Among the advantages of purchasing a preconstruction home from a builder is the prospect of rapid price appreciation if the local housing market allows the builder to raise prices with each successive phase release.

In many cases, new home buyers may select from a range of upgrades and options and are able to put their own signature on the home.

Everything is new, so in a certain sense there is the added satisfaction of anticipating no immediate need for deferred maintenance.

And, of course, the house smells new rather than like someone's sweaty feet.

The drawbacks are that you don't know for certain exactly what you'll get when it's built. An existing house has fewer mysteries, and occupancy can be more certain. Most new construction is at risk of being delayed, so timing a move can be complicated. This can be expensive for the condo buyer trying to fill the up leg of a 1031 exchange within the 180 day period.

An existing neighborhood has mature landscaping, a history, and you can see how your neighbors live.

And just because everything is new doesn't necessarily mean that everything will be perfect. That builders use something called a "punch list" suggests that new home defects run to the dozens and must be enumerated on a list.

Some factors to consider before purchasing would be to conduct a review of plans for future development in and around the community. Is it a master planned community, who are the developers and are they financially strong? What is the nature of their relationship with community officials? Are there any transportation issues that might propose future road development through your now quiet little cul de sac?

Are there any grandfathered rights such as a right to farm or mine ordinance? That bucolic little farm across the road from your brand new subdivision looks so pastoral in winter. But come spring, the drone of tractors, the dust from plowing, the fertilizer, pesticides, herbicides, fungicides, diesel smoke and the continual shouting will drift through your window and the word that will come to mind will be "agribusiness."

There are many differences in the process of buying a new home rather than a resale. In the case of larger developments, it is quite typical for the builder to be represented by his own site sales team, which may or may not cooperate with local resale brokers. Under those circumstances, the buyer is left to negotiate price, terms and amenities on her own behalf. Further, most builders use hybrid contracts designed to protect and benefit them.

And don't assume that because the home is new, that it is well built. I often wonder when I drive by a liquor store during lunchtime and see all those pick-up trucks, obviously belonging to plumbers, carpenters, and electricians, does this place really have the best chili-dog in town or are they buying beer?

Builders typically stay flexible and keep their payroll costs low by hiring sub-contractors. The sub-contractors hire the cheapest workers they can find, which may include ex-cons, undocumented workers, and addicts. The saying on the building site is … "You can't see it from my house."

Then factor in the usual friction that develops when sales lag and sub-contractors can't be paid, and you have a recipe for sabotage. The beer can shoved down the toilet drain prior to installing the toilet, is but a minor prank. But the flooding that occurs after the homeowner moves in is much more difficult to make new again.

Nor should you assume that the patchwork of warranties provided on appliances and mechanical systems or the builder's construction warranty will protect you. They are only as good as the willingness and ability of various individuals and entities to fulfill them.

I advise every new home purchaser to have a home inspection as a sort of second opinion. Even a home inspector can't find every defect but he can provide a second set of trained eyes.

The purchase of a new home is often a fairly one-sided proposition. After all, the builder is supplying the documents, and they will generally dictate the amount and disposition of any earnest money deposit. Closing and possession should occur simultaneously, but may not. In a newly constructed 200 unit highrise, all may close at once but, possibly, as few as three owners might be able to move in per day.

In many communities the demand for housing has driven prices beyond what many residents can afford. Much as Henry Ford made automobiles more affordable by introducing assembly-line production, the majority of today's housing is built by a handful of mega-builders who leverage the economies of scale and long-term forward planning to keep housing as affordable as possible.

So when it comes to custom building a single home, both material and labor costs will be substantially higher. On the other hand, you'll have more control over the finished product and more opportunity to influence the quality of workmanship or materials.

Published: May 30, 2006

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George W. Mantor is known as "The Real Estate Professor" for his wealth building formula, Lx2+(U²)xTFP=$∞. A proponent of educating consumers on using homeownership as an opportunity to build an estate, he has set out on a crusade to educate small real estate investors, fellow practitioners, seniors, and high school and college students about the risk-free benefits of planned real estate ownership. His consumer education efforts include a long-running radio program, Mobile Information Center, monthly workshop series, public appearances, informative website and frequent articles. During a career that has spanned nearly three decades, he has amassed experience in new home and resale residential real estate, resort marketing and commercial and investment property. He is currently the founder and president of The Associates Financial Group, an independent, locally-owned, full service real estate and mortgage brokerage, dedicated to creating long-term relationships with clients. Prior to starting his own firm in 1992, he had been Director of Training and Customer Service for Great Western Real Estate. In addition he has served on virtually every real estate committee, including a term as a Director of the California Association of REALTORS®. He is the creator of the Personal Best System, a business and life planning process and the Red Zone Time Planning System for Business Professionals. In addition to Realty Times, his articles have recently appeared in Real Estate Finance, National Real Estate Investor, The Real Estate Professional, Broker Agent News, and RIS Media Power Broker Network Report. He is available for speaking and customized training. His website is www.myafg.com and he can be reached at GWMantor@aol.com.