Building a House vs Buying: The Costs & Benefits of Each

By Scott Van ZeeFebruary 28, 2019Blog
Build or Buy a Home

According to data released by the National Association of Realtors, most people in the U.S. (about 5.52 million people in 2016 and a projected 5.67 million people in 2019) choose to buy an existing house rather than build a new one (about 1.1 million people built houses during the same time).

But that doesn’t necessarily mean the majority knows best.

This is a difficult, nuanced question, and there are a lot of factors (not to mention personal preference) at play.

Which should you choose? We’re going to run through the costs of both building and buying, and we’re going to examine the pros and cons of each.

The Costs of Building a Home

The question of cost is a bit more involved with building than it is for buying — mostly because there are so many different ways to build a new home.

According to Home Advisor data, which is reported by homeowners after completing projects on the platform, the average total cost (nationwide) for building a home is about $294,781. The National Association of Home Builders estimates the total cost at a similar by slightly lower $289,415.

Where’s all that money go? Here’s a quick infographic based on the NAHB data.

cost-to-build-home-infographic1 v3

The bulk of the costs of building a home go to interior finishes (an average of about $85,000). The next-biggest expenses are framing ($52,000), and exterior finishes and major systems (each about $43,000). There are also costs associated with site work and what the NAHB calls “final touches,” which includes driveways, landscaping, clean up fees, and outdoor structures.

Of course, every house is different, and an average is, well, an average. The cost of building a home can of course vary.

Home Advisor estimates that the typical range for building a new home is $152,252 – $440,233. However, even outside of that range, they also note that within their data set, homes were built for as little as $13,000 and as much as $750,000.

As you’ll see a bit later, the average total cost of building a home is generally a bit higher than buying; that said, it’s important to note the cost of building a home is generally cheaper per square foot than buying. According to the NAHB, it costs $103 per square foot to build a home (compared to the median $167 per square foot it costs to buy an existing home).

Combined, this data — the relative cost savings per square foot vs the higher prices of building on average — seems to indicate that people tend to opt for more square footage when building homes than they do when buying.

There’s also a significant cost difference for different kinds of home builds. Having a custom home built, for example, might cost $350,000 – $1.5 million, according to Home Advisor, while a prefabricated home might fall in the $50,000 – $300,000 range.

One more thing to take into consideration is the cost of land. NAHB reported that in 2015, the average cost of a lot was $4.20 per square foot, and the average lot size was 20,129 square feet. That makes the average cost of a buildable lot a bit north of $84,000. Of course, you don’t always have to buy land to build a home, and many home builders already own land, but it’s certainly an important cost to consider, especially if you’re looking to build a custom home.

What are the takeaways?

Building a home is typically more expensive overall than buying an existing one, but it’s generally cheaper per square foot, which means that if the square footage is the same, building a home can, in fact, be cheaper than buying one.

Benefits of Building a Home

By now, we’ve got a good feel for the cost of building a home, but outside of dollars and cents, why do people choose to build? Here are a few of what are generally considered the primary benefits of building a home.

Customization

Customization is perhaps the most significant benefit of building a home. With a commitment as big as a home, of course, it’s nice to be able to know — and, more importantly, choose — what you want out of a house.

The level of customization in a home build depends on the kind of builder you’re working with.

Production builders generally build out whole communities or suburbs, and the houses built are selected from a menu of models and floor plans.

Production builders will let you pick a floor plan, and you’ll also be able to customize certain features of your house from pre-set options, but customization will be limited to the set of options the builder has decided on.

Custom builders, on the other hand, build truly custom houses on land you own. A custom builder will let you supply your own floor plan or work with an architect to create one from scratch.

If you go with a custom builder, you can usually expect to be much more involved in the building process, and you’ll be able to customize your house in nearly any way you want — from the design to the appliances to the finishes.

Either way, you generally have much more control over what actually goes into your house if you’re building it.

Sweet, sweet warranties.

There’s an old adage that often crops up in the “renting vs buying” discussion: “Rent is the maximum you’ll pay each month; a mortgage is the minimum you’ll pay each month.”

The idea, of course, is that maintenance and unforeseen expenses can add up quickly. Building a new home can mitigate maintenance costs significantly because the building process often includes a warranty.

Warranties might be backed by the builder or purchased from a third party (by either you or a builder). It’s also possible to buy additional warranty coverage in addition to what a builder provides.

And they can save a lot of money.

