Is Buying A House Cheaper Than Building A House

Dated: February 19 2016

Views: 880

couple building a house together

The home-buying process can be an exciting time for first-time homebuyers and experienced homeowners. As you start to look at homes, you might be wondering, “Is it cheaper to build or buy a house?” While there are pros and cons to each, you might be surprised when you compare the two.


According to the National Association of Home Builders, the median price of a new home in the U.S. was $305,000 in November 2015, while the median price of an existing home in the same month was $221,600. With home prices increasing and still-low mortgage rates, the time might be ideal for buyers to secure a deal on a new or pre-existing home. But which is the better investment?


Building a House

Since new home prices are higher, your first thought might be to buy a pre-existing home. But you might be amazed at what you can afford if you decide to build your own home instead. Since builders want to keep their crews working, they offer many discounts to encourage potential buyers to build.


5 Pros of Building Your Own Home


Building a new home can come with many benefits, such as:

  • Discounts on materials: If you’re working with suppliers, like your local lumberyard, ask for a builder’s discount. Some suppliers will offer higher discounts the more you buy, according to Bob Vila, a home improvement expert. On lumber and millwork, expect around a 10 percent discount; for lighting fixtures, expect higher savings.

  • Everything is new: Moving into an existing property can come with hidden costs, as you might need to make significant home upgrades that might not be entirely obvious during the purchasing phase. If, for instance, you purchase a pre-existing, 2,000 sq. ft. home in Los Angeles and need to repaint the exterior, you can expect to spend between $2,300 and $5,400 on the project.

  • Annual savings: If your air conditioning unit is new, you can save a few hundred dollars a year by omitting the service plan normally carried with an older system. If you purchase an existing home, on the other hand, you can expect to pay around $5,230 for a new air conditioning unit, according to a survey conducted by Angie’s List.

  • Design control: Everything is what you want from the start. You won’t have to spend additional funds redoing the home after you purchase it. One expense you might be spared with a new home: the cost of a bathroom remodel, which can cost between $9,000 and $14,000, according to About Home.

  • Easier entertaining: Entertaining is easier because new homes often have an open floor plan that supports large groups. Older buildings often have some illogical design choices — like having to walk through a bedroom to reach a communal bathroom — that newer homes don’t have.


5 Cons to Building Your Own Home


Of course, not everything is perfect when you build a new home. Whether you run into issues with permits or other delays, building your own home can come with a lot of unexpected costs.


“I have never seen a home that was built come in on budget,” said Sissy Lappin, founder of ListingDoor, a service that helps people sell their homes. “I cannot tell you how many times I have had a client buy a lot to build, gave the architect a budget of how much they wanted to ‘be all in the house for’ then bid the plans out only to find out the cost to build the house is 30 to 40 percent more than their budget.”


Consider these disadvantages to building a home:

  • Time: It can take anywhere from four months to six months to build a home. This is a long time to wait and things can change while you are waiting to move.

  • Limitations: You might be limited in the style of home you can build within your price range. You might also find that making a lot of changes and purchasing upgrades from the builder can be expensive.

  • Construction loan and permits: You might be required to carry the construction loan on the building process if the builder does not do this for you. Even if the builder handles the permits, it’s a good idea to understand what is needed to ensure everything is built up to code. If you are unsure, it is best to hire your own inspector to make sure the job is done correctly the first time.

  • Legal considerations: The agreement between you and the builder might limit your rights if there is an issue with the home-building process and you need to take the builder to court. Make sure to read documentation carefully and consult an attorney in your state for legal advice, if necessary.

  • Temporary housing: You might have to move into temporary housing while you wait for your home to be built. This can mean added expenses from movers and rented storage space. Keep in mind, the average cost of a storage unit rental can run between $100 and $280 per month, depending on the market, according to Storage Talk.


Buying a House


Buying a house is an attractive option for many people because — in most cases — you can move into the home soon after closing. Oftentimes, homebuyers might fret over the purchase of a home that has some less-than-stellar features. But the home you buy doesn’t have to be perfect down to the wall paint. You can update the unattractive features of a home over time, and you might even profit from a few upgrades.


Lappin explained that she once remodeled a home that had Venetian columns in the dining room, baby blue carpet and mirrored walls. “It was on the market for 18 months,” she said, saying the home had some tacky design choices. But after remodeling the home, she explained, “Someone rang our doorbell and offered us a ridiculous amount of money. Yes, we sold. My husband would have thrown in the kids, he was so happy.”


