Guest Blog by Chris Gauger
Are you among the 30 million Americans currently planning on buying a home in 2023? A recent survey conducted by the Harris Poll for Nerdwallet finds the current average American to be quite “optimistic” about their chances of buying a home before the year is over, and those who follow through with their stated desire of becoming homeowners within the next 12 months are all going to have to make the same crucial decision — whether to buy a new construction home or a home that has been previously owned.
As recently as February of 2022, Forbes estimated that the percentage of new construction houses available on the market had reached an all-time high with 34.1% of the housing market’s inventory comprised of newly built homes. Newly built homes have taken up an increasing portion of the housing inventory over the last 10 years with a major acceleration beginning in 2020 after the Coronavirus pandemic began.
Not only does this mean that the rising inventory currently seen in the housing market will provide prospective home buyers with more options in the coming months than the intense real estate market has allowed within the last couple of years, but also that, now more than ever, American home buyers will have more opportunities to buy new.
When deciding whether to search for a new construction or a pre-owned home, there are several important factors for any prospective homeowner to consider, beyond just the current trends and modernism displayed by a potential new construction house and the current audience the builder’s construction decisions are meant to appeal to.
Price Difference Between New Construction & Resale Homes
When deciding which home to purchase as their own, most potential home buyers are primarily concerned with one facet of their purchase decision above all others — their new home’s price. Not only does the dollar amount affect the financial considerations one must take into account when deciding what price range of homes to search in, but it is also indicative of the type of neighborhood a person is buying into, as well as the lifestyle they wish to continue living after their purchase is complete.
Usually, houses purchased in newly constructed developments tend to carry higher price tags than their nearby pre-owned counterparts, but that’s not where the financial considerations end. Along with a potentially higher price point, buyers of newly constructed homes may also have to consider impact fees assessed by the builder on behalf of the local government, current HOA (Homeowner’s Association) costs associated with buying into their new neighborhood, and future increases in HOA fees, as well as neighborhood association assessments, due payable to the neighborhood association as different phases are planned, developed, and built.
Conversely, when deciding to buy a pre-owned home, a buyer is completely exempt in most cases from paying any sort of “impact fee” to the local city or county and can also even choose to buy a home in a neighborhood that has no HOA fee if they desire. Usually, well-established neighborhoods will not necessarily be the geographic focus of future schools, playgrounds, parks, and other local amenities, as future developments of this sort usually gravitate toward newer neighborhoods of recently constructed homes to satisfy the interests and needs of newcomers to the area.
It’s also within the realm of possibility that a pre-owned home won’t necessarily be more or less affordable than a comparable new construction home since the prices of each are set independently by the sellers and since home values are extremely neighborhood-dependent in most cases. In addition, some newer developments more actively target first-time home buyers and lower-income purchasers when developments of non-site-built homes are involved, such as townhouses and condominiums.
Differences in Financing Options
Every bit as important as the actual price of a chosen home, the method of financing sought by a prospective home buyer goes hand-in-hand with the price tag as an equal consideration. Some builders tend to accept only specific forms of financing (usually conventional loans or specific “new construction” loans) from buyers interested in their product and stay away from other loan types that are deemed to be more difficult to work with, such as government-backed loans offered through FHA (Federal Housing Administration) or VA (Veterans Administration) programs.
However, many builders also tend to offer enticing loan terms for those who are interested in buying one of their newly built residences by allowing buyers the chance to enlist the help of a “preferred lender” with whom the builder has already developed a successful business relationship. These tempting terms can range from lower interest rates to extra closing costs provided to buyers at the time of closing and are offered by plenty of home builders in an attempt to help assist new homeowners with the affordability aspect of purchasing their product.
In contrast, pre-owned homes tend to allow prospective buyers more flexibility in their financing options. According to experienced realtors, most sellers of pre-owned homes don’t tend to care about exactly what financing a prospective buyer is offering to purchase their house with, as long as they feel there is a great level of certainty that the offer will be followed through to the finish line and their home sale will make it to the closing table so that their home can be sold within their desired timeframe.