According to the FTC, warranties for new homes cover “workmanship and materials relating to various components of the home, such as windows, heating, ventilation and air conditioning (HVAC), plumbing, and electrical systems for specific periods.” They also usually outline a process for how repairs should be made.

To put that in context, the cost of a new, mid-range, A/C unit is about $5,000, according to Angie’s List – a significant cost savings if you’re under warranty.

Lower maintenance costs.

Even maintenance that typically falls outside a warranty — things like replacing appliances — is often significantly lower with a brand new home than it is with existing ones.

Why? Things are just newer.

SF Gate reports that the average “life expectancy” of a refrigerator is between 14 and 17 years. Consumer Reports estimates the average lifespan of a washer to be at least 10 years.

You get the idea. With a new home, you’re using appliances and other things that might require maintenance at the very beginning of their lifespan.

This, combined with a good warranty could reduce your maintenance and repair costs for the first 10 years of home ownership to nearly zero.

You can sidestep competition with other buyers.

In a report published by the National Association of Realtors, the median time a home stayed on the market was 49 days. In popular neighborhoods, that timeframe shrinks.

And, of course, when those really great houses happen to be listed — those nice, updated houses in prime locations for a good price — it can feel like a feeding frenzy.

Building a home mostly sidesteps this issue. Rather than competing with other buyers to get your hands on a good property, you can simply work with a builder to create it.

You can save on utilities and help the environment.

New homes can’t be built unless they’re up to code, and they’re much more likely to use modern, energy-efficient materials and building practices.

This can save quite a few dollars in the long run — not to mention the positive impact it can have on the environment.

These days, lots of builders are constructing LEED-certified homes (homes that are built to be energy-efficient and are certified based on green building requirements set by the U.S Green Building Council, or USGBC).

According to the USGBC, LEED-certified homes can use anywhere from 30% less energy (for LEED Silver homes) to 60% less energy (LEED Platinum homes). The USGC estimates these savings can cut energy bills by as much as 20%.

It’s, well… new.

At risk of being overly obvious, you’re getting a new house. You don’t need to remodel it. You don’t need to replace the roof. There are no stains on the carpet. The closet in the second bedroom doesn’t smell like old socks.

It’s new, and it’s yours, and that’s perhaps the biggest pro of all.

Drawbacks of Building a House

Of course, for all its amazing benefits, building a house has drawbacks as well. Here are a few things to consider before taking the plunge.

It can take a while.

Building a home is a long process, and the more custom the home, the longer the process can take.

If everything is in place and goes smoothly, the minimum time you should plan for a new home build is four months, according to Realtor.com, and a more realistic timeframe is four to six months. Dave Ramsey recommends planning for seven months, and custom homes can take 10 months or more.

Lots of things can impact a build, though. For example, foundational concrete cures best when it’s warmer than 50 degrees Fahrenheit and dry. If it’s colder or wetter than that, you can expect a few delays.

Other stuff — permits, weather, labor, and construction delays — can all add to the overall building timeline and usually amount to much longer waiting than you’d expect if you were buying an existing home.

You’re probably not going to be building in hot locations.

While it’s certainly possible to buy land and build in high-demand locations, it’s much more difficult, requires some luck (there generally aren’t lots just sitting around in these spots), and is much more expensive.

It’s much easier and more common to build houses further away from city centers in more rural locations that don’t have as much demand.

New homes are typically built in new developments or on land you own. These certainly can be in great locations, but because of cost, it’s less common, and if you’re buying land at the same time — as part of the home building process — the costs associated with getting into those prime locations may be steep.

There’s not going to be a lot of bargaining.

People selling existing homes almost expect buyers (and especially their agents) to negotiate on price.

It’s also much easier to understand what the price should be. Major real estate platforms allow buyers to see both the price and sales history of homes they’re interested in as well as the cost of other homes in the area.

Buyers can also see if a hoe has been on the market for a long time, and they can hire inspectors to give the house a once-over.

This kind of information can be used as leverage to negotiate prices.

Builders, on the other hand, tend to be a lot less willing to budge because there are a lot fewer variables and a lot less leverage on the buyer’s end. This is especially true for production builders, who have what amounts to a menu with set prices.

You’ll run into unexpected out-of-pocket expenses.

You may think you’ve got all of the cost variables worked out when in the planning stages of building your new home, but out-of-pocket expenses have a way of sneaking up on home buyers.