5 Pros of Buying a House


Here are common benefits to purchasing an existing home:

  • Opportunity to flip your home: If you buy a home and make much-needed upgrades, you have the potential to flip the home, allowing you to roll over profits into a newer and better house. According to a RealtyTrac report on single family home sales in Q2 2015, the average gross profit of completed flips was 35.9 percent of the original home purchase price.

  • Upgrade costs can be delayed: With a pre-existing home, you can take your time making upgrades, allowing you to better budget for the expenses.

  • Ability to move quickly: In most cases, the buyer can move in immediately after closing. There is no wait time or temporary housing to worry about.

  • You know the neighborhood: If you’re buying a home in a pre-existing neighborhood, then you already know the neighbors, property values and the like.

  • Easy to visualize: You can see the floor plan and the layout of a pre-existing home. When you build a home, it can be difficult to visualize the layout and ensure you’ll both be able to build and afford what you’ve dreamed up.


5 Cons of Buying a Home


Disadvantages of buying a pre-existing home include:

  • Buyer’s remorse: You need to discover and get used to the quirks in the house that didn’t stand out when you were in the buying process.

  • Upgrade costs: Having to move into a home and make upgrades can be a major time and money investment. The average cost of even the simplest home remodeling projects can cost thousands. The average cost of a bathroom remodel in the U.S. in 2016, for example, is $17,908, according to Remodeling.

  • You are stuck with the layout: You can’t easily change the layout or floor plan of a preowned home.

  • Decorating costs: You might have to invest some time and money to bring the home up to current decorating standards by removing wallpaper, changing paint colors or updating flooring. The typical costs for a home repainting project is between $947 and $2,426, according to data collected by HomeAdvisor.

  • Higher home insurance: Compared to a new home, your home insurance costs will be higher with a preowned home. New homes come with features that are new and up to date, unlike some pre-existing homes.


Average Costs for Home Remodeling Projects


Remodeling’s “Cost vs. Value 2016″ report determined national averages for typical home remodeling projects. Whether you’re building a home or upgrading a pre-existing property, you’ll want to weigh these costs against your plans.


Home Remodeling 2016: National Average Costs
Upgrade Cost
Attic insulation (fiberglass) $1,268
Basement remodel $68,490
Bathroom remodel $17,908
Deck addition (wood) $10,471
Entry door replacement (fiberglass) $3,126
Family room addition $86,615
Garage door replacement $1,652
Kitchen remodel (major) $59,999
Kitchen remodel (minor) $20,122
Master suite addition $115,810
Roofing replacement $20,142
Second story addition $171,056
Source: Remodeling “Cost vs. Value” 2016


Is It Cheaper to Build or Buy a House?


When it comes to deciding between buying a pre-existing home and building a new one, “There isn’t an exact formula,” said Gloria Shulman, founder of Centek Capital, a mortgage brokerage in Southern California. But, she explained, “In my opinion, it is better to buy a habitable house and do a major overhaul.”


Lappin emphasized that building a home can be more expensive than you might initially plan. “I had one client that told the architect ‘this will be our forever house.’ When he got the building bid he said, ‘It was going to be our forever house and it would have to be our kid’s kids’ forever house.’ It was so over budget, it would not break even for 50 or more years if they had to sell.”


She added that homebuyers might “forget the cost of window coverings, extensive landscaping, pool, light fixtures and upgrade finishes. A builders allowance is usually for the minimal finish, and then you have change order fees. “It adds up to thousands,” she explained.


When it comes to building versus buying a home, Lappin advised, “If someone has lots of time or can hire a designer to pick out the finishes, then they should build. If someone is spending a lot of money, then they should build.”


To help you understand if it is cheaper to build or buy a house, make a list of the features that are most important to you, then compare costs. Know what you are willing to give up and what you must have in your next home. Then, look for homes in your price range that meet your criteria. Your home is your biggest investment so it’s perfectly acceptable to be picky and take your time to find the perfect home.


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Mark Ross

For Mark Ross, founder of Ross NW Real Estate and professional real estate broker, real estate has always been the career of choice. During his 25+ years in the industry, Mark has gained experience in....

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