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Cost of building new vs. buying

Posted by cymraes (My Page) on
Tue, Aug 2, 11 at 17:27

Another issue we have with our realtor is she insists buyers can build new homes for less than buying existing ones. My understanding is the opposite. With real estate prices at rock bottom, you will get a better deal buying a home vs. building. Our home cost us $150/s.f to build. We know we are not going to recoup those costs. So someone buying our home is going to get a deal by paying less than $100/s.ft. How is it in your area?


Follow-Up Postings:

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RE: Cost of building new vs. buying

I totally agree with you.

We had purchased a great lot at a tax auction for only $900. We planned on building a home on it but the cheapest one we could find would cost us over $130K. Most houses in the area were under 100K. Luckily we were able to sell the lot.

But now we are sitting on 3 other vacant lots that we have not been able to sell. Kills me every July when I get the tax bills.

DH and I agree we will probably never build a house. Too much hassle. I would rather buy a "teardown" and restore it.


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RE: Cost of building new vs. buying

Ask the realtor to provide the figures that document her claim.

IMO, you will never see them.


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RE: Cost of building new vs. buying

I think your realtor is trying to tell you that someone could build a house for less than you are trying to sell yours for. ie you are overpriced.

You haven't posted any specifics though, so who knows.


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RE: Cost of building new vs. buying

She is telling us that you can build a top quality custom home for less than $75/sq. ft. I asked our builder how much his costs had dropped since he built ours and he said very little. Most custom home builders around here say the minimum to build now is $100/sq. ft. We spent over $150/sq. ft and know we won't get close to that, but $75 - I don't think so.


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RE: Cost of building new vs. buying

It is possible that the builder incentives are allowing homebuyers to buy homes at better prices than resales. They are throwing in upgraded kitchens, finished basements, extra bathrooms, etc. I have a few newer homes on the market in neighborhoods where the builders are still building. The builder incentives are enough to draw the buyers in. In the end, the difference in price isnt enough for them to buy resale. They can pick their own kitchen cabinets, tile, granite, lighting etc. If you are competing with new construction, your price has to be enough of a deal that they are willing to give those things up.


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RE: Cost of building new vs. buying

Sure, you can buy a "used" home for cheaper than new. But, new is always considered more desirable, even if you can get a screaming deal on a two year old previously owned model. The value of any car or home substantially drops as soon as it's sold and can no longer be listed as new. The further you get from that manufacturer date, the less it's worth. It doesn't matter that your Cadillac cost 6oK when new, by the time it's 10 years old, you'll be lucky to get 15K for it. It's the same for houses. Houses have to follow the market down and become vintage or antique before used is considered as valued as new. A 1959 Cadillac is a collector's item, but a 1999 one is just a 13 year old used car, even if it came with all of the options.


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RE: Cost of building new vs. buying

Maybe your builder didn't change his prices. But what about the rest of them? In my area, new home prices are down at least 25%...maybe even 40%+ from a few years ago...for the same subdivision, same builder, same floor plan.

Lot's of folks will choose new over a 3 year old home because they can pick their cabinets, colors, floor plan, lot, etc. So it makes if difficult to sell a 3 year old home. You have to make it a very attractive deal. Many buyers feel they are settling for your "picks" of carpet, colors, etc, and they want compensation for it. And they certainly don't want to pay for some upgrades that you have, but they wouldn't choose. (Maybe they don't need the nice barn or your garage apt and aren't willing to pay extra for those things, though they like the home and land)

Resales in new subdivision is most always a problem up until the time that new subdivision is "built out". It's hard for a resale to compete against shiny and new - even when the resale has more upgrades.


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RE: Cost of building new vs. buying

New here, but just went through this as well. When we started looking for a new home in a specific neighborhood, we couldn't find anything under $650K and it still needed major work. We finally decided to buy one of the last available lots and build with a high end semi-custom builder because we could get enough house and get everything we wanted. The existing homes that were out there just weren't worth the money considering the time, money, and effort it would take to update them, in our opinion.

Now we are in the the situation where we have to try to sell our 20 year old house. We've been told by the professionals that purs should sell quickly, but I don't have my hopes up. The short sale up the street from us isn't helping. But, we feel good because we don't have to sell, we can just sit on our lot until the right buyer comes. I guess that's another advantage of building. The only negative will be living in temporary housing until the house is ready.


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RE: Cost of building new vs. buying

That is why we have always built in the past - this is the 4th house we've had built and it was supposed to be the last! :) But life happens. But our house is 5 years old and in like new condition. Only the 2 of us living here, so we have kept it in tip top shape. But, still, everyone has their own preferences. The temporary housing issue is why we put an apartment in our garage - we lived there while the house was being built and we were on site to watch the contractors.


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RE: Cost of building new vs. buying

I'm not sure why you care what your agent says.... it sounds like she doens't know what she is talking about, but like every profession, there are those that don't have a firm grasp on the reality of markets.


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RE: Cost of building new vs. buying

"Many buyers feel they are settling for your "picks" of carpet, colors, etc, and they want compensation for it. And they certainly don't want to pay for some upgrades that you have, but they wouldn't choose. (Maybe they don't need the nice barn or your garage apt and aren't willing to pay extra for those things, though they like the home and land) "

Exactly!


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RE: Cost of building new vs. buying

Development homes have the benefit of economy of scale...and in a development where homes or lots have been sitting for quite a while you may indeed be able to get a better price on new vs. lived in in terms of bang for the buck in upgrades.

However, having an individual custom home built (which is what your REA seems to have said) is invariably always more expensive than development homes as there is no economy of scale and is also more expensive than existing homes as it is new, and can be customized to some degree via upgrades.

In addition, financing the whole deal can be costly as well...IF you can even get reasonable financing on a "build your own" and that is not even taking into account cost overruns which are par for the course.


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RE: Cost of building new vs. buying

Several years ago, I bought a 1.5 year old home in a subdivision where they were still building new homes. We got the home for approx 18% lower than the original owners paid. The home was on the market for several months and they dropped the price once or twice. This was several years before the real estate bust and was in an town where home values were gradually increasing year over year.


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RE: Cost of building new vs. buying

Every market is local. We looked at houses in a vacation area for 6 months. Eventually we bought land because it was cheaper to build custom. Shocking - yes. But something to consider is that existing houses can rent and land can not. That being said, the REOs and short sales aren't renting but the banks are being unrealistic. The other consideration is that builders can't get loans for spec houses so the bare land is really just a liability. I think everyone is realizing that it maybe years before another custom spec house is built.

Land was 70% off peak when existing homes are more like 50% off peak. Non distressed are trying at 40% off peak. This is an area where land is usually most of the value.


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RE: Cost of building new vs. buying

A clue would be the value your homeoner's insurance company places on rebuilding your present home to code. Don't just use the number on your policy because it includes debris removal -- and you may not have a 'to code' policy. Ask your agent the per square foot costing they use.


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