The Tradeoffs of Buying New Home ConstructionDaniel Dobbs2023-05-25T20:31:00-07:00
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.
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New homes Rarely Need Repairs/Renovations
When purchasing a pre-owned home, the buyer will often have to set aside funds to make repairs or upgrades immediately.
That’s not the case with a new-construction home. New-construction homes, everything is updated and in good working order.
Some New-Construction Homes may be Customizable
With new construction (versus a pre-existing home) is that there is the possibility that you’ll get to make some design decisions to suit your personal tastes.
Lower Maintenance Costs
Moving into a space where everything is new, maintenance costs (and time) should remain, at a minimum, for at least 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 take care of it.
Most renovations or remodels don’t require protection, whereas most new homes do. The warranty is your protection 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 loans, jumbo loans, and 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 in this direction.
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, new-construction homes tend to hold their value well.
Buyers who get in early are more likely chances are you’ll 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-build.
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 with 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 associated with these benefits 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
For homebuyers who have a short time frame to move into a new home, buying new construction could be challenging if the house isn’t built yet.
A new community may have completed homes for quick move-in homes 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 regions affected.
Delays can come up without warning, and buyers should factor in 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.
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 the roads, electrical grids, and infrastructure. These costs are paid for overtime by increased “assessments” (not property taxes). Mello Roos assessments are not tax deductible; hence it’s EZ to remember as “SAD.”
Contrary to Popular Belief
And, the Mello Roos assessments will not expire in the future as the “fine print” allows city councils to continue assessments to “infrastructure” repair.” in perpetuity.
