The Tradeoffs of Buying New Construction
By Kimberly Dawn Neumann, MuckRack
New construction homes have many advantages that aren’t found in older houses. They also have some drawbacks.
New homes Rarely Need Repairs/Renovations.
When purchasing a pre-owned home, the buyer must often set aside funds to make repairs or upgrades immediately.
That’s not the case with a new-construction home. In newly constructed homes, everything is updated and in good working order.
Some New-Construction Homes may be Customizable.
With new construction (versus a pre-existing home), you may be able to make some design decisions to suit your personal tastes.
Lower Maintenance Costs
When moving into a new space, maintenance costs (and time) should remain, at minimum, for the first few years.
With new and modern plumbing, electrical, appliances, and heating and cooling systems, new-construction homes provide the potentially significant financial benefit of low maintenance costs.
Most New-Construction Homes Have Warranties
Even when things are new, they may still break down. Fortunately, a new-construction home should have a warranty that will cover this.
Most renovations or remodels don’t require protection, whereas most new homes do. The warranty protects you from defects in workmanship.
A New-Construction Home Will Be Up to Code
Building codes are the minimum design and construction requirements to ensure safe and resilient structures. These codes reduce casualties, costs, and damage by creating stronger buildings designed to withstand disasters,” says federal construction and security contractor Charles Chadwick Jr.
There may be Buyer Incentives for Financing.
Financing options for new-construction homes are the same as for pre-owned homes (e.g., conventional, jumbo, government-insured loans).
While buyers can shop around for the best rate and terms, many builders prefer buyers work with their affiliated in-house lender and may offer buyers money-saving incentives to entice them to do so.
Some home builders will help buy down the mortgage rate and offer extended rate locks,” says Ali Wolf, chief economist for real estate analysis firm Zonda.
Though a new construction home may cost a little more initially, it tends to hold its value—or the price may even go up once the development is complete.
To begin with, newly constructed homes tend to hold their value well.
Buyers who get in early are more likely to see the home price go up upon completion. Typically, there is a significant spike in home value once the entire community is finished if you can get in pre-built.
New Homes Will Have a More Modern Floor Plan
While older homes might have a character or quirky design features, functionally speaking, a new home will have a layout that aligns with how a 21st-century family will use the spaces.
New construction will likely have more storage than an older home, including larger closets in the bedrooms, a mudroom near the most used entry, a pantry in the kitchen, and linen storage in the bathrooms.”
New Construction May Come with Community Amenities
New-construction homes are often located in new communities with amenities and features that aren’t always available when purchasing a pre-owned home. This can include social activities, a fully equipped gym, pools, tennis courts, and a clubhouse.”
Although the cost is typically higher when these benefits are included in an HOA fee, the perks may be essential for purchasing.
The Potential Downsides of New Construction
While new-construction homes have various advantages, there are also some disadvantages to be aware of.
New construction may cost more than pre-existing homes. The above advantages of new construction usually come with a heftier price tag.
According to the U.S. Census Bureau, the median price for a new single-family home is currently $436,800. NAR found that the most recent median sales price for a pre-owned home is $384,800.
Newly constructed homes tend to be more expensive, not just in list price but per square foot. Plus, if buyers want any upgrades, those will cost extra and often cost more than if buyers shopped around.
New Homes Take Time to Build
If the house hasn’t been built yet, buying new construction could be challenging for homebuyers who have a short time frame to move into a new home.
A new community may have completed quick-move-in or spec homes that are already complete (or nearly so) and ready for a buyer to move in.
But if not, a buyer may have to wait.
According to Dietz, it generally takes about 6.5 months for most new homes to be completed from start to finish 6.5 months for most new homes to be completed.
Supply chain slowdowns are still a reality in many areas, lengthening that time frame to about eight months today for the affected regions.
Delays can come up without warning, and buyers should consider their current living situation to accommodate delays.
Landscaping is Typically Done Last
The neighborhood and landscaping may be sparse initially; trees, shrubs, and perennials may take a few years to grow and fill in.
Depending on when the buyer closes escrow, a builder may not have finished all the other homes in the community, so there may be a massive construction project in front of a buyer’s residence.
Location – Location- Location
New communities are typically farther away from the urban center in large plots of undeveloped land, so services could be limited for a few years.
Mello Roos
In California, new-construction communities often have higher taxes than older ones because they lack established infrastructure.
California used to finance capital improvements, such as roads, electrical grids, and infrastructure. Increased “assessments” (not property taxes) pay these overtime costs. Mello Roos assessments are not tax deductible; hence, they’re easily remembered as “SAD.”
Contrary to Popular Belief
The Mello Roos assessments do not automatically expire in the future as the “fine print” allows city councils to continue assessments to “infrastructure” repair.” in perpetuity.
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