Are New Homes Cheaper?
Cost is definitely one of the first things people think about when they’re shopping for a home, but not everyone realizes quite how much nuance there can be to the question “How Much Is My Home Going to Cost?”
There’s the straightforward answer that looks at how much the monthly mortgage payment will be based on the actual cost of the home, but there are many other factors involved: renovations and repairs, energy usage, commuting, and more. These little things definitely add up, which can cause a home that seems like a great deal at first to end up being far more expensive than you expected.
If you want to get the best deal on a home – and who doesn’t? – you need to look at the whole picture. In a lot of cases, a brand-new home will have an overall lower cost and provide a cheaper price tag from a price per square foot perspective, compared to resale homes.
Let’s break down some of the pros and cons of buying both a resale home and a brand-new home so you can make a more educated decision about what’s right for your family.
Resale homes are the go-to choice for many buyers, and there are plenty of good reasons to go this route. However, you also want to pay attention to some of the common problems you should avoid.
Pros of Resale Homes
Resale homes definitely have a list of benefits that appeal to many home buyers.
When you buy a resale home, you’re buying in a neighbourhood that’s complete. This means you’ll have all of the amenities you need nearby. You also won’t need to worry about construction when you’re buying in a new community because all of the neighbouring homes have been standing for years.
These established neighbourhoods also tend to be in areas a bit closer to the city, which can significantly reduce your daily commute. Spending less time on the road means you have more time to spend with family or participating in hobbies that bring you pleasure.
Generally, resale homes feature gorgeous mature landscaping, making them the ideal choice for anyone who dreams of spending a lot of time outside. Large trees provide necessary shade in the summers and a place to hang a tire swing or a hammock. Perennial plants have established their roots, and you can count on the landscaping to look the same each year. It simply has a nice look.
There’s a certain amount of character you find in resale homes. These are things like wide-plank hardwood floors, archways between rooms, and mosaic tile in the bathroom. They’re things that date the home in a way that makes you feel like this is a home built to last. This is one of the major reasons people find resale homes appealing.
Real Estate History
Aside from the history you find in the build of the home, you may also enjoy being able to look at the economic history of the home. Buyers can look up the sales history of a home to get a sense of its value.
For instance, if the price of the home has consistently been on an upward trend over the years, you can feel confident it will continue to retain or increase its value. If it’s been bought and sold several times over the past 10 years, you might wonder if there’s something driving people away from the home. And if there’s a sudden steep increase in price, you can assume that the previous owner has done a lot of renovation and repairs to the home. All of these details can give you a good sense of the value of what you’re buying.
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Cons of Resale Homes
Nothing is perfect, and that includes resale homes.
Depending on the community you choose to buy, resale homes can have a higher price tag than comparable brand-new homes. As communities age and become more developed, land values generally tend to go up. Meaning, brand new homes tend to have more competitive price per square foot pricing.
This allows you to purchase a home that’s well within your price range. Buying brand new can be a great choice for those who are just starting out and looking for an affordable option. And those who are willing to spend a bit more can usually get a larger home for the same as a smaller resale home.
Many people choose brand new homes specifically for this reason.
Repairs and Upgrades
Resale homes are rarely in impeccable condition, and even if the previous owner made several repairs before selling the house, there are likely things that will crop up in your first year of homeownership. Get a good home inspection before you make your purchase so you know what’s ahead, and keep an eye out for anything that makes you think twice along the way.
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Additionally, think about whether you’ll need to make upgrades. Some people like the character in resale homes, but others want something that looks more modern. A fresh coat of paint won’t cost a lot, but a major remodel can cost tens of thousands of dollars, reducing the amount of savings you thought you were getting from buying a resale home.
Lack of Warranty
Once you close on a resale home, it’s yours. Along with all of the problems that come with it. The home you buy might be in decent condition, but it could also become a money pit, where you constantly have to pay a few hundred dollars here and there.
The cost of those repairs adds up. If there was a warranty, you wouldn’t have to pay for the repairs, but most resale homes are outside of the limits of the warranty.
Low Energy Efficiency
With Edmonton’s winters, the cost of heating your home should be at the top of your mind when purchasing a home. The older windows and doors in resale homes generally mean higher energy bills in the winter. You may be able to replace the windows – at a significant cost – but sometimes this causes the home to lose some of its charm.
