Is Building a New Home a Better Deal Than Buying an Existing One?

Deciding whether to build your own house or buy an existing one can be a tough decision. The allure of picking out the floor plan, features and fixtures with a new build is exciting, but does that come with a steeper price tag? A careful examination of the cost differences between the two options can help prospective home buyers best decide what option they should choose.

The cost to buy vs. the cost to build

So, how much does it cost to build a house? According to the National Association of Home Builders (NAHB), the average cost to build a house (for a single-family home) in 2017 was $427,892. The average square footage to build your own home in this survey was 2,776, making for a cost of around $154 per square foot. According to Realtor.com, the average price per square foot of an existing home sold is $123, which is about $31 cheaper than the price per square foot cost when you’re building your own home.

While this may seem conclusive, it’s important to remember that the numbers for the estimated average cost to build a house and the cost to buy a preexisting home are based on surveys of builders and realtors. The actual numbers may vary due to reporting errors and other home factors. These factors include the location of the build, which builder you’re using, the building codes in your area and supply and demand.

Why building usually costs more

Building a new home typically carries a higher price tag for several reasons. These include:

Builder profits

Builders are in the business of making money. According to the NAHB study, an average of 10.7% of the cost of a new build is builder profit. Because of this, you’ll find a markup on just about every aspect of the home building process. While these premiums may also be carried over into the sales price of an already built home, the premiums are more evident in the new builds.

Some builders are looking to turn-and-burn profit by pumping out as many track homes as possible. While, on the other hand, luxury and specialty builders are selling a unique product that will come with a higher price tag.

Changes to building codes and permits

As the world moves more towards supporting environmentally conscious efforts, builders are feeling the pinch. As local, state and federal governments change building codes and require additional permitting, the cost of building can get more expensive. These costs can be felt with permitting, cost of materials, building practices and other areas of the new-build process.

Cost of land and lot premiums

When you go to select a home site to build your new home, you may run into expensive lot premiums. New builders will add a premium cost to certain lots within a new community. The nicer the lot, the more expensive the premium. Things that can add to the lot premium include views, access to public amenities and size. While you’ll still pay for these things with an existing build, the price tag may be steeper when coming direct from the builder.

If you’re building on your own land outside of a builder community, you’ll have to purchase it outside of the builder. This is an additional expense that needs to be worked into your budget as well.

Increase in cost of materials

According to statistics from the U.S. Bureau of Labor and Statistics, construction costs are on the rise. Houses are becoming more expensive to build, and the builders are passing these costs onto the consumers.

Hidden costs of building a home

Pricey upgrades

When you walk through a model home, it’s usually beautiful. The problem? That model home usually has every single upgrade added to it. The starting price you see advertised does not include any of these upgrades. If you want your house to look anything like the models, be prepared to shell out tens of thousands of dollars for upgrades. The counter tops, finishes, flooring, bathrooms, kitchens and more are typically upgraded in the models.

Hidden defects

As builders work to turn out as many new homes as quickly as possible, quality can become an issue. When you do your final walkthrough, you may find many things that need to be fixed. The builder should cover these costs in most cases.

However, there will most likely be defects in the house that you don’t catch during the final walkthrough. Some of these may be covered by your home warranty (assuming the builder provides you), but some may not. You may not see things like foundational issues or the effects of low-quality materials until you are outside of the window where you can do anything without coming out of pocket.

Existing homes have had time to work through these issues, or at least expose them, so you can make a more informed buying decision.

Necessities not included

When you buy an existing home, you get everything that you see. However, many of the things you might expect to be included in the cost to build a house are probably not. Some of these things might be fences, landscaping, appliances and some other outside the home features. Make sure when weighing the cost of a new build vs. an existing home, you know exactly what you’re getting and, more importantly, what you’re not.

What it takes to buy vs. build

Buying a new home is exciting, but it does come with many additional challenges. First, you may be required to put down a much higher earnest deposit (the money you set aside for the seller in case you fall through on the deal) during the buy or build process — it’s the same with both.

On existing homes, your earnest deposit is around 1% of the home cost. With new builds, the standard is 5% and can go as high as 10%. This means you’ll need significant cash upfront to get the process started. You will get this money back if you go through with the build or purchase, but it needs to be weighed in the decision-making process.

You’re also going to need time. New builds, according to Realtor.com, can take on average between three and six months. More custom builds can take longer. Additionally, builds don’t always stay on schedule. The point is you need to be ready to stay in your existing living situation while you wait on your new home to be completed — unless you buy a preexisting home, which will significantly reduce the time you’ll wait to be in your new home.

Building vs. buying: which is right for me?

There is no single right answer to this question for all people. The answer to the build vs. buy question for you depends on your wants, financial situation, logistics and where you’re looking to live. Take the time to weigh the different options for price, quality and how each meets or fails to meet your family’s needs.

The bottom line

There are many pros and cons that come with building your own house or buying an existing build. Ultimately, the decision is yours and fully dependent on your unique situation. Take your time and weigh your options. There’s no need to rush as there will always be more houses and more land to build on.

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Jason Wesley
Jason Wesley
Contributing Writer

Jason Wesley is a seasoned copywriter with a passion for writing about banking, tech, personal growth, and personal finance.As a business owner, relationship strategist, and officer in the U.S. military, Jason enjoys sharing his unique knowledge base and skill set with the rest of the world.

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