When it comes to moving into a new place, many of us will consider whether it’s best to buy or build. Deliberating over the potential risks and benefits involved with each can be a daunting and overwhelming topic, given the high amount of investment at stake.
Before we establish which is likely to be the most cost-effective, let’s consider the overall pros and cons of buying or building your own home. There are likely to be a host of reasons for choosing one or the other, and these are not one-size-fits-all. For some, the pros of buying a house may outweigh the pros of building one, and vice-versa.
Let’s begin by looking at the pros and cons of buying a pre-existing home:
Pros of Buying a House
1. It’s Generally Quicker Than Building
The length of time it takes to find and purchase a new home varies hugely and is dependent on a wide range of factors. Once you have found a lender and been pre-approved, you will then need to shop around for the right house if you haven’t done so already, before eventually putting in an offer.
However, the average time it takes between making an offer and closing on a deal is 30-60 days. This is significantly quicker than the time it would take to build your own home.
A great mortgage loan officer and real estate agent will make this process even easier for you. Once you have submitted any required documents and personal information, they will take care of the administrative details and communication back and forth. If there are no complications then the process can be completed extremely quickly, meaning you could be in your new home much sooner than if you were to build.
While being able to get into your home quicker is a nice perk, this benefit is not just about getting the house that you want sooner. When you need to move quickly, you may not have the option to wait for a home to be built. For example, if you’re being transferred to a new location for your job, you may need to move quickly without a lot of notice, and taking the time to build a home may not be a viable option. In this case, the speed of being able to buy an existing home may make it the better option.
2. Potential to Make Significant Future Profits
The other great thing about buying a pre-existing home is that they sometimes come with a great deal of potential. If you have a good understanding of market trends and the housing market in general, it’s possible to make significant profits by investing in and reselling properties.
Even if this is not your sole intention, buying a house that needs a small amount of work to restore its potential worth will add value to the property, leaving you with a nice profit, should you decide to resell.
3. The Price May Be Negotiable
This is where that great real estate agent really proves his/her worth. Most sellers are open to negotiating on price, so depending on the level of competition from other prospective buyers, you could find you’re able to purchase the house for cheaper than it was originally marketed.
Not only does this mean lower initial costs, but it also means you immediately have equity in the house. Because of this, you’re almost guaranteed to make a profit if you choose to resell, provided the market doesn’t experience any significant dips during that time.
Many sellers are in an onward chain, meaning they’re hoping for a quick and simple exchange, so it’s definitely worth asking if they would consider a lower offer.
→ Related reading: Rent to Own Mobile Homes: Affordable Homeownership
4. Renovations Can Be Made While You’re Living There
Buying a pre-existing home doesn’t necessarily mean settling for a property that doesn’t fully fit your specific needs or preferences. Investing in a property that is slightly lower than your maximum budget might mean you have the money to carry out some renovations while living in the house.
Many people find that living in a space gives them a better understanding of exactly what needs to be done in order to tailor it to their lifestyle. Making these changes over time can be extremely cost-effective and means you ultimately end up with a house that is purpose-built for you, without the long process or high initial costs of building from scratch.
Cons of Buying a House
1. Competition from Other Buyers
One of the main downfalls people report when buying a house is the added stress of dealing with competition from other prospective buyers. You might find your dream home and place an offer, only to be outbid by another buyer who is willing to offer more money or a quicker exchange. This can be extremely disheartening and frustrating.
It’s a competitive market after all, and this is especially true if you’re looking to buy in a highly sought-after neighborhood with good amenities.
There is really no way of avoiding this possibility and this is why it’s so important to have a reputable realtor with great contacts and connections within the area.
2. The Process is Heavily Reliant on Cooperation From the Seller
Another big factor to consider when buying a home is the seller and their situation. If the seller is dealing with a specific timeline, it’s important to establish whether or not their time frame matches up with your own.
If they’re looking to sell but don’t want to complete until six months down the line, but you’re tied into a lease that ends within the next month, it’s probably not going to work out.
Sellers can also be unpredictable, and if their situation changes and suddenly they no longer wish to sell, there isn’t much you can do unless contracts have already been signed and exchanged.
3. Potential Maintenance and Upkeep Costs
Before purchasing a home, it is extremely important to have an independent inspector go in and assess the overall condition of the property. An inspector will highlight any major faults or problems, giving you a clear understanding of exactly what you are buying and the costs that you may incur further down the line.
In general, older homes tend to be less energy and economically efficient in the long run. Windows and doors might need to be replaced. Heating or air conditioning systems might also need some restoration. The inspector should alert you to all of these issues. If the major concerns arise through the inspection process, you may be able to negotiate after the inspection to reduce the purchase price. However, of course, you’ll have to be able to come to an agreement with the seller.
