buy or build?

philly_kidFebruary 14, 2012

Here's the situation. Our house is about to go on the market - priced to sell and we want to be prepared to move as soon as we sell. We are moving to a rural area without housing developments. Our first choice is to buy a piece of property and build on it, but there are a couple of reasons why we might buy an existing home. First, we believe we can get more bang for our buck in this market. Second, we're not sure we can afford a new build.

A couple of caveats. There are a limited number of houses on the market on the kind of lot we want. Nothing leaps out as perfect. We can actually afford more that the following budget, but we are trying to keep the cost down so as to avoid a jumbo loan and give us a little more breathing room. We are planning to have 200,000 from our home sale plus a jumbo loan = 619,000 budget. We found a big beautiful lot we love which we may be able to get for approx. 275000. That would leave us 345000 to build.

In order to proceed, we want to find out if we can build the house we want for close to that 345000 number. We are looking at the Field of Dreams Farmhouse 2 as a model with some modifications. 2700 square feet or so. I went through the building cost website recommended, but wasn't sure on some of the building classes so I got anywhere from 350-500000 depending. The exterior is basically a rectangle. The roof is simple. We are not planning any bay windows or bumpouts. We plan on Australian Cypress wood floors finished on site through out with tile only in the bathrooms and mudroom. 9 foot ceilings on the first floor. 8 foot on the second story. No two story spaces. Unfinished full basement. We want to make insulation a priority with possibly the double stud exterior wall. Vinyl siding. Three bathrooms - one with high cost marble tile the others with ceramic tile. No Jacuzzi. Kitchen will have 20 or so feet of base cabs with full extension drawers - probably IKEA. Limited uppers. Large kitchen island. High cost marble countertops. The appliances will be high end - Viking/F&P etc. type quality although maybe we could go cheap and upgrade later. A lot of good quality windows (looking for value without getting anything extra) on the south side with not a lot of windows on the west and north side. Will try to pick standard sizes. Not sure on the heating and cooling systems. Would love Geothermal - there is a pond which may work for the loop, but not sure if it's in budget.

Ways we can save money: with the help of my FIL we renovated our current house room by room. We installed and finished the wood floors, all new electrical and plumbing, installed cabinets, tiled 3 bathrooms, replaced a few windows, drywall, paint, etc. We don't want to do this in our new house! We will do a few things to cut costs, buy our lighting and plumbing fixtures and tile, paint, maybe install the cabinets. Maybe add the garage later? We want built-ins and molding but we could probably do that later.

Sooooo...looking at some of the listings, I can see the cost of a lot and also the cost of a proposed new house design on the lot. Some of these new houses are in the 325-350000 for the number of square feet we want, but I'm sure they are not very custom with limited upgrades. Our realtor tells us that custom houses in the area cost about 200 psf to start. That puts us at 500000 for the build. Should I even bother putting all this information together for a builder to get a quote, or is it going to be too much and I should just look for a completed house? One of the issues with going with a builder is that there are so many variables that are up in the air. The choices between what we want and what will fall into our price range that we can accept are on a range of issues. The builder would end up having to price out many different options. For example, house with geothermal or without, superior walls in basement or not, vinyl or hardyboard siding, x r value insulation or y value, double or single exterior stud walls. I don't want to go through an architect or buy a plan or get a builder involved if the cost of the build will be too much to begin with.


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$200/sqft? Ouch. What location?

    Bookmark   February 14, 2012 at 3:18PM
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We're looking to buy around lake nockamixon, upper bucks county, pa.

    Bookmark   February 14, 2012 at 3:45PM
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While I'm not that familiar with your area, I wouldn't take my building cost advice from a realtor that wants to sell me an existing house.

If you are serious about potentially building, talk to a few local builders to get a more realistic idea of the cost.

    Bookmark   February 14, 2012 at 11:22PM
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You also need to speak to a mortgage person. The land value to house value will be important in determining if you can get a mortgage upon completion and what type of mortgage you can get. In the scenario you presented the lot is about 45% of the final value. I suspect lenders will find that unacceptable unless it's a farm.

In the areas we've built houses the lot was about 1/3-1/4 of the final value. While real estate and costs are local, mortgage guidelines tend not to take local conditions into consideration as much.

    Bookmark   February 15, 2012 at 8:31AM
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Thanks guys! To address a couple of points. I think the realtor is legit on his estimate for 200 dollars psf. Most custom houses have custom cabs and lots of expensive trim/detail which drive up costs. It might have to do with the fact that he also sells a type of modular home which is in that price range. I agree you should always know your source of information.

Great suggestion about talking to a lender. We will probably look local so they understand the area. The lot is almost 20 acres of field and pond. It's really nice in person, but maybe it doesn't translate. Which area has the proportion of lot to house that you mentioned?

