Home Buying Costs: New Construction vs Remodel

You will pay more money on a price/square foot basis for a new home versus a resale home in Park City. Yet, some people still choose to build. Below are some pros and cons to new construction vs remodeling an existing home. We also look into the costs of buying an older home and remodeling it.

Disadvantages of New Construction

Aside from the cost of the land, new homes simply cost more. Why is that?

1. Labor — Demand is high which means so are costs.
2. New build costs — Building codes are more stringent, building permits are more expensive, and the cost of utility hook ups has increased.
3. Higher quality construction — Newer homes are generally better built.
4. Energy efficiency — The trend for energy efficiency and energy certifications can cover windows, insulation, roof and appliances, increasing their cost.
5. Materials — Older homes were built with materials that were purchased a long time ago. New homes require new materials.
6. Financing — Interest rates for construction loans can be higher than financing for homes already built.

There may also be additional monetary and opportunity costs that may not be in your original calculations.

1. Construction delays — Bad weather, delayed inspections, or busy contractors can cause delays.
2. Excavation costs — If during excavation you learn that you need to jackhammer or blast solid rock, your costs will go up.
3. Window coverings — Window coverings are usually included on resale homes.
4. Landscaping — The cost of landscaping, which includes hardscaping such as cement patios and stones as well as grass, trees and flowers, needs to be factored in.
5. Furniture — Most people don’t like to move old furniture into a new home.
6. Upgraded finishes — Upgrades including paint, plumbing, flooring, and light fixtures can add up.
7. Fences — Some neighborhoods allow fencing and others do not. Most allow electric or invisible fences. If you have dogs, this can be a non-negotiable add on.

Let’s also talk about the cost of land. When you buy an existing home, the cost of the land is included. If you are looking to build a home in an established area, the scarcity of land may make it very expensive. In some neighborhoods, there is no more vacant land and buyers need to find existing homes to tear down and rebuild.

Finally, let’s not forget that you need to spend money on another place to live while you are building your new home.

Advantages of New Construction

1. 

   Lower maintenance — All the appliances, furnaces, water heaters, roof and building systems are new and under warranty. Some of these warranties are for one year and some are for 10 or more.   In Utah, the builder is required to provide a one-year warranty for construction.

2. Lower utility bills — New construction is better insulated and has more energy efficient systems.
3. You get exactly what you want — Your new home will be the size and floor plan you desire. You may get to choose everything from the counter-tops, floor coverings and appliances. Sometimes it is difficult to find the right house on the right lot with the right views. By choosing both the lot and the house plan, you get what you want. 

Disadvantages of Remodeling an Older Home or Condo

1. You are taking on the older roof, appliances, plumbing and heating systems.
2. You are committed to the original footprint of the home, even if you change the floor plan.
3. Living in the home during a remodel can be stressful. You may have to wash dishes in the bathroom sink, eat meals out, and live with a lot of dust and people coming in and out of your home.
4. If you don’t live in the home during the remodel, you have to pay to live somewhere else.
5. Sometimes hidden defects are found that must be fixed or the job goes over budget for other reasons.

Advantages of Remodeling an Older Home or Condo

1. Some of the homes that are the oldest and in the worst condition are built on the best lots. Buying an older home that needs some love is a great way to get an irreplaceable homesite.
2. The numbers usually don’t work if the home has already been remodeled, even if the previous owners did a cheap or poor remodeling job. However, if you can find the worst home in the best location, a home in close to original condition, a distressed or motivated seller, or if you are planning to live in the home for many years, the numbers can work out better than buying a new home or one that was remodeled by someone else.
3. You can get exactly or almost exactly what you want by making small changes to the floor plan and picking out cabinets, colors, fixtures, appliances and finishes that you like.
4. In an established neighborhood, all the homes are built and you can be confident that your view will not be obstructed or change.
5. If you love the location and neighborhood of your current home, why move? I fall into this category and have become a serial remodeler.

I have assisted clients purchase land, buy new developer homes, and buy resale homes that they gutted. All can work out for the benefit of the buyers as long as they are clear on their goals and budget. I have worked with a few clients who saw homes that were disgusting and almost uninhabitable. These clients had the vision to see their dream home hidden within and turned those ugly ducklings into beautiful swans. Most people will need the assistance of a professional interior designer to help turn their vision into a reality and I have a few who I highly recommend.

Have you ever remodeled a home? What are your thoughts?

Sources:

Holly Johnson, Is Building a New Home a Better Deal than Buying an Exisiting One, www.thesimpledollar.com; Mary Beth Klatt, Build or Buy, www.realtormag.realtor.org; Margaret Heidenry, Is it Cheaper to Buy or Build a House, www.realtor.com