→ Related reading: 13 Lessons I’ve Learned from Buying My Dream House
4. You Might Not Find Exactly What You Want
Finding the perfect home can be a lengthy process, and one that might result in you settling for a property that you don’t feel is exactly what you’re looking for.
Buying a home is a huge investment and is likely to be the most money you will ever spend on any one thing. For this reason, it’s important that you feel you’re getting good value for your money and coming away with a home that you feel is right for you.
As previously stated, renovations can be made while you’re living in the house, but for some, this might not be ideal. Older people or young families might not wish to live in a home while renovations are taking place. In this case, unless they choose to build their own home, they might find that they have to settle for a house which isn’t quite what they were hoping for.
So is Buying a Home the Best Option?
Clearly, there are arguments both for and against buying a pre-existing property. The process is generally completed fairly quickly and prices may be negotiable, meaning lower initial costs and the potential for greater profit should you go on to re-sell. But does this outweigh the possibility that the house may require renovations or maintenance in the near future, and you might not get exactly what you had been looking for?
Let’s consider how these factors compare to the pros and cons of building your own home.
Pros of Building a House
1. The Home Can Be Tailored to Meet Your Specific Needs
The main reason most people choose to build their own home, rather than buy a pre-existing property, is the freedom it gives you to design a home that suits your exact needs and preferences.
When building a home, you are able to direct the design process, meaning you can specify exactly what you need and want from the space.
By working with an architect you can personalize each room and area so that it fits your exact needs. While this can be stressful, it can also be extremely rewarding and gratifying to get a home that is custom made to suit you and your family.
2. New Homes Tend to Be More Energy Efficient
The costs of owning a home need to be considered as well. As an overall rule, most new homes tend to be much more efficient. They are more likely to be built to meet current standards and because of this, less upkeep and maintenance are needed.
With many builders incorporating an increasing number of energy-efficient measures when building new homes, your home is likely to be less environmentally harmful, and more cost-effective.
3. No Competition from Other Buyers
While building your own home comes with its own specific stressors, one thing you don’t have to worry about is competition from other interested buyers (once you own the lot). There is no danger of you being undercut by a third party since the property is yours from the outset. This definitely eliminates some of the stress that comes along with moving into a new home.
If you’re building a new home in a development, it may be publicly listed for sale prior to being built, which means there may be some competition from other buyers. However, in these situations, there are usually several building lots available on the same street or in the same neighborhood, so if your first choice is purchased by someone else, you’ll still have other options that are very similar.
4. Lower Repair and Maintenance Costs
Because the house is newly built to current standards, you are unlikely to come across any unexpected issues or faults once you have moved in. This isn’t guaranteed, however, but most most new homes come with a one-year warranty that will cover and defects or things that weren’t handled correctly at the time the house was built.
This is why it is so important to employ a contractor and building company who are reputable and well trusted. They are essentially responsible for ensuring your home is fit for purpose, safe, and well built. This is a huge investment so you must be sure that you are using a firm with a great reputation and excellent customer service.
Another major reason why repair and maintenance costs will be lower is simply the fact that everything in the house is new. When you’re buying an existing home, unless it has been completely renovated, everything in the house will have some age and will be closer to needing repair or replacement. The roof might be 15 years old. The furnace and other appliances may be 10 years old. While you may not need to replace things immediately, that time will come before too long.
Cons of Building a House
1. The Process is Generally Much Longer Than Buying
The process of building a home is undoubtedly a longer one than most simple house purchases.
Building a home requires several stages before the foundation can be laid. You will likely need to purchase the land for the house, which takes a substantial amount of consideration, ensuring you are able to build on the land and your plans are likely to be approved.
You will then need to work with an architect to design the home and draw up initial building plans. These will then be approved or rejected by a local governing body. This process can be slowed down significantly if you encounter objections from local residents or businesses.
Beyond this, you will need to find a reliable builder to carry out the construction work before building can begin.
It’s a lengthy, time-consuming process that can seem overwhelming and daunting. When compared to the 30-60 day completion of most straightforward sales, building a house might seem like too much work for some.
2. Risk of Unexpected Cost Increases
When building their own home, often people find that costs can easily overrun and spiral out of control. If you don’t have budgeting experience and aren’t on top of the spending, you can easily lose control of the budget which can be detrimental to the progress of the construction and your overall financial situation.
You’ll be faced with a lot of decisions and spending a little more than planned here and there may seem like a minor issue, but it can all add up to a huge amount of money.
