New Construction or Existing Home? Pros and Cons Revealed by Patrick T. Smith

Should I Buy an Existing Home or New Construction?

When most people start thinking about a "new house," they tend to begin by looking at "old houses" or simply whatever Zillow starts sending them. A good question might be: Is there value in first deciding if new construction or an existing home is the best fit for my needs? Let's explore this together and review the pros and cons of each category to see if there is a clear winner for you.

Let's start by defining what falls under new construction. The most popular category is filled by what I would call production builders. Some of the most popular production builders in our region include Lennar, Pulte, KB Homes, and Toll Brothers. These companies specialize in developing subdivisions full of smallish lots that typically offer around four or so different floor plans with multiple elevation and finishing options. The nicest of these can offer extensive configuration options that might put the home into a semi-custom category. The big appeal of these types of homes is generally the price. They often go head-to-head on price per square foot with existing homes, making them generally affordable, especially if you don't go crazy on choosing options in the builder's design center.

The second major category for new construction is custom builds. This is where you are buying a parcel and choosing a custom home builder to design and build, or working with your own designer or architect to build their version of your dream home. It sounds grand, but you can build a small, simple, efficient home as well as your ultimate dream home. So why would I choose one over the other? Production builders: cheaper, faster, fewer options, and lower quality. Custom builds: slower, pricier, ultimate flexibility, and any level of quality you want.

Most of us choose the production builder route for obvious reasons, so we will compare buying an existing home with buying a new production home. A wise person once said, "If you want to test the strength of your marriage, try building a custom home together."

Pros and Cons

Who wouldn't want a shiny new home specified with all the colors and finishes that you love? It sounds great, but even if the price is similar to an existing (used) home, there are other factors to consider. Let's go through the pros and cons of buying both new and existing construction side by side.

New Construction Pros

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  Customization: Ability to customize the home to your tastes, including layout, finishes, and fixtures.
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  Modern Design: New homes often feature modern design elements such as open floor plans, larger kitchens, and energy-efficient appliances.
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  Energy Efficiency: New construction homes are built with the latest energy-efficient materials and systems, reducing utility costs.
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  Lower Maintenance: New homes typically require less maintenance and come with builder warranties.
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  Smart Home Features: Many new homes come equipped with smart home technology and modern amenities.
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  Building Standards: Built to current building codes and standards, which can provide peace of mind regarding safety and compliance

 
Existing Homes Pros

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  Established Neighborhood: Existing homes are usually in well-established neighborhoods with mature landscaping, community amenities, and a sense of history.
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  Character and Charm: Older homes often have unique architectural features and character that new homes may lack.
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  Location: Existing homes are often in prime locations closer to city centers, schools, and public transportation.
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  Immediate Availability: The buying process for an existing home is generally quicker; you can move in shortly after closing.
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  Lower Cost: Existing homes can be less expensive than new construction, particularly in terms of taxes and fees.
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  Negotiation Power: There may be more room for negotiating price and terms with the seller of an existing home.

Value or Money

Here is the thing: most of us simply buy as much house as we can afford. Since this means the majority of us have to live with some significant compromises, home buyers tend to focus on value, especially in the categories you can't easily change, like location, lot size, bedroom and bath counts, school districts, and overall quality of life. Let's look at some of the negatives associated with buying new construction and existing homes.

New Construction Cons

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  Slightly Higher Cost: New construction homes can be more expensive than existing homes, both in terms of purchase price and property taxes.
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  Construction Delays: Building a new home can take several months, and there may be construction delays.
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  Unestablished Neighborhood: New developments may lack the established feel, mature landscaping, and community amenities of older neighborhoods.
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  Location: New construction homes are often located in suburban or less central areas, which may be further from city centers, schools, or workplaces.
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  Customization Costs: While customization is possible, it can significantly increase the overall cost of the home.
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  Limited Negotiation: Builders may have less flexibility on price and terms compared to individual sellers of existing homes

 
Existing Homes Cons

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  Maintenance and Repairs: Older homes may require more maintenance and repairs, which can be costly and time-consuming.
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  Energy Efficiency: Existing homes may not be as energy-efficient as new constructions, leading to higher utility bills.
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  Customization: Limited ability to customize or renovate without incurring additional costs.
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  Outdated Systems: Existing homes may have outdated electrical, plumbing, or heating systems that need upgrading.
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  Limited Modern Amenities: May lack modern features and amenities such as open floor plans, smart home technology, or contemporary design elements.

How Do They Actually Compare in Costs?

I did an analysis of new construction sales vs existing home sales over the last 12 months. To try and keep things fair I only looked at regions where new construction was prevalent like El Dorado Hills, Folsom, Lincoln, Rocklin, and parts of Roseville. In both data sets home sales were restricted to 1,600 - 3,000 sqft homes on lots no bigger than .3 acres. Drum roll please....

New Construction Average price per sqft - $320.45 (351 closed units)
Existing Homes Average price per sqft - $332.85 (1,983 closed units)

Surprised? My take away is simply they are competitive with each other. This is not a big enough sample to take away a conclusive result other than this. If you thought buying new was cost prohibitive it may be time to open your mind to the possibility.

Do I Really Need an Agent to Help Me Buy New Construction?

The short answer is YES! Why wouldn't you? Most builders offer a commission to agents who bring their clients in to buy new construction. While the builders put on a front that implies that terms are not negotiable, in reality, they really are. I have saved my new construction buyers tens of thousands of dollars many times over. It's about who and what you know. Think of builders a bit like new car dealers. They each have certain incentives they are free to offer or hold back from buyers, as well as specific inventory that needs to be moved urgently on top of meeting specific sales targets ahead of required financial reporting periods. It's what I would call a target-rich environment for getting a deal. Pro-tip: DON'T VISIT THE BUILDER'S OFFICE without your agent. Once you register as a visitor, the builder will no longer allow you to be represented.

So, Which Camp Are You In?

I hope this little review helped you examine whether a brand new, low-maintenance, high-efficiency home is your cup of tea vs. a lower cost, mature neighborhood, and more central location. Either way, please give me a call when you are ready to explore a new-new or new-old home.