When working with a builder, the sticker price you see on the deal you sign may not cover upgrades. Upgrades, of course, include energy-efficient appliances for the kitchen or bathroom, window treatments, lighting options, and more.

These are options you may want to consider, but check with your builder first to see if their asking price covers these upgrades, or if you’ll have to pay for them out of pocket.

Traffic and construction noise may become a problem.

One of the most unexpected problems may not even come from the home itself; the mere process of building a home can come with all manner of headaches.

Chief among these is construction noise; many states have regulations controlling the length and hours of construction noise in your area.

The Noise Control Act of 1972 gives the EPA the ability to establish noise regulations to control major sources of noise – this includes the construction equipment your builder will use to construct your house.

Generally, your builder won’t be able to build during evening hours, and in some cases, construction noise can’t rise above a certain decibel level.

However, most noise regulations vary by state and locality, so it’s best to check with your representatives to determine what noise levels are acceptable in the area where you’re building your home.

In California, for instance, Title 12, Chapter 12.12 of Los Angeles County Code says that loud noise, including from construction, is prohibited from 8 pm to 6:30 am, while Chapter 12.08 sets quiet hours from 8 pm to 7 am.

Make sure you read up on the noise ordinances in your area and have your builder comply with those regulations.

After all, the last thing you want when absorbing the expense of buying a new home is to be slapped with a noise citation and pay that much more in fees.

Benefits of Buying a House

Boy, building a house sounds stressful, doesn’t it? While the hard work and additional planning will result in exactly the house you want, there’s something to be said for the simplicity of buying an existing home. Here are some of the benefits of buying a house.

There’s a lot less stress involved.

Building a home is really stressful. There are a plethora of factors you have to consider – buying land, designing a home, picking out every single aspect of the house from the flooring to the fixtures. All this, while also staying within your budget.

It takes a lot of effort and wrangling of a million different concerns, which might be more fuss than you’re willing to handle. Stamina is key when undertaking a project of this magnitude

However, buying a home is a bit less stress-inducing; there are far fewer decisions you have to make about the house itself since it’s already built. When it comes to sheer convenience and peace of mind, purchasing a home is often the easier choice.

You could get a pool or other neighborhood amenities.

If you’re buying a pre-existing home in a neighborhood or development, you can also take advantage of the infrastructure already in place for the community.

Homeowners’ associations, landscaping, and amenities like individual or communal pools are readily available for people who invest in buying a house in an existing neighborhood.

You don’t have to buy land

We’ve already weighed the cost-benefit analysis for buying versus building a home – while cost per square foot of building a home might end up being cheaper in the long run (if you don’t need to buy land, of course), buying a home is likely a better option for those who can’t afford to invest that much money up front.

You won’t have to wait forever for mature landscaping.

One problem with building a home is that you generally have to start your landscaping all over again – digging the area up to lay the foundation, and the other material costs of building the house may mean it takes up to several months to get your lawn looking the way you’d like.

According to Penn State University, new lawn grass can take up to four weeks to establish, depending on weather conditions. If you’re hoping to put in trees, like red maples for instance, those can take anywhere from 10 to 30 years to reach maturity.  

When you buy a pre-existing home, however, the lawn is already established for you; if you want trees in your yard, they’ll already be mature. So not only will you be cutting down your timeframe for moving into your home, you’ll have a full-grown yard and maintainable walkway to work with right away.

It takes way less time.

Which sounds faster, three months or six? Because those are the average time frames it takes to buy and build a home, respectively.

On average, according to Homes.com, homebuyers spend one to two months shopping for a home, closing on a contract within two weeks to two months after that, then a couple weeks before their first mortgage payment.

Compare that with the months of purchasing, planning, building and additional work that will go into building a house from scratch, which can take six months up to a year.

In terms of sheer time spent acquiring your new home, if you want it faster, it’s most prudent to shop for an existing house you like, then purchasing it. This way, most of the work is already done for you, and you can just move in not long after you close.

Drawbacks of Buying a House

While buying a house sounds a lot cheaper, faster and easier than building one, there are some cons to this process as well. Every home-buying process is different, and some unexpected hurdles might end up making the experience less valuable than it’s worth.

You probably won’t get everything you want.

Buyer’s remorse is very real. One study reported by CNBC notes that 44% of Americans have regrets about their home purchasing experience – either the house itself or the process of picking it.