With a plethora of popular financing options and loan types available, most site-built homes in the country qualify for not only Conventional and FHA loans, but also VA loans and even sometimes other more unique loan types, such as DSCR (Debt-Service-Coverage-Ratio) Loans and loans offered by government agencies such as USDA (United States Department of Agriculture) and RD (Rural Development) loans, depending on which area a prospective home buyer is looking into.
In addition, sellers of pre-owned homes tend to be much more likely to “negotiate” their listed asking price than a home builder, depending on their level of commitment as well as their underlying motivations for selling. Homeowners who are selling due to an impending move out-of-state, attempting to buy another different home concurrently, or who are selling due to some sort of financial or personal distress all tend to be quicker to either lower their price to fit the needs of prospective buyers and their offers or even offer concessions similar to those provided by new home developers, such as credits for buyers to use toward their closing costs upon completion of the purchase or even to “buy down” their new loan’s fixed interest rate.
Sellers of pre-owned homes are also frequently more likely to accept unique forms of financing, including the option to seller finance a property, thereby allowing a savvy home buyer to find financial opportunities in a pre-owned home purchase that don’t exist when buying from a large company that doesn’t need to negotiate their prices with current or future customers.
Condition & Maintenance Differences
Finally, one of the largest benefits of buying a newly constructed home is the (hopefully) complete lack of need for any immediate repairs or maintenance. While buying a new construction home has several possible benefits for those interested, among those that provide buyers with the greatest peace of mind is the actual age of the house.
Brand-new air-conditioning units, for example, shouldn’t need to be replaced for over a decade, just like roofs, heating units, water heaters, windows, and major appliances. Newly constructed homes also tend to utilize more modern and energy-efficient materials than were used on their pre-owned counterparts years ago so that newer homes can maintain a safe, efficient, and clean-living environment for new owners and their families.
In contrast, pre-owned homes can sometimes come with a long list of items that either need to be repaired or replaced by the new owners, further increasing the need for financial vigilance and sufficient cash reserves on a buyer’s part or the need to potentially negotiate on price over repair costs when speaking with the seller.
Although pre-owned homes can still represent a versatile and worthwhile investment for homeowners both old and young, more attention must be given to their condition at the time of purchase due to the natural wear-and-tear endured by homes throughout their natural life. Also, different construction methods and materials found in pre-owned homes can become outdated over time, some of which are even found years later to be hazards to personal safety, such as
Lead-Based Paint (only found present in homes built before 1978), unsafe plumbing, or aluminum wiring. Current safety codes and widespread recommendations may apply to newly built homes, but older pre-owned homes are most likely not up-to-date with modern codes and safety protocols unless they have already been updated or renovated by their previous owners.
With the help of a sufficient inspection contingency and a cognizant realtor, all of these problems can be overcome easily by savvy buyers during negotiations regarding pre-owned homes and some of these issues may not even be present in homes that are either well-maintained or built within a relatively recent period.
However, some buyers may still value the peace of mind found by “buying new” instead of “buying used” and opt to act accordingly when it comes time to decide on their home of choice.
Should You Buy a New Construction or Resale House?
Opportunities (and choices) abound for a homeowner intent on searching for a new residence to purchase in 2023’s turbulent housing market. Not only is there great value in weighing the pros presented by new construction vs. pre-owned homes but also in considering each of their potential drawbacks.
Homeowners may find fewer headaches and maintenance to deal with in the short-term, in addition to enjoyable modern styles and the benefits that come with purchasing energy-efficient homes, if they are willing to pay a higher up-front price for a newly built home.
Conversely, pre-owned homes may present a strong opportunity for newer or less financially capable buyers who are willing to deal with maintenance issues as they present themselves over time, in return for a lower price than the ones frequently seen attached to freshly constructed homes.
AUTHOR BIO:
Chris Gauger is the owner of Engauge Home Buyers, a “cash offer” house-buying company located in the booming housing market of Middle Tennessee. Headquartered in the city of Murfreesboro, Engauge Home Buyers serves the greater Nashville community by buying houses for cash, in any condition, and specializes in assisting homeowners who are dealing with pre-foreclosure, probate, and tax default situations. Chris has also been a licensed realtor in the state of TN for over 7 years and has helped numerous clients in the purchasing of both pre-owned and new construction homes.