are relatively inexpensive. You might save less between a 10-year-old home and a brand-new one, but it’s nice to know that a new home for buying could be more efficient.
Claim 4: "New construction home requires fewer repairs and come with warranties."
That’s the thing. When you buy a new home near me, the roof and the HVAC will be new. Everything that comes with it is brand new. The builder typically has a year warranty (like a bumper-to-bumper type). Some builders also have more extended warranties that cover structural things that go on for up to 10 years.
You can save money since you don’t need to start saving for a new roof or HVAC system that needs to be replaced in five years.
Claim 5: "Customization is cheaper than renovation."
Some builders can build a semi-custom house just for you. You can pick out the textures and colors, what kind of appliances you want, etc. You can have some structural stuff changed around. For example, you may want an RV bay attached to the house instead of just a regular third-car bay.
And as this story says, it is cheaper to have that done with new home developments at the beginning than to have somebody come back later and add those things when it might cost a lot more money.
These are just some things that make buying new home builds sensical. Let’s look over some brand-new and existing homes I just pulled up this morning to compare.
Example 1
The first house is a new home, which will be finished around March 15th, and the second one is an existing one.
You can see they’re almost the same price upon a quick look. The new house is a smaller place. It’s only 1,217 square feet, so it’s small but in a decent part of town.
Meanwhile, the existing home is $100 more. It’s had some work done to it. It only has a one-car garage, but it does have those big trees and is located in an established neighborhood. This house has been spruced up pretty nicely, but the roof is not new unless they put a new roof on. The HVAC is not new unless they put in a new HVAC system. Even the carpet is not new.
So, for almost the same price, you could have either. And there is a slight difference in their square footage, although the existing home is a bit smaller at 1,064 square feet.
Example 2
For the following example, the new house is 1,522 square feet, slightly bigger than the existing house, which is 1,503 square feet.
This brand-new house is a CBH. I know CBH has been helping people with closing costs. It’s also a lovely house. It looks like almost every other CBH home, with the same neutral colors. They’re nice; don’t get me wrong. I’ve got a CBH home and have had no problems living there. So, you can get this new house.
Similarly, you can get this existing home. It’s in a more established neighborhood, almost the same price as the brand-new one. Although the carpet, the kitchen appliances, the HVAC, and the roof are older, everything still looks nice. I could easily live in that.
Example 3
For our third example, the brand-new construction is 1,447 square feet, while the existing home is 1,630 square feet. They’re both almost the same price. Looking at the new build, it’s an attractive house. As for the existing house, it’s been fixed up nicely.
So, what they were saying is, “Oh, well, the houses are always going to be more expensive.” That’s not necessarily true for new construction since the existing home here is slightly costlier than the former.
Example 4
If you want something bigger, I would like to throw these two homes in there too. The brand-new and existing homes have almost the same square footage. It’s 2,636 square feet for the brand-new one and 2,619 for the existing home. The brand-new house costs $439,990, while the other costs $439,994.
When it comes to the new house, everything is unique — from the roof to the HVAC. It has a lot of space and comes with a builder’s warranty.
To be clear, you could buy a home warranty. They’re somewhere between $400 and $500. Sometimes we can get the seller to pay for that. We can always ask.
Going back, the existing house has a nice backyard. There’s nothing wrong with this house at all. It’s a bit older but almost the same price as the new one.
Example 5
The first house in our last example is brand new. The existing home, meanwhile, is “new but truly better.” What the latter means is that it has had some upgrades in it. Both houses are almost the same size and have nearly the same price.
A New Home Might Be the Same Price as an Existing Home After All
There are fewer existing homes, and that puts pressure on existing home prices to be higher. There are more newly built homes, and that puts pressure downward on those prices. So, the new and old houses are almost the same.
If you are considering buying new homes particularly, the builders I know said there is much more housing demand right now. They’re getting under contract; they met their January quota by the 17th. Things are starting to pick up. We should not have to wait until April and May for our market to start cooking.
Contact Treasure Valley Dave
If you want more information on buying an existing home vs. building a new one, please don’t hesitate to contact us. As always, this is Dave Edwards. I’m looking forward to helping you find a home.