While you might pride yourself on your decision-making skills, the fact of the matter is that you’ll be inheriting someone else’s home rather than building it to your specifications.

It’s entirely possible that you’ll find that Goldilocks home that’s just right, but the chances are high that you’ll end up settling for a home that has enough of what you need.

If you’d rather make sure your castle is the perfect distillation of your wants and needs, it’s best that you invest in building your own home.

Viewing homes and finding the right one is a hassle.

While it takes less time on average to buy a home than build one, that can vary depending on the home shopping experience you have.

We mentioned that shopping for a home usually takes 30 to 60 days, but in some cases that can take considerably longer. Chalk that up to everything from a lack of viable options in your area to varying standards in quality for those homes.

Not only that, the purchasing process is even more convoluted, with you and your realtor hammering out an agreement with the seller over weeks and weeks. The buyer could also back out at the last second, making you start the process all over again.

Sure, it might not take quite as long as the entire process of purchasing a home, but at least there, you’re getting exactly what you want and you don’t have to contend with any fickle buyers.

You might have to fix maintenance issues the house already has.

In 2015, the average home in America was 37 years old, according to Eye on Housing – that means nearly four decades of wear and tear, environmental change, and the potential for poor maintenance from the existing owner.

Depending on how old your home is, or how well it was maintained by the previous owner, you may have to do a lot more upkeep and repair than you otherwise anticipated. Everything from appliances to roofing could need repair or replacement, which can drive up the total cost of your home purchase by quite a bit.

SFGate notes that the seller’s liability for pre-existing problems in a house after it’s sold is fairly limited. To get them to pay for repairs and replacements, you’d have to prove the seller knowingly withheld material facts about the home’s condition, which can be difficult.

As with all purchases, the phrase ‘caveat emptor’ comes to mind – let the home buyer beware.

Older homes can be costlier to power.

Even if an older home doesn’t have any major maintenance or repairs that need to be done, the long-term cost of powering your home might end up being higher than if you built your own home.

According to Wisebread, older homes often lack proper air conditioning and modern window treatments. Their furnaces might be older and less power-efficient, and sport undersized electrical panels that prevent you from powering all of your appliances and lighting.

These hidden costs can add up considerably over time. Unless you take the time to invest in upgrading your home’s energy efficiency, those power bills will be more than a little frustrating.

Homeowner’s association fees can be steep even if you just buy into them.

If you buy a home in a subdivision or development, you’ll have to deal with homeowner’s associations (HOA), organizations that set the rules for properties in the neighborhood.

Granted, HOAs provide a lot for their community – they help enforce standards that keep everyone’s houses clean and well-maintained, and can provide all manner of amenities like landscaping, pools and tennis courts.

But this doesn’t come cheap, as every homeowner in the subdivision is automatically enrolled in the HOA, and must pay dues as a result.

Investopedia notes that HOA fees can be anywhere from $200 to $400 a month on average; some high-end communities pay around $10,000 a month to their homeowner’s association.

If you don’t want to get wrapped up in the pricey fees and interpersonal drama that can come with being a part of an HOA, buying a pre-existing home may not be your best option.

(That being said, in many subdivisions you can choose to buy land and build your home there, so if you wish to participate in an HOA, you can still build your home.)

Which should you choose?

So, now that we’ve laid out the arguments for either side, should you buy a home or build your own?

A home is the single biggest investment you’re likely going to make, so it’s important to take the time to make the decision that’s right for you.

If you want a home that contains exactly what you want: Build.

On the other hand, the extra time and effort may be worth it to make sure your home is as perfect as you want it to be. While you may be able to adjust to the quirks of a pre-existing home, it likely won’t have everything you want.

If you’re looking for convenience: Buy.

On average, buying a home is far more convenient and cheaper in the short term for homeowners. There’s less stress involved, less time dedicated to the already laborious process, and you can walk into an already established home in a very short period of time.

If you want to cut down on power costs: Build.

Building your own home, however, gives you the opportunity to invest in energy-efficient appliances, roofing and window treatments, among other things. This will cut down your energy costs significantly in the longer run, and might well make your home cheaper than a pre-existing one.

Whether you end up buying your home from a seller or building it from scratch, keep these factors in mind as you make your decision. Hopefully, it will save you (and your wallet) a lot of heartache down the road.

If you need help making a decision, be sure to talk to an experienced real estate agent or builders’ marketplace; they can provide valuable guidance as to whether you should build or buy your next home.  

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