    Bookmark   February 15, 2012 at 8:48AM
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If I read correctly, a budget of $345k for 2700k sqft build. That works out to ~$128/sqft. In our market, that would get you in the door of a no-frills custom home. I would interview builders to get a handle on what the range is in your area. Also, don't forget about other costs related to a new build (architect, landscape, etc.).

    Bookmark   February 15, 2012 at 9:58AM
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Sophie Wheeler

Fields and ponds don't appraise for much of anything unless they are part of a working farm, and then you're in a whole new category for building and appraisals. Any land over about an acre is actually a drawback when it comes to real estate. It will need to be maintained, and that's an expense, not an asset, especially with today's modern double income working couple. That is, unless you are dealing with estate sized lots with estate sized builds, and that too is a whole other economic category of build and appraisal.

And yeah, you might could build for $128 on average, but with your description of the finishes, you will definitely not appraise for that. You might appraise for $100, and that would leave you bringing money to the table. And that's if everything went right and you didn't run into rocks, or underground streams, or survey mistakes, or any of the hundreds of things that can add to the time and money needed for a build.

What's wrong with buying an intermediate existing house? One that you can live in as is for a couple of years and build equity both in your home and your land? It's usually a good money move to not shoot for the moon until you are really ready to land there.

    Bookmark   February 15, 2012 at 10:11AM
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"Great suggestion about talking to a lender. We will probably look local so they understand the area. The lot is almost 20 acres of field and pond. It's really nice in person, but maybe it doesn't translate. Which area has the proportion of lot to house that you mentioned?"

I'm uncertain as to what your question means.

Do you mean which area of the country? I have built homes in two midwestern states. One was in an overall very pricy area of one state. The other was also in an area with some of the highest average home prices of a different state and one of the best real estate markets in the state, even during the downturn.

I do think this is a generally accepted principal in many parts of the country unless you are dealing with farms.

    Bookmark   February 15, 2012 at 11:02AM
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It sounds like I really need to check out the financing before proceeding. A good chunk of the land is farmed for hay or clover. I think the farmer gets use of the land for free and the farming is a form of upkeep.

Yeah, I meant is the area rural where they have the proportional guidelines for loans? In the area where we are moving, I believe you need at least 2 acre lots and it's pretty hard to subdivide. There is a lot of preserved land.

As for buying a stepping stone home, we could try that or rent for a year. It really is a buyers market, though and we want to take advantage of that. Our wish is to buy or build a house that we will be in for a long time. We have three little ones and we are making good money now; our finances will improve as our child care costs go away. You have definitely given advice to consider...

    Bookmark   February 15, 2012 at 1:11PM
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We are building a custom home (being on an island adds to cost) but financially it would definitely have made better sense to buy a sound existing home. We have lots of reasons for the custom build but when I think about the financial issues I wonder if they outweigh retiring earlier and being there to enjoy the place.

Since you have little ones you still have their education to look forward to - our experience is that not long after child care expenses go away college expenses arrive. Something that might figure into your planning.

Best wishes, OG

    Bookmark   February 15, 2012 at 1:21PM
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Good point about education replacing child care costs. I have kids 6, 3, and 1, so it will cost a fortune for college when that time comes. Buying at the lower end of our range will help prepare for the sticker shock! Our eyes are definitely bigger than our wallets, but so far we have avoided any issues - we just want it to be a little easier.

    Bookmark   February 15, 2012 at 4:25PM
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We built where land was $310 and build cost was $260 or so. Not a peep from the lender. That was for 2100 sqft and appraisal was $570. There were a few other build costs not in that that added up to less than $10k so we technically appraised below costs. But the comparables were a joke and we did far better than building.

In an area that rents, bare land is just a liability in today's market while an existing home can just continue to be rented.

I don't think anyone can answer the original question based on the local nature of real estate. But I think a fair generality is that in an area where land is super expensive, the land has been hit very hard. In that case, since few can borrow to buy the land, they are sold for such a discount that building can be cheaper than buying. That was the situation in our case where the land was $1M 4 years ago. Even at $300, there are very few able buyers.

    Bookmark   February 15, 2012 at 7:28PM
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Everyone has great advice! Hubby and I built a few years ago, we "expected" to get more of a profit from our house sale to put towards our new build, but that didn't happen, we "expected" a smooth build with no surprises since we planned so well (we thought), the excavation was so expensive because we were building on a shale/rock surface ( right in the middle of a beautiful alfalfa field with a killer view)! Who knew? All this to say if we were faced with this kind of buyers market today vs. build we would BUY!! But that is probably because we have already built a house but I can tell you it wasn't financially the best idea! There are just so many factors to consider, you can't go wrong on this forum, there are so many helpful people!!
Good Luck!

