New Home Sales -vs- Resale (used) Home Sales
Purchasing a home…Why choose a new home? Why choose a resale home?
Think of an automobile. Many car buyers, if they can afford it, will almost always purchase a new auto. Not only do they know that cars begin to depreciate the minute they are driven, but they also love that “new-car smell.” One thing that my buyers discuss with me, when it comes to new homes, is the fact that they feel assured, that the carpet has never had unwanted or unknown spills on it. For instance, pet potty, etc. It’s nice to know, that you can lie on the carpet, without wondering what’s underneath you. Knowing you are the only one who’s touched your carpet, can be assuring.
Homebuyers are not quite as particular about buying a new home versus a resale, although there are some buyers who will absolutely refuse to buy a “used” home. While the age of the home may not matter to most buyers, the majority of buyers want a home to look as new as possible and to have been updated. For many people, a home is the most expensive purchase they ever make. It’s no wonder, then, that buyers of newly built homes are interested in warranties, which promise to repair or replace certain elements of the home, if necessary, within a certain time. According to the Federal Trade Commission (the nation’s consumer protection agency) if you’re considering a home warranty it’s important to understand what it covers, how to make a claim, and the process for resolving disputes that may arise between you and the builder or warranty company.
Home Warranties on New Homes: Many home warranties are backed by the builder; others are purchased by the builder from an independent company that assumes responsibility for certain claims. Some home owners purchase additional coverage on their own from third-party warranty companies to supplement the coverage their builder provides. These add-on service contracts are commonly called warranties. The Federal Housing Authority (FHA) and the Department of Veterans’ Affairs (VA) require builders to purchase a third-party warranty as a way to protect buyers of newly built homes with FHA or VA loans.
So what does it cover?
Warranties for newly built homes generally offer limited coverage on 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. Warranties also typically define how repairs will be made.
The duration of coverage varies depending on the component of the house. Coverage is provided for workmanship and materials on most components during the first year (most warranties on new construction cover siding and stucco, doors and trim, and drywall and paint during the first year. Coverage for HVAC, plumbing, and electrical systems is generally two years. Some builders provide coverage for up to 10 years for “major structural defects,” sometimes defined as problems that make a home unsafe and put the owner in danger. For example, a roof that could collapse is a “major structural defect.”
Advantages of new homes:
Many buyers do not want the hassles of fixing up a home, so they are interested in a brand-new home or one which is relatively new. Some homebuyers are two-income families who do not have the time to wait on contractors or do the work themselves. Many buyers think a new home will require less maintenance, which may or may not be true.
The value of a new home depends on the builders, and in these tough times, builders have had a difficult time getting financing. Some of them have had to cut corners and use lower-quality materials. The craftsmanship of older homes and the quality of their construction may be impossible to re-create today.
Generally, the main disadvantage of a new home is the waiting period until the home is complete, which can take from six to nine months, unless the residence is already under construction.
Buyers of new homes can pick their location within a subdivision. They can choose to back to woods, greenbelts, or mountains, and choose to be close to the main street or on a cul-de-sac.
New-home buyers will have the advantage of owning a home with fewer electrical or plumbing problems, along with a more modern design.
New homes, whether they are condominiums or single-family homes or town homes, are typically designed for greater energy efficiency than older homes.
The extra energy efficiency and other modernizations of a new home will likely add some premium to its value over time, compared with a home that is 10 years old right now.
New-home buyers can sometimes find a completed or nearly completed home available from builders, but most builders today are not building spec homes. Instead, they prefer to begin building only after a contract has been signed.
The best values in new homes are for quicker-delivery homes that the builders want to get off their books. The customizing process, which can even sometimes include the floor plan of the home, is a big incentive for new-home buyers.
Builders often offer closing-cost assistance or free options if you work with their preferred lender. If you work with their recommended people, you can also be certain that you will get to settlement on time.
Other reasons to buy new include the peace-of-mind of a builder’s warranty and the fact that new homes must be built to current building standards.
In today’s market, inventory is low, and the number of buyers is high. This leads to too many buyers for each home, thus creating a bidding war which may exclude some of the buyers who need a loan to purchase, or who need seller concessions or closing costs to be paid. I had a home that I listed, which had over 40 offers. Only one buyer could purchase it. This means there is a lot of competition between buyers for each individual home.
I have great relationships with new home builders. Typically, a Realtor® will know about incentives and concessions that the builder may not freely offer. When you use a Realtor®, you may get more bang for your buck!
9 Advantages according to U.S. News: As the mortgage crisis continues to inundate the market with distressed properties, today's house hunter has no shortage of cheap, foreclosed homes to pick through. But despite all those deals in the previously-owned home market, consumers shouldn't overlook the potential benefits of buying a new home. To help consumers better understand the advantages of new home buying, U.S. News spoke with a handful of experts and compiled a list of 9 reasons to choose a new home over a resale:
1. Customization: Many home builders allow buyers to participate in the process of designing their property, which helps create a living space specifically tailored to the consumer's tastes.
2. Building envelope: Building codes have mandated increasingly higher energy efficiency standards since they began to address the issue in the late 1970s.
3. Green appliances: The more energy-efficient mechanics of the house also help reduce utility bills for new home buyers.
4. Fewer repairs: The features of newly constructed homes should also hold up better than those of existing homes, which may have experienced years of wear and tear.
5. Less maintenance: At the same time, today's new homes are engineered specifically to minimize maintenance requirements.
6. Warranty: In addition, builders often agree to take care of the repair work that becomes necessary in your newly constructed home for at least the first year.
7. Fire safety: Newly constructed homes often include fire safety features that may not be present in properties built years ago.
8. Concessions: Especially in today's sluggish housing market, buyers may be able to squeeze more concessions out of a home building company than an individual seller.
9. Financing: New home buyers may be able to take advantage of mortgage financing perks made available through their builder.
Advantages of Resale Homes:
Whether buying a new home or a resale, today’s homebuyers expect to purchase a home in good condition that looks as much like a model home as possible.
Older homes usually have mature plantings. If the home has good bones and a workable floor plan and has been redecorated to modern tastes, then it can be a great buy.
The main advantage of resale homes for most buyers is simply that they are available immediately. Unlike new homes, resale homes may have all the window treatments, curtain rods, closet rods and appliances in place. The main question is the age of the home and whether it has been well-maintained. A 10-year-old home may be on the verge of needing new appliances, a new furnace and even a new roof. It may be better to choose a 30-year-old home if all the systems have been replaced.
Features of a resale home, such as granite counters or hardwood flooring, are included in the price, unlike a new home, which typically requires extra money for these optional features.
Outdoor amenities such as a swimming pool, sports court, a deck, landscaping and even fencing typically are already in place on a resale home.
Not only are those optional items included in the price of a resale, but you can also usually get better deals from sellers than from builders in terms of concessions.
The ‘most dangerous house’ is one about eight to 12 years old, because at that time owners will need to replace the water heater, appliances, heating and air-conditioning system and maybe even deal with some structural issues. It can be better to buy an older home that has been updated or even a historic home that has been well-maintained.
Buyers may also consider purchasing an affordable, basic home with an FHA 203(k) loan, which allows buyers to wrap remodeling costs into the purchase loan.
Besides building value through home improvements, buyers should consider existing homes in stable neighborhoods that have held their value. Homes in neighborhoods with a good location, easy access to commuter routes and good schools will always hold their value.
Disadvantages of New Homes:
New homes are often farther away from the city since land costs are so high and land is limited in close-in locations. New homes available near the city can be more expensive.
New-home buyers sometimes need to move twice, if they have a home to sell and their new home is still under construction. Moving to temporary housing and storing furniture can be costly.
Another concern about new homes and their cost is that buyers preview a model home that has been professionally decorated and includes many optional features.
Once buyers get into the design center, they realize that the home they thought was a great deal at $400,000 may really cost them closer to $480,000 by the time they add the optional features they want. Buyers think mostly about the big-ticket items, but they need to pay extra for blinds, curtains, closet rods, trim and special paint colors, either through the builder or after they buy the house.
Another drawback for some new-home buyers depends on the level of completion of the community. Some buyers will not want to live with the dirt and noises of being in the middle of a construction site while nearby homes are built. Financially, most Realtors agree that sellers and builders are about equally willing to give concessions and incentives to buyers, depending on the price range and local market conditions. Sometimes builders with an already-built home will be more flexible.
Property taxes on new homes may be higher than those of resale homes. A new home may have specialty taxes and/or Mello Roos. Some of these “extra” taxes may stick with the home for an additional 30 years.
New-home buyers should check the builder’s policy on price fluctuations that may occur between the contract signing and the closing date; if prices drop, the buyers will have already lost value in their home before going to settlement.
New-home buyers sometimes skip a home inspection because the residence is newly constructed.
Disadvantages of Resale Homes:
While a well-maintained older home can hold its value well, there are some features of older homes that cannot be easily fixed.
One problem with older homes is that they are built to the standards of the year they were built, not to today’s standards. You can’t always bring a 1950s house to 2010 requirements, especially when it comes to electrical or plumbing issues.
Resale homes can have more problems if they have not been well-maintained or if they have been vacant for some time. They also can cost more money than a new home if they need significant work or updating.
I recommend that all buyers purchase a home warranty, because you just don’t know what might happen.
One real disadvantage financially with a resale purchase is that the negotiating circumstances are personal. The sellers have an emotional tie, while builders are negotiating purely on a financial basis.
While most Realtors agree that a new home purchased today would have a slight advantage in terms of resale value in a decade or so, the value depends on the location of the home and the quality of construction, two features that are well-established in a resale property.
IMPORTANT: Whether you are buying a new home or a resale (used) home, make sure you are working with a Licensed Realtor®. All real estate licensees are not the same. Only real estate licensees who are members of the NATIONAL ASSOCIATION OF REALTORS® are properly called REALTORS®. I have great relationships with new home builders. Typically, a Realtor® will know about incentives and concessions that the builder may not freely offer. When you use a Realtor®, you may get more bang for your buck!