Wed. May 25th, 2022
is-it-cheaper-to-build-or-to-buy-a-house?-the-best-house-for-your-buck

Amna Shamim contributed research and writing to the most recent version of this story.

It’s time to think about packing up your belongings and moving into your dream home. But what is your dream home? Is it a remodeled existing house, or something you build from scratch? Does a new construction meet your needs and your budget? Do you know off the top of your head if it’s cheaper to build or buy a house?

You’ll want to maximize the features and space you’re going to get for what you’re spending, so that six months from move-in, you’re not regretting your decision. So let’s break down what you’ll pay with self-built, new construction, and existing homes, so you can narrow down your search enough to have a great real estate agent take you the rest of the way to your dream home.

A desk with glasses and papers used to depict if it is cheaper to build or buy a home.
Source: (KimSongsak / ShutterStock)

Self-built homes

There are build-your-own-house programs that can make this cheaper, or you can use shipping containers or tiny homes, so you have a lot more flexibility with price here — to a point. You may also encounter surprises (some unpleasant) when it comes to budget and timelines.

HomeLight’s own experts have determined you can build your own home for anywhere between $8,500 and $360,000, depending on various factors, including square footage, energy efficiency, and the level of DIY.

If you’re thinking of building your own home, Ben Marciano, seasoned contractor and owner of A-List Builders, has some sound advice.

“In general, it is totally possible to build your dream home, but it’s critical to work within your budget, and be realistic about it, to make it happen. Understanding how to measure for materials is key, in addition to understanding the skeleton of your home for remodels that aren’t just skin-deep.”

Pros of building your own home

There are several pros to building your own home as opposed to buying one that was constructed to someone else’s specifications.

You can customize the house to your exact desires. You can ensure the primary bedroom has that giant jetted tub you always dreamed of, or that your living room has the reading nook you want. Whatever you desire, you can ensure your custom-built home has it.

Ralph Modica, a Brooklyn, New York condo expert whose average listing sells for $1 million, often works with clients who expect a lot of customizations in the home they’re considering building or renovating. What’s he found is that

“If you design the home, it’s tailored to your taste, and if you’re a very finicky person, that might be the right way to go.” This can encompass everything from the size of the windows to where the outlets are placed.

They can cost less to live in. New construction tends to be more energy-efficient, and you won’t be heating or cooling any unnecessary or unused spaces.

They can cost less to maintain because everything is new. All new fixtures and appliances means you have a while before anything needs repair, and they’ll be under warranty for a while if something does go wrong.

You’re not paying for any features or amenities some other homeowner wanted. Every amenity or feature is one that you carefully selected and prioritized, and therefore is worth your investment while you live there.

There’s no competition from other buyers to get the house you want. Building your own home means there is no risk you’ll be outbid by another buyer.

It’s new, and you’re the first to own it! Who doesn’t love the fact everything is pristine and perfect?

Newer structures tend to have better resale value than older ones as there is generally less wear and tear on a 10 year old house than a 100 year old one. So when you’re ready to move, you may get more money for it than for a similarly-designed older home.

If you need help financing your building project, you can apply for an owner-builder home loan. These loans free you to DIY and comparison shop contractors, which can save you up to 40% on your construction costs, while also allowing you to build up equity as the construction progresses.

Cons of building your own home

Waiting for your dream home to be built often takes more time than buying one that’s already built, especially if there are any supply chain delays or a long waiting period to get on the necessary contractors schedule.

It is more expensive than buying an existing home. Buying an existing home will nearly always be cheaper than building a new home.

You’ll have to handle every little expense, and it can get pricey fast. Some of the factors you’ll need to consider are land costs, foundations, permitting, systems (HVAC, plumbing, electrical), appliances, finishing, roofing, fixtures, and so much more. For an idea of what these costs can look like, check the helpful chart at the bottom of this article.

Judah Strausberg, senior PM at Peak Builders and Roofers San Diego, explains that “The material cost that spiked the most is lumber and plywood, which has gone up over 100% to 150% in the last two years. Plumbing material (plastic) went up over 50%, and paint over 10%.” And these costs have to be passed on to the homeowner.

If you are able to find and qualify for a build-your-own-house program, you may have a bit more leeway, budget-wise.

Owner-builder loans generally involve more paperwork to apply and can have higher fees. Because you aren’t a trusted builder, you’re going to have to jump through more hoops in order to prove the construction will be successful and to make the risk the lender is taking worthwhile.