    Bookmark   February 16, 2012 at 1:51AM
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Perhaps we are putting the cart before the horse with our house not quite yet on the market, but we do want to be ready to move when it is sold. If we meet with a builder and a lender before we sell, we will know what is doable. Thanks for all your advice. It would be so much easier if there was a house and lot out there that we really like!

    Bookmark   February 16, 2012 at 8:17AM
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We spent all winter last winter pricing a new build.
We owned the land we just needed a house.
I worked with 2 different builders, the first we let go, the second came in at $360,000 for a 1700 sq ft with finished basement, with good sized marvin windows, good quality doors, carpet and linolium, and nothing high end other than an island with granite countertop and custom cherry kitchen, baths.
we priced in geothermal with heat in the basement floor, a well , a lane, power to the house, septic, appliances, and a two car attached garage.
I just couldn't believe the price so we asked 'all american homes' ( panelized) to price doing our exact build with our floor plan and they didn't complete the bid process after 2 weeks but didn't sound much cheaper with their half hearted effort. That bring said the construction demo model was nice and my relative has one of their homes.

anyway- we then went to the tax assessor who told us that in our area that house ( we took the plan for the main floor) would cost us $6000 a year in taxes here in IL. My heart just about stopped!

After a cry. ..and lots more prayer.... we decided not to build and bought a 2,100 ft fixer upper. We then hired a ton of work done and now- from may til now- FINALLY have a really nice place for our family. Much nicer/ fancier than we would have had if we built our frugal home from my plans and much less in taxes as it is 13 years old, not new.

food for thought. IN our area new laws have been put in place that makes it hard to build on good fertile farm ground, unless it has been your family farm for a long time.

hope this helps-

    Bookmark   February 16, 2012 at 9:11PM
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Unless you want a truly one of a kind home, I'd just buy an existing one. Almost everyone builds a home with resale in mind, therefore all look similar so what's the point of spending extra money on something that already exists?

    Bookmark   February 17, 2012 at 8:02AM
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I hear your advice about buying an existing home and I'm definitely taking it to heart. A couple of reasons why we want to build. First, we want a rural feel and we want the indoor to transition to the outdoor through windows doors and outdoor space. The lot needs to be as private as possible with limited views of other houses etc. We also want room for sports stuff - throwing the ball, soccer etc. and we want a garden and possibly some domesticated animals.

The houses in our area are often old farmhouses that are 150-200 years old that were remodeled at various points over the years. There are few houses with an open floor plan with kitchen and great room open. These houses do not have a lot of windows overlooking nature. We entertain, but do not feel the need for a formal dining room, which many houses have. A lot of these houses have pie staircases which are not easy to navigate or accommodate large furniture.

We want a full basement for kids. Many of these houses have dirt basements.

One of the big things is that many of these houses are not very energy efficient because they were built so long ago.

We found a house we really like, but it's on a completely wooded lot. We found a couple of great lots, but one of the houses had low ceilings and the other was just too funky with the remodel trying to incorporate the old style (think really small rooms with fireplaces plastered over).

Maybe we're picky? Having completely rehabbed the house we live in now, we have a lot of experience choosing finishes and figuring out floor plans etc. We know what we like and we are hesitant to make this big move and get something that will not meet all of our needs.

    Bookmark   February 17, 2012 at 9:21AM
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Just figure you are going to spend more than you estimate! I don't want to say how much more because it is so variable. Then, with that "built in cushion" you are all set, right?

    Bookmark   February 20, 2012 at 1:01PM
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Thanks for the advice about the cushion. I will make sure we can afford either an existing house or lot and build.

    Bookmark   February 21, 2012 at 10:17AM
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We are struggling with this question as well. Having purchased our land three years ago (prior to the real estate downturn), we are trying to determine whether to continue forward with building or to buy existing. In our area, there are great deals to be had for existing and our dollar could stretch much further. The problem is we cannot seem to find anything that meets enough of our needs/wants to make us feel confident in moving forward. We are left with continuing along the building journey all the while keeping a look out for new listings of existing homes. After three unanticipated years of renting, I am more than ready to move into "our" home whether built or existing!!

Good luck to you as you try to determine what is best for you and your family!

    Bookmark   February 22, 2012 at 9:48PM
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Thanks! We're definately open to making changes in an existing house - additions, renovations - but haven't found a good candidate for that either. Many have already been renovated, but with new finishes, details, proportions, windows (or lack thereof) that we don't like. Good luck to you!

    Bookmark   February 23, 2012 at 11:14AM
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