Pros and Cons of Buying New-Build Homes
Purchasing a newly built home offers the allure of pristine condition, much like driving a brand-new car off the lot. However, it's essential to weigh the benefits and drawbacks before making a decision. Here’s a look at the advantages and disadvantages of buying new-construction homes.
Advantages of New Construction Homes
Brand New Condition
One of the most significant perks of new-construction homes is that everything is unused. You'll be the first to live there, use the appliances, and flip the light switches. This means everything is in perfect condition, reducing the likelihood of costly repairs soon after moving in.
Customization Options
With many new-construction homes, you can customize various features, from appliances to paint colors, to suit your preferences. "Many buyers in Utah find that homes within their price range need significant updates. New-construction homes allow customization to meet their expectations," says Jen Horner, a real estate agent with Masters Utah Real Estate in Salt Lake City.
Energy Efficiency
Modern new-construction homes often utilize the latest energy-efficient materials and technologies, which can lead to significant savings on energy bills over time.
Low Maintenance
New homes offer peace of mind with fewer immediate maintenance projects. Chuck Meier, senior vice president and director of mortgage sales at Sunrise Banks in Minneapolis, states, "Everything is turnkey, so no fixing up is needed."
Buyer Incentives
Builders often provide financial incentives, including flexible financing options, to attract buyers. These incentives, such as lower interest rates, can make a new-construction home more affordable in the long term.
Disadvantages of New Construction Homes
Longer Timeline
If you need to move quickly, new construction may not be ideal. "One of the biggest disadvantages is the time to completion," Meier notes. Especially if you're involved in the design process, it could take three to nine months to move in.
Higher Costs
New-construction homes can be expensive. As of November 2023, the median sale price was $434,700, and the average sale price was $488,900, according to the U.S. Census Bureau and the Department of Housing and Urban Development. Factors like new materials, builder availability, market growth, and increasing home values contribute to these high prices. Additionally, higher property taxes often accompany new construction.
Decision Fatigue
Choosing from numerous options for tile, flooring, paint colors, and fixtures can be overwhelming. The selection process might slow down if you become paralyzed by choices. Moreover, the included customization options are often limited, and extensive upgrades can increase the price significantly.
Limited Negotiation Power
Negotiating with builders can be challenging. "The developer or builder is typically the seller of new construction and aims to keep the project profitable," Horner says. Therefore, price reductions are rare, and every upgrade will cost you, especially in a competitive market. It's advisable to have your own real estate agent for representation.
Off-Gassing
New homes often have a distinct "new house smell" due to volatile organic compounds (VOCs) emitted by new building materials, such as flooring, carpeting, wood cabinetry, and paint. While these emissions can cause health issues, they decrease over time and eventually disappear.
Are New-Construction Homes Cheaper Than Existing Homes?
Generally, new-construction homes are more expensive than existing ones. For example, in November 2023, the median price of a new home was $434,700, compared to $387,600 for an existing home, according to the National Association of Realtors.
New homes often cost more per square foot as well. Builders sometimes include clauses allowing price increases if material costs rise. Overruns due to unforeseen costs or changes during construction are also common.
However, factors such as location, size, and amenities affect home prices. Builders might offer lower mortgage rates or other financial perks to entice buyers, potentially offsetting the higher sticker price.
Financing a New-Construction Home
Mortgage Options
When purchasing from a developer, you can obtain a mortgage from any lender. However, you might need a longer rate-lock period due to potential construction delays.
Construction Loans
If you’re building on your own land, you’ll need a construction loan. "The buyer will incur interest payments during the build, and the mortgage company controls the draw process," Meier explains. Construction loans can be complex, so working with an experienced lender is crucial.
Questions to Ask Your Builder
Warranties
Inquire about the warranties offered. "Do they provide options for protecting against internal issues, a short-term full-structure warranty, and a longer-term exterior warranty?" Horner suggests. These warranties cover repairs for a set period.
References
Ask for at least three references from past clients. "The quality and reputation of the builder are key," says Horner. A trusted real estate agent can also be a valuable resource.
Builder’s Credit
Though it may seem invasive, understanding a builder's credit can impact the project’s timeline and completion. A builder with good credit can secure supplies and workers more efficiently.
Evaluating these pros and cons will help you make a more informed decision about whether a new-construction home is right for you.