You’ll also be responsible for making every decision, which can add up to a extra mental load when you’re busy with work and family.  You’ll need to be able to troubleshoot issues as they arise and deal with any contractor miscommunications or issues.

Trends might fade more quickly than you think, leaving you with a dated house that is hard to sell.

You’ll be responsible for designing and planting all the landscaping or hiring someone to do it. If you love trees or flowering plants that take a few years to mature, you’ll have to wait for them to do so.

You don’t have a lot of options for negotiating on price here, but you can make decisions upfront that can help you dial in the cost. Decisions like where to build and how much help to leverage can have a huge impact on the price tag for your self-built home.

Construction on an empty lot to depict if it is cheaper to build or buy a house.
Source: (Jamar Penny / Unsplash)

New construction

In January 2022, the U.S. Census Bureau listed the average sales price of a new home as $496,900 and the median sales price of a new home as $423,300, which reflects variations in size, location, and features of the houses being sold.

While the final cost per square foot will depend on several factors, including location, house size, and customization, you do have some control over many of those factors, which means your new construction home could be well above or well below that number.

Pros of buying new construction

Buying new construction offers many of the same pros as building your own house but is much more convenient. Your options for customizations will be more limited, but you can still choose from different floor plans and finishes.

A developer will manage hooking you into the sewer system and electrical grids. Given how time-consuming and expensive this can be when building your own home, this is a major plus.

Lower lot costs are common with new construction managed by a developer.

Andrew Dellavecchia, a single-family-home expert in the Pittsburgh area who recently purchased a new construction home himself, offers firsthand insights.

“If you go with a developer or builder in the neighborhood setting, your lot cost is very inexpensive because they tie in the cost of your lot to the build so they can make it a lot more affordable, and you’re not paying for tap-ins or land development.

“The builder takes all that cost off of you so you can focus on putting the money that you want to spend in the square footage, the fixtures, the finishes, and things like that.”

Because you’ll be working with a qualified builder, you’ll have access to new construction home loans, which are designed to make the financial part easier by allowing you to “draw” money out in increments, as stages of construction are completed. Once the last draw is completed, the new construction home loan can be refinanced into a traditional mortgage, with principal and interest payments.

New construction homes often have warranties for the systems, and those will cover many big issues for the first 10 years you own the house. If you’re unlucky or just put a lot of wear-and-tear on the systems, this can lead to big savings on repair bills.

Chosen wisely: New construction homes can hold their value or even increase in value after you buy, making them a good real estate investment option.

Cons of buying new construction

In many ways, buying new construction will mean a house that’s less customizable than building your own house. You won’t have complete customization abilities with a new construction home, as the developer will be working on a tighter schedule.

Generally, it’s hard to negotiate on price with new construction. Developers have a certain price they need to sell the home at in order to make a profit (on average, the builder’s profit is 14.9% of the sale price) and are less likely to give up that margin. This is especially true as many builders are delaying their profit in order to lock in the lowest possible cost and delivery time on supplies by ordering immediately vs when needed.

Ben Neely, President/Owner of Riverbend Homes, a boutique custom home builder in the Austin, TX area, shares that both build time and cost for new construction has increased in the last year.

“Our build times on a standard 3000 square foot home has been extended from 7 months to around 12 months because of material supply chain issues. Pricing on our new homes is up about 15% from 2021, and up over 40% from 2017 due to the cost of materials.”

If you’re using a new construction home loan to finance your expenses, you may end up paying a higher rate or being stuck if your project runs over budget due to supply chain or availability issues.

There might be construction happening around you for some time after you move in! Just because your home is move-in-ready doesn’t necessarily mean the entire development is, so you might be dealing with ongoing construction for a bit.

You’ll pay extra for premium upgrades to finishes or appliances. While upgrades always cost money, expect to pay more than you would on the open market.

There might be other fees that you need to pay while you own the house. Homeowners association (HOA) fees are a good example of ongoing fees, so keep them in mind when determining your budget.

A house in a neighborhood to depict if it's cheaper to build or buy a home.
Source: (Dillon Kydd / Unsplash)

Existing homes

The median cost for an existing home was $357,300 in February 2022, according to the National Association of Realtors, which is less than the cost of a new construction. If you’re very budget-conscious, an existing home can be a good option, but there are other potential drawbacks you’ll want to consider.

Pros of buying an existing home

It’s the fastest way to get your foot in the door of homeownership. An existing home is already built, which means you aren’t waiting months to move in while you work with architects and builders and zoning regulators and so on.

The landscaping looks better. The trees and landscaping are likely to look nicer than with a newer home because the plants have had a chance to grow and settle into the design.

It’s easier to optimize for a better buyers market by choosing to purchase when everyone else is waiting for spring.

As Dellavecchia clarifies, “In a seller’s market, as it’s been here for about four years now, the opportunity to get a better deal is in the fall and winter on buying, but most buyers don’t realize that and like to wait for the spring market.” You won’t always have that option when you’re buying new construction, and when building a house, you’ll also be constrained by the climate and weather in your area when it comes to hiring contract workers to help.

If the market is already good, you can time your move for when is most convenient for you, whether it’s because the kids are out of school or there is a lull at work.

You may get lucky and end up with furniture that is suited to the home — like custom built bookshelves — if the current owner decides it’s easier to leave them or if they don’t work in their new place. If you’re looking for something move-in ready, this can be a great perk.

Cons of buying an existing home

It might need repairs sooner. Because other people have been putting wear and tear on the home, you may need to repair parts of it sooner than you would with a new construction.

You’ll have to renovate or upgrade to make it what you want, and even when you do, it might not be exactly what you want depending on the floorplan, size, and other variables. You may also have to wait for the products you need for the renovation, due to supply chain delays and high demand.

Marciano elaborates: “One major contender in navigating your home remodel is understanding if what you want is structurally possible. Usually, it can be, but if you’re doing this solo, then you run the risk of wanting what seems to you as a cosmetic change but may actually be a significant structural change to your home.”

“An example would be when homeowners come to a contractor and want to ‘open up their kitchen,’ not realizing that the wall making it a “closed” kitchen is a supporting wall for other parts of their house. This could result in going well over budget and cause delays in work if realized too late.”

It will likely be less energy-efficient than a new home as many of the regulations, and best practices of energy efficiency are improving every year.

You don’t know what the seller didn’t tell you. Water leaks and mold issues can easy to disguise and may not be evident until after you’re settled in, at which point, they’re your problem. In theory this shouldn’t happen, but sometimes these things can be hard to prove.

So what should I do?

While it is almost always cheaper to buy a house that’s already been built, there can be ways to minimize your spend and ensure you end up in your dream home without blowing your budget.

Finding a great real estate agent who understands your needs and budget is a critical step to making your dream home happen, whether it’s already been built or needs to be constructed from the ground up.

Average costs for: Self-built New construction Existing home
Land & site work $3,000 – $150,000 $3,000 – $150,000 With an existing home, these have already been covered by the original homeowner and you only need to worry about the sticker price + the cost of any adjustments you may want to make.
+ Connecting to city sewers The cost of these will depend on how much you want to DIY vs hire contractors to help. $1,300 – $5,000
+ Connecting to city electric grid $1,000 – $30,000
+ Connecting to city water lines $1,000 – $5,000
Foundation $4,000 – $25,000
+ Slab costs $4,000 – $7,000
+ Basement (not including finishing) $10,000 – $30,000
Framing $20,000 – $50,000
Exterior finishing costs $40,000 – $60,000
+ Roofing installation $5,000 – $11,000
+ Windows $3,000 – $9,000
+ Exterior painting $2,000 – $4,0000
Major systems
– Electrical wiring $20,000 – $30,000
– HVAC costs $1,500 – $13,000
– Rough-in plumbing costs $1,500 – $20,000
Interior finishes $50,000 – $175,000+
– Cabinet install fees $2,000 – $30,000
– Countertop installation costs $2,000 – $4,000
– Door installation costs (multiple doors) $5,000 – $20,000
– Drywall installation prices $5,000 – $30,000
– Flooring install price $10,000 – $35,000
– Interior painting prices $4,000 – $11,000
– Appliance prices $3,000 – $15,000
– Lighting fixture costs $2,000 – $12,000
– Fireplace installation fees $1,000 – $10,000
Median post-purchase adjustments $0 $0 $346,800

Sources: HomeAdvisor 2021 “How Much Does It Cost to Build a House?” and St. Louis Federal Reserve Q4 2020 median home price

Header Image Source: (sculpies / ShutterStock)

Leave a Reply