Do New or Existing Homes Offer the Most for the Money?
by Blanche Evans
As a first-time home buyer, you have two options. You can save money by going into an established neighborhood and updating an older home to your specifications, or you can buy a smaller new home. At the very least, your decision will be based largely on compromise -- new home/smaller space versus older home/remodeling costs.
Depending on where you live, new homes may be very affordable or very difficult to find. In Dallas, where homes are selling more than 10 percent above last year's prices, new "starter" homes are at a premium and well above the $100,000 ceiling of the mid-90s. Affordable new homes in a "tight" market can begin at $120,000 to $150,000 in more desirable neighborhoods, placing them well out of reach for much of the first-time market. Add to that the burgeoning costs of new materials and the scarcity of labor, and you have new construction at a premium. If a new 2,000-square-foot home generally averages $75 per square foot, a comparably sized older home in the same neighborhood may cost as much as one-third less. So just what do you get for the difference in costs?
More amenities/convenience. New homes feature built-in appliances, including dishwashers, and nearly all have central air and heat. They also feature more electrical outlets. Amenities include vanity cabinets, large mirrors, medicine cabinets, whirlpool tubs, and easy-to-clean plastic tub enclosures.
Safety. Occupants of new homes are almost six times less likely to die from fire than occupants of older homes. Many new homes come equipped with hard-wired smoke detectors on every level, complete with battery back-up should the power go out. Fires are diminished due to the lack of need for space heaters and because of more efficient central heating systems and better insulation. Electrical power systems in new homes are properly sized for the heavier electrical demands of today's homes, and wiring systems are less likely to cause fires. Circuit breakers have replaced fuse boxes, which can be overloaded by using the wrong-size fuse. Ground fault interrupters for bathrooms, kitchens, and outside receptacles reduce the chance of fire and electrocution. Today's glass in tub enclosures and patio doors in new homes must be tempered so that it will crumble if broken instead of shattering into large jagged pieces that can seriously injure people.
Health. The building industry has responded to the health risks of certain products by building with products and systems that make new homes better for your health. Asbestos, which can increase the risk of respiratory disease, has been eliminated from shingles, pipe, cement board, roof tar, floor tiles, ceiling tiles, and insulation. Lead, a potential poison, is no longer used as an ingredient in paint or as solder for plumbing. Formaldehyde emissions from particle board and hardwood plywood have been greatly reduced in new homes. And urea-formaldehyde finishes on most kitchen cabinets are now baked or cured to minimize emissions. Builders are now installing systems to control radon gas, where it is a problem. These systems usually include installation of gravel and polyethylene film beneath basement floors and concrete slabs, and provide for later installation of vent pipes and fans, if required. Older homes frequently have no gravel in which to collect the gas, no polyethylene film to retard movement of the gas through the slab, and no vent pipes. Mitigating radon from an existing home is generally far more expensive than building radon prevention techniques into a new home.
Energy efficiency. Because of better windows, more efficient heating and cooling equipment, better control of air infiltration, and greater use of insulation, new homes consume half as much energy as homes built prior to 1980. Old homes tend to be drafty and less comfortable, and frost and condensation are more likely to appear on windows, drip down, and cause deterioration of wood trim and walls.
Lower maintenance. New homes require less maintenance. New homes are available with siding, windows, and trim that never need painting. Wood decks are typically made of pressure-treated lumber resistant to rot and insects. Pressure-treated wood is also used where wood comes in contact with concrete.
That's well and good if you can afford $120,000 to $150,000. But what if you can't? What are the advantages of buying an existing or older home?
What you see is what you get. In an older neighborhood, everything is already built. You can see what is around the corner, what services are nearby, and who your neighbors are. You can see what kind of growth is taking place, and you can review the comparables (similarly priced homes for sale in the same neighborhood). You can see what kinds of updates are being done by other families to make the most of the space and what kinds of amenities they are adding. Ask your Realtor, or investigate the community on your own. What is a low-cost neighborhood today may be transformed tomorrow by any number of things: a major new employer, remodeling the shopping center, new construction, and new zoning. In fact, an older stable neighborhood is the most likely to be targeted for change -- no investor will back a project that doesn't have guaranteed consumers, or isn't guaranteed to attract new consumers.
