New Construction Homes: What To Know
Discover the advantages and disadvantages of buying a newly constructed home over pre-owned.
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When it comes to choosing a home, 60 percent of home buyers prefer a newly-built home over an existing one. That’s according to Rose Quint, author of What Home Buyers Really Want and assistant vice president of survey research for the National Association of Home Builders (NAHB).
When Quint broke down statistics across age groups, she found there wasn’t a huge gap in attitude among generations. “Gen X buyers are the most likely to prefer a newly-built home (68 percent), ahead of both Millennials (65 percent) and Baby Boomers (55 percent),” she says.
There are distinct advantages and disadvantages to new construction and pre-owned homes. So when weighing the two, these key factors often come into play:
- Urgency of move-in date;
- Lifestyle/location (urban or suburban);
- Stage of life (raising a young family, empty nester or retired).
When you’re trying to decide between a newly-built or pre-owned home, here are some things to consider.
What Is New Construction?
Simply stated, new construction has been freshly built from the ground up. It’s not a renovation or a restoration.
A buyer might purchase land and hire a contractor to custom build the home. Another option is to purchase a new semi-custom or spec home (designed and completed before the sale) directly from a developer.
Characteristics of a New Construction Home
- Never lived in. Like a new car, a new construction home is unspoiled and unblemished. No cracked tile, no leaky kitchen faucet, no shag carpeting to tear up. Just pristine, clean, functional everything.
- Goes from builder to buyer. Unlike traditional home resales where the transaction takes place between the current owner/seller and the buyer, new home construction transfers directly from the builder to the buyer. Note: Using a real estate agent, although recommended, is optional.
- Comes with a warranty. Most builders offer customers a limited home warranty on their new construction. Also known as a service agreement or contract, a home warranty covers the repair or replacement of major systems and appliances during the policy period (typically at least one year). This will protect you from hidden defects or failures.
- Easy financing. New home buyers often find obtaining a mortgage is easier and quicker when done through new home builders. Besides lower interest rate loans, many large developers offer attractive incentives like no down payments or low-cost closings. These programs can save you a lot of money.
New Construction: The Pros and Cons
Whether you decide on a newly-built custom, semi-custom or spec home, there are benefits and downsides to consider.
New Construction Pros
- A clean slate: New walls, new roof, new appliances, new bathrooms, new electrical and plumbing. It’s ready and waiting.
- Less maintenance and repairs: A new home doesn’t inherit problems from the previous owners, so expect a honeymoon period when all systems should be working properly.
- Technology-driven: In newly constructed homes, expect the latest and greatest in smart and/or energy-efficient appliances, as well as other state-of-the-art/green technologies. These save money and protect the environment.
- Safety first: Properties constructed some years ago may meet basic building codes but lack the latest safety materials and installations. For instance, today new homes feature devices like hard-wired smoke detectors, fire-retardant carpeting, motion-sensor lights and alarm systems.
New Construction Cons
- Cookie-cutter: If you are someone who admires Victorian or Craftsman architecture, you may find it hard to appreciate a standard new construction home.
- Lot limitations: U.S. Census Bureau data in the American Housing Survey shows that while the size of newly constructed single-family homes has increased steadily since the 1960s, the size of the lots these homes are built on has declined. Additionally, those lots are often freshly planted with trees and plants which could take years to fill out and mature.
- Rising costs: A spike in building material costs triggered an increase in new home prices. According to Realtor Lindsay Bjerke of Norton Realty in Mendota Heights, Minnesota, “Pricing for new construction has risen sharply recently with cost of lumber and labor shortages, so that’s the big thing I’m seeing. It’s not affordable for most buyers.”
- Trimmed-down choices: Bjerke has noticed a reduction in finishing choices traditionally offered by big builders of semi-custom and spec homes. “With a limited number of packages to choose from, buyers may be surprised they don’t have as much control over design and finishes as they’d hoped,” Bjerke says.
Types of New Construction: Custom, Semi-Custom and Spec
A custom-built home is a residence designed for the buyer. The goal of building a custom home is to bring your ideas to life. This is the ideal type of home for those who are detail-oriented, like to be consulted and aren’t averse to making tough, time-sensitive decisions. However, if you don’t need to be in on every decision, a semi-custom or spec home is probably a better choice for you.
- Control over exact specifications;
- Work closely with the builder;
- The finished product is uniquely yours.
- Time intensive;
- Thousands of decisions to make (some right on the spot);
- Upgrades can be expensive.
Halfway between a custom and a spec home, a semi-custom home is only partially completed at the time of purchase. At the point of sale, you may be given a limited number of choices for elements such as countertop materials, tile, cabinet finishes, paint or carpet colors.
- Have some say in the final product;
- Less expensive than custom-built.
- Fewer high-end upgrades;
- Footprint can’t be changed.
A spec home is one with a builder-determined construction package, giving you virtually no input on the final product.
- You know exactly what you’re getting;
- Immediately available.
- Often built with lower-quality materials;
- All homes in the development look alike or similar.