02/22/2022
Is it cheaper to build or buy a house?
f you’ve been touring homes for sale, you might be thinking about how you might change them to better suit your style — or, if you haven’t had luck finding the “one,” you might even be considering whether you should build a home instead of buy one, and how much it would cost.
Is it cheaper to buy or build a house?
Is it cheaper to build a house? Building a home might seem cheaper than refitting an existing structure to meet your needs. In truth, the difference might not be so huge.
Costs of building a home
How much does it cost to build a house? If you’re focused solely on initial cost, the cost to build a house can be a bit cheaper — around $70,000 less — than buying one, especially if you take some steps to lower the construction costs and don’t include any custom finishes. The median sales price of an existing home was $358,000 as of December 2021, according to the National Association of Realtors, while the average cost of building a house is $283,890, HomeAdvisor reports.
Don’t let that fool you, though. Building a house is still a very expensive endeavor that requires finding a loan (which will likely have a higher interest rate than a conventional mortgage) and paying for permits. Depending on where you’re building and what kind of home you want, it can be much more costly than buying one. Consider some of these common costs:
Construction cost Price range
Buying land $3,000-$150,000
Clearing land $1,500-$5,000
Framing $20,000-$50,000
Plumbing installation $7,000-$15,000
Electrical wiring $20,000-$30,000
HVAC $1,500-$13,000
Foundation $4,000-$25,000
Roofing $5,600-$11,500
Windows $3,000-$9,300
Exterior painting $1,800-$4,400
Interior finishing $50,000-$175,000
As you can see, these figures can vary widely based on where you want to live and the kind of house you want. The price for land alone can be really cheap — $3,000 in remote rural areas — or really pricey in areas with limited supply. There’s a difference between the price of raw land and the price of a lot or site, as well. The latter, which typically includes all entitlements, access roads and utilities, can cost two to four times more. You might also need to pay for other expenses such as a garage, fencing and a driveway.
Beyond the upfront cost, it’s important to look at the long-term expense of owning a home. According to a 2021 analysis by the National Association of Home Builders, the operating cost on a new home — which includes property taxes; utilities, water and trash; maintenance and homeowners insurance — is lower than that of an older home. Homes built after 2010 have operating costs equal to around 3 percent of the home’s value, while the operating costs on homes built before 1960 are more than 6 percent, according to the NAHB. (If an older home has been upgraded to today’s standards, however, the operating costs might not differ substantially.)
How much does a custom builder charge?
A custom home builder constructs a one-of-a-kind house based on your unique specifications, and typically handles both the design and construction pieces of the puzzle. Because of this, a custom home build is more expensive than a base new-construction model, and the price can vary quite a bit. New-construction in general averages $100 to $200 a square foot, according to HomeAdvisor, but a custom job can cost $500 per square foot or more.
Costs of buying a home
The cost of buying a home might seem obvious: The seller lists the home at a certain price and that’s what you’ll pay, either with a mortgage or cash. In reality, things are more complicated than that, even when you account for the fact that you might have to pay more than asking price in a competitive market.
The costs of buying a home include:
Down payment
Closing costs (including lender fees, such as an application or an origination fee; an appraisal fee; and any mortgage points)
Mortgage insurance
Homeowners insurance
Property taxes
HOA fees
Home repairs or upgrades
Pros and cons to building a home
Pros of building a house
Get exactly what you want – Building means customizing. Instead of wishing your home had a certain kind of flooring, a sunroom or some other special amenity, you’ll be able to tailor the property to your exact needs. You also won’t be limited to a specific location or neighborhood.
Avoid the hassle of competing offers – When you build a home, you take the back-and-forth with other buyers out of the equation.
Move-in ready – When everything in your home is new, you shouldn’t have to worry about any major repairs (at least at the outset).
Wider market appeal – Your home is ultimately an asset, and when it comes time to sell, a newer structure could give you a competitive advantage.
Cons of building a house
More time – While you’ll save time on attending open houses and scouring online listings, you’ll have to wait to move into your brand-new home. It takes just short of seven months from start to completion to build a single-family home, according to 2020 data from the U.S. Census Bureau. If you’re paying rent during that time, that’s an extra cost to consider, too.
More decisions – A blank canvas means you can customize your home, but it also means you’ll have a lot of decisions to make. If you’re busy with work and family, it can be challenging to focus on every piece of the construction process.
Contractor challenges – Delays, miscommunication and issues with subcontractors — there are plenty of hiccups that can happen while building a home. Be sure to vet a few different builders to understand their work approach and timeline, and be prepared for speed bumps. Include time of essence, continuous manning and right to remove clauses in your contracts with the pros you hire — these can help protect you in the event of delays or non-performance.
Cost overruns – While you’ll have a budget in mind at the beginning of the project, there will almost always be expenses you didn’t anticipate, or materials you end up spending more for, that can add up to well above what you first set out to pay. Be aware of change orders, which could be a sign of an unscrupulous contractor. Make sure you understand the builder’s plans, finishes and specifications before signing an agreement.
Pros and cons to buying a home
Pros of buying a house
Faster move-in time – Buying an existing home means you can put a move-in date on the calendar much earlier compared to constructing one from scratch.
Potential bargaining power – With existing real estate, you might be able to leverage data to get a better price. For example, if a home you like has been on the market for more than 30 days, the seller could be willing to come down on price, or if a similar property in the area is priced lower, you can use that to justify a lower offer.
More options – If you’re set on living in a specific area, it might be easier to buy a home there than to try to find a lot to build on.
Ability to budget for renovations over time – You can make upgrades to an existing home as your budget and time allows, rather than having to focus all of your resources on a major, months-long project.
Cons of buying a house
Potential market competition – That bargaining power mentioned in the pros? It might be zero, depending on where you’re looking. According to a recent Confidence Index from the National Association of Realtors, sellers received an average of about four offers. In a hot seller’s market, buying can feel like being at an auction as others drive up the price.
Older appliances and internal systems – While it’s a new house for you, it’s technically been used. Depending on the age of the property, you might need to pay for repairs sooner than you expect. Your insurance rates will likely be higher than what you would pay to protect a new home, too.
Compromises – The odds of finding your dream home in reality are low, so you’ll have to be willing to compromise, such as having one fewer bedroom, when you find a home in your price range.
Should you build or buy a house?
As you consider whether building or buying a home is right for you, it’s important to recognize that both processes include plenty of costs and potential stressors. The end result, though, should feel well worth it. Think about the existing properties you’ve toured, your timeline for moving in and your expectations of this new home. If building is your route, enjoy watching that dream home slowly come to life. If buying seems like the better move, contact us https://bit.ly/3oZWPeb