Hot areas net full recovery of remodeling costs. If you are shopping in an area that is being "rediscovered," you may find that you can get 80 percent to more than 100 percent of your remodeling costs back. Improvements help the home, the neighborhood, and the community. Who wouldn't appreciate a new kitchen for $10,000 (new cabinets, appliances, countertops from Home Depot, for example), if that means a $110,000 investment gets you as up-to-date as comparable new homes at $150,000?
Negotiation. Because of the low margins on new homes, there is very little opportunity for negotiation. The builder is more willing to sit on an unsold home to get the right price because he has more leverage. The average home owner may be in a must-sell position and may be more willing to deal on issues such a move-in and repairs, especially if you insist on a repair allowance. That can provide needed cash to make repairs without your having to incur a home improvement loan right away.
Affordability. Most existing homes are competing with the clean, fresh look of new homes. Very few will go on the market needing paint and other cosmetic touches. Although you won't have as many amenities, you will likely have more space to make and add improvements. So you don't have a trash compactor. You probably wouldn't in a new starter home, either. But you can always add one when the time comes. Make improvements as you go, or move up to a better home.
Hidden costs. With an older neighborhood, you won't be surprised by costs that aren't covered by a new-home purchase, except unforeseen repairs. Landscaping is already installed, but in many new homes, only the front yard is sodded. If you want grass in the back or trees and bushes, you will have to add them yourself or have the builder add them for an additional fee. Also, many features in model homes are not standard when you are having your new home built. You have to make sure you know what is included and what is not, as the extras could be steep. Your new community may also have a mandatory home owner's association, which may also be expensive, adding as much as $50 to $250 to your monthly payment.
Weigh your costs, the amount of time you want to spend on improvements, access to work and services, and community amenities, and you will be better able to decide whether new or existing is the right type of home for you. Regardless, there has never been a better time to choose than today.
Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment.
Blanche has been named one of the "25 Most Influential People In Real Estate" by REALTOR Magazine, and has been twice recognized as a "notable." In 2005, she was named "Top Reporter Covering the NAR" by Delahaye-Bacon's.
Blanche is a renowned author of five real estate books. Her newest, Bubbles, Booms and Busts: Make Money In Any Real Estate Market, McGraw-Hill, was rave-reviewed by The New York Times. She was also selected from hundreds of real estate experts to contribute to Donald Trump's book, Trump: The Best Real Estate Advice I Ever Received: 100 Top Experts Share Their Strategies, Rutledge Hill Press, and is featured on page 68.
In 2006, Blanche was selected among scores of candidates to author two consumer real estate guidebooks for the National Association of Realtors: The NAR Guide to Home Buying, and The NAR Guide to Home Selling, Wiley & Sons. She is currently planning two new books for the NAR and its members.
Known for her keen insight into real estate industry issues and for her ability to make complex subjects easy to understand, Blanche is a sought-after keynote and continuing education speaker. Real estate organizations from MLSs, to brokerages, to franchisors, to associations hire her to provide up-to-the-minute analysis of real estate industry news and advice on how to improve revenues. Her passionate delivery, peppered with stinging wit, is a huge hit with audiences and fans.
Don Klein, CEO Greater Nashville Association of Realtors, Blanche Evans, Richard Courtney, president 2007, GRAR
"The GNAR membership meeting last week featured Blanche Evans as the keynote speaker. Her comments and insights resonated extremely well with those in attendance and we have had many requests for copies of her PowerPoint Presentation. She was a terrific part of the membership meeting and convention program!" - Don Klein, CEO Greater Nashville Association of Realtors
Blanche Evans is the award-winning senior editor of Realty Times, the Internet's leading independent real estate news service. She is featured daily on the Realty Times Video Network in the "Realty Viewpoint" segment.