If you’re leaning toward resale homes, take a close look at the windows. A home that already has upgraded windows may be a great deal, but one that still has the original windows could be expensive to heat.
Higher Insurance Rates
Homeowners’ insurance is typically built into your monthly mortgage payment. Insurance companies have their own formulas to determine rates, but basically, it comes down to how much it will cost to replace the home in the case of total damage and how the likelihood of you filing a claim.
For instance, you’re likely to have higher insurance rates if you have older electrical wiring, a wood-burning stove, or a pool in the backyard. The architectural details in an older resale home can also be more expensive to replicate, causing higher insurance rates.
Resale homes may be the traditional way to shop for a new home, especially for first-time buyers, but brand-new homes are making a lot of headway in the market. There are plenty of advantages to building brand new that people don’t consider. Let’s take a look at some of these to decide if a new home is right for your family.
Pros of New Homes
Now let’s take a look at the merits of a new build home!
New Home Warranty
Moving into a new home can deplete your savings, after making your down payment, and paying all of the closing costs. And naturally, you probably want to buy a few new things for the place. You don’t want to have to deal with unexpected repair expenses shortly after you move in.
Fortunately, when you buy a new home, you don’t have to. All new homes in Alberta come with a new home warranty that keeps you covered for up to 10 years. Additionally, all of the appliances in the home will be new as well, and they all come with their own warranties.
Less General Maintenance
Even if we’re not talking about major repairs, there just aren’t quite as many expenses associated with a new home because everything in the home is new! You won’t have to pay for carpet cleaning, fresh paint, or a new lightbulb. You won’t have to tighten screws or fix squeaky doors. Moving into a new home is simply an easier experience.
Control Over the Look
When you build a new home, you have some control over the design of the home – assuming you want some. You can select the floor plan that works for your family, and you get to make a lot of the decisions about the design, including things like selecting the colour of the carpet, the style of flooring, the material and design for the countertops, and so on. These choices even extend to things like door handles and light switches!
Since this is all part of the buying process, you won’t be spending money to change the design as soon as you move in, the way you might have to do if you were moving into a resale home. It’s included in the overall cost. This allows you to get more for your money.
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Greater Potential for Increase in Property Value
It’s best to choose a home based on its ability to meet your needs, but having the potential for an increase in property value certainly doesn’t hurt. Resale homes tend to follow the market. If the entire market goes up or down, so will a resale house.
With new homes, though, there’s more of a chance for a big increase in property value down the line. As the surrounding area builds up with popular amenities and the neighbourhood becomes completed, the particular area becomes more popular, driving up prices. Additionally, homes that are closer to the city tend to increase in value, and as communities crop up further and further from the city, having a home that’s closer is a big plus.
Most new homes are built in growing communities, which offer a lot of convenience for homeowners. They typically have playgrounds and green spaces for the kids, along with things like walking trails. Most are also designed to perfectly integrate with the natural surroundings, and you’re likely to find features like stormwater ponds, wetlands, or forest areas.
While some of these things may not be immediately available, there’s also a push for these neighbourhoods to have amenities like grocery stores, banks, gas stations, and schools all within a few minutes’ drive.
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If saving the environment – and money on your energy bills – is high on your priority list, you can’t go wrong with a new home. They are built using the newest materials and techniques designed to reduce energy usage. You’ll get windows that won’t let the cold air in, insulation that protects the home, and all of your appliances can have the highest efficiency rate possible. Some people are even adding features like solar panels to increase savings for you, the homeowner!
As we learn more about safety in building, the rules and materials get better. When you buy a new home, you can be certain it is built to the most up-to-date standards. This isn’t necessarily true with resale homes, as they would have been built to standards that were have been good at the time, but are now considered outdated. Additionally, DIY repairs in a resale home may not meet any standards at all.
If you’re thinking about purchasing a property as an investment, new homes are a fantastic idea. They have the types of features renters want, which allows you to command higher rent prices.
Additionally, it’s becoming increasingly popular for homebuyers to add an income suite into a new construction build. The homeowner and family live in the main area of the home, and they rent out a basement suite. Doing this doesn’t add a lot to the overall cost of the new home, but the rental payments can decrease the family’s own mortgage payments.
Lower Insurance Costs
As mentioned, new homes are less likely to have problems, have been built to modern safety standards, and are made from easy-to-source materials. All of these things combine to mean lower insurance costs for you. And since that goes into your monthly mortgage payment, it can end up making the home more affordable overall.
Cons Of New Homes
Let’s be honest, a brand-new home has some of it’s own issues as well.
When you purchase a resale home, you can usually move in quite quickly after you make the offer and it’s been accepted. Obviously, you have to wait a lot longer to move into a new construction home. Once you sign the purchase agreement, it can take 9 to 12 months before the home is ready for you to move in. You can work around this by purchasing a quick possession home, which is a new construction home that’s already built, but you give up some control over the design.
Carrying Two Mortgages
While this doesn’t apply to everyone, it is a valid concern. To start building your new home, you need to start paying the builder, which means you need take out a mortgage for this. At the same time, you need a place to live while the home is being built, so you may also still be paying on your current mortgage.
This can be a financial strain. Fortunately, with a construction loan you’re not always making payments on the full amount for the new home, but it can still be a lot. Talk to a mortgage lender about the specific details.
New construction homes are built in developing neighbourhoods and that can be difficult. If you’re one of the first homes in the neighbourhood, you could be dealing with the noises from construction for a year or more. You also don’t have control over what’s happening in the nearby commercial areas, which can take time to build up.
Fortunately, there are local guidelines in place to ensure each new neighbourhood has an end vision, so you won’t have to worry the neighbourhood will never fill up. You just don’t know how long it might take before things are finished.
Naturally, builders have to dig up the land on your lot to build the home. This means after the home is built, you’ll have to spend some money on the initial landscaping, including things like seeding the lawn or laying down sod, and adding any bushes, trees, or flowers you want to complete the look.
Often, you can build this into the overall price of the home if you have the builder handle the landscaping, but it’s another cost you incur with a new home that doesn’t always apply when you buy a resale house.
Which Is the Best Value for Money?
Here’s where things get really hard. Given all of the variables, you have to determine which option is going to give you the best value. The answer is… it’s complicated!
The basics are simple. When you purchase a resale home, you save on the initial cost, but you’ll likely end up paying more down the line. By purchasing new construction, you pay more upfront but save in the long-term.
Let’s take a look at some examples.
The Math on a Home
The resale home you’re looking at costs $250,000. If you’re able to put 5% down ($12,500) and get a mortgage rate of 2.5% for 25 years, your monthly payment would be about $1,400. At 20% down ($50,000), the monthly payment would be about $900 (these estimates do not include homeowners’ insurance or property tax.).
This amount seems affordable on the surface, but because it’s an older home, maybe your monthly energy bill in the winter is $300. And each year that you live in the home, you have to deal with major or minor repairs that total about $3,000 a year, or an extra $250 a month. That would mean that the true cost of owning that home ranges from $1,450 (5% down) to $1,950 (20% down) per month.
A similarly-sized new construction home, though, sells for $350,000. If you’re able to put 5 percent down ($17,500), and get that same mortgage from the previous paragraph, your monthly payment would be about $1,550. And if you put 20 percent down ($70,000), the monthly payment would be about $1,250.
But because it’s a newer home, it’s more energy-efficient, and you’re able to cut your monthly energy bill to just $200. And since everything is new and under warranty, you don’t have to spend money on those repairs, so you’re completely eliminating that cost (at least for the first few years). So that means that the true cost of the home is around $1,450 (5% down) to $1,750 (20$ down) per month.
The two homes are pretty similar in monthly cost even though the initial price tag was quite different. Even a few hundred dollars per month can really add up over time.
At that point, you have to start to look at the other things that come with the home. Do you prefer the look of older homes or do you want something with modern features? Do you like the established neighbourhood you’d get with a resale home or the carefully planned neighbourhood with the new home? These little choices are about your happiness in your future home.
Obviously, these are two examples that may or may not look like the scenario you would choose. For instance, if the owner of the resale home recently took on some of the major repairs like replacing the roof, updating the windows, or putting in a new furnace in order to get the home ready for the market, your repair and heating costs might not be as high. And even though most problems are going to be covered by warranty in a new home, you’ll still be on the hook for the plumbing bill if your kid flushes a toy down the toilet, just to “see what happens”.
That’s why it’s important to crunch the numbers for situations that match what you’re really interested in.
There are distinct advantages and disadvantages to buying both resale homes and new construction homes. What we’ve been trying to stress is that resale homes are sometimes more expensive than you think, while new construction homes are sometimes more affordable than you realized. Take the time to explore all of the options available to you.
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