It may be possible to avoid this if you keep tight reigns on the financial side of the build, which can be aided by having a great contractor who is well aware of your budget and can work with you to ensure there are no overruns.
However, there is always the potential of unexpected issues that arise. Hitting a lot or rock or a high water table when the basement is being dug may wind up costing you more money and there is little that you can do about it. When the cost of the build is being calculated at the beginning of the process, a lot of it will be based on estimates from the builder. Hopefully, those estimates are accurate, but there’s always a chance that something unplanned will cause a significant increase in cost.
3. A High Level of Trust is Placed on the Builder and Contractors
The importance of having a trustworthy and skilled builder leading the construction of the property cannot be stressed enough. Not only will they assist in ensuring the work is completed within the time frame and on budget, but they are also responsible for ensuring the work is completed to an extremely high standard.
I’m sure we have all heard the horror stories of people embarking on the process of building their own home, only to be completely let down by unskilled and untrustworthy contractors who have no regard for the cost or time spent on the project. This can be extremely upsetting and stressful and might result in huge amounts of time and money wasted.
Employing a great site manager and a team of contractors is a sure-fire way of making the process as stress-free and efficient as possible.
4. Unforeseen Circumstances May Delay or Halt Progress
Clearly, building your own home is not without its risks, and there is a range of factors that could inhibit its completion.
Changes to your financial situation might impact your ability to fund the project. If you were to lose your job suddenly, the savings you have set aside to build the property might be needed elsewhere.
Similarly, climate or weather disasters such as flooding or devastating forest fires like we have seen recently in California and Australia might be detrimental to the building of your property. Be sure to take these things into account when planning your home and choosing where you will build.
While you can’t control the environment or unforeseen scenarios that may arise, you can plan accordingly. Budgeting effectively and being aware of any risks should enable you to handle these scenarios in the best way, should they arise.
Choosing the Right Option for You
Both buying and building a home come with a plethora of positive and negative factors to consider. To gain a full understanding of which offers the most convenience, value for money, and overall satisfaction, we need to look at the cost of each.
Average Cost of Buying a House
When buying a house there are several costs to consider: the down payment, the overall cost of the house, and closing costs, which cover things like surveying, appraisals, taxes, and broker fees.
The average house in the US is valued at around $220,000. Down payments range from between 0% and 20% in general. So, let’s say you have a 20% down payment, that’s $44,000 to pay upfront. Closing fees average around 2-5% of the total loan amount, so you could be looking at another $8,800. For a home costing $220,000, you could be looking at a maximum initial cost of around $52,800.
Of course, these figures are based on averages and are completely dependent on your lender and the terms of your mortgage. Nonetheless, the costs are significant, so it is of paramount importance that you consider exactly what you are getting for your money and whether you feel it is good value in the long run.
Average Cost of Building a House
The costs of building a home are slightly more complicated as you are essentially able to tailor the space to fit within your own budget. However, there are unavoidable expenses that need to be examined.
It’s estimated that the cost of building your own home in the US lies somewhere between $100 and $155 per square foot (source). This is entirely dependent on location, overall size, design features, and materials used. So after considering the costs of planning, materials, labor, and all other areas of expense, the average US home of 2,000 square feet would cost somewhere around $250,000.
There are ways of reducing these costs, for example, modular homes tend to be cheaper than site builds. It’s really all down to your preferences and needs. This also doesn’t take into account the cost of the land, which could vary significantly depending on the location and the size of the lot.
Average cost of a 2,000 square foot home in the US:
- To build: $250,000 (excluding the price of land)
- To buy: $185,000
On average, buying an existing home is the cheaper option in most cases. However, a new home may have a higher value that offsets the difference in price. However, before heading off to the bank with your mortgage request, consider the additional costs and factors at play.
Buying a house might be quicker, easier, and cheaper initially, but it may also lead to further maintenance costs, more compromise on location and design, and the stress of dealing with sellers and other prospective buyers.
Building a home has a higher overall cost in many cases, but allows you the freedom to help design a house that best suits your needs and is purpose-built specifically for you. You’re less likely to encounter issues or faults and if you have a great team of contractors on hand, the process can be enjoyable, stress-free, and rewarding.
It all comes down to your own needs, lifestyle, and preferences. So be sure to consider each of these areas before investing in what could be the highest expense of your life.
References for the costs to build a home:
References for the costs to buy an existing home:
- How Much Does It Cost to Buy a House? from Opendoor
- Home Values from Zillow
- The Most Expensive and Affordable States to Buy a House, Ranked by Business Insider
- What $200,000 Will Get You Across the Country from CNBC