Which Costs Less: A Custom Home or Remodeled Fixer Upper?

Your current home doesn’t fit your needs. Should you:

A. Hire a builder and maybe an architect to construct a custom home on a plot of land that you’ll buy and own throughout the construction process?

B. Hire a general contractor or multiple individual contractors to remodel and rehab the home you already own or another existing home that you’re ready to buy?

Which choice will cost you less overall? The answer isn’t obvious. That’s because either option can run the gamut cost-wise and both involve risks that can blow a hole through any budget you set. Either way, you’ll first need to consider these six factors:

1. Where you want to live
2. What style of home you prefer
3. Which home features are important to you
4. How much time you’re willing to invest
5. How soon you want to move
6. How much money you’re willing (and able) to spend

Unless you have an unlimited budget, figuring out that last factor can be a challenge. Here’s a look at how the two options stack up cost-wise:

Option A- Custom Home Construction Costs

It’s not easy to estimate how much a custom home will cost.

The national average cost to build a new home in 2017 was $237,760, not including land, financing charges or the builder’s expenses or profit, according to a National Association of Home Builders (NAHB) survey.

That’s interesting, but not that helpful for buyers because each home is unique and there’s no way to extrapolate how much a particular custom home in a specific location will cost from national averages.

To try to answer that question, the NAHB offers an online House Price Estimator. But the best answer is to ask a builder, says Courtney Poulos, broker/owner of ACME Real Estate in Los Angeles.

“The best reference is a builder who has completed a similar project in a nearby location,” Poulos says.

When you meet with the builder, ask about the timeline; construction challenges, such as weather and permitting delays; and the cost per square foot for the completed home as well as the construction costs.

Other Permit Costs

To build a custom home, you’ll need to buy a vacant lot or teardown house for a site on which to build.

Buying a lot that’s already hooked up to public utilities can save you a lot of money, says Jonathan Faccone, founder of Halo Homebuyers, a property investment and development firm in Bridgewater, NJ. The catch is that such properties are hard to find at good price points and the style of home you can build will be limited by the lot’s size and shape.

Building permits and inspections add to the cost of a custom home and affect the timeline from planning to completion. Permit fees added $4,000 on average to the total cost of a new constructed home in 2017, the NAHB survey found.

A custom home can be completed in six to nine months, but it’s not unusual for delays to stretch that timeline to a year or longer. That adds to your cost since you’ll have to pay financing charges, property tax and insurance for your current home and new home during that time frame.

The big cost benefit of a custom home is that it shouldn’t turn out to be a fixer.

“Building a new custom home allows you to get the space you want, so you don’t spend money in the future making additional updates and changes,” says Kenny Anderson, co-owner at Highland Custom Homes in Lehi, UT.

Option B- Rehab Home Remodeling Costs

One way to estimate the cost to remodel an entire home is to total up remodeling projects from Remodeling magazine’s “Cost vs Value Report.” This annual report compares the average costs for 21 popular remodeling projects in 149 U.S. markets.

In 2018 average national remodeling costs ranged from $256,229 for an upscale master suite addition and $125,721 for a major upscale kitchen remodel at the high end to $3,470 for an upscale garage door replacement and $1,471 for a midrange steel entry door replacement at the low end.

With such a wide range it’s clear that the cost to remodel an entire house depends on the projects selected, the homeowner’s taste and local contractors’ labor costs.

If you opt to rehab an existing home rather than build a custom new home, you’ll have more choices of where you want to live, but you’ll be constrained by the existing home’s footprint.

You’ll also have to be prepared for the inevitable remodeling surprises.

“Often we don’t know what’s in the walls or what’s possible until a rehab has already started,” says Michael Schaffer, broker/owner of Reason Real Estate in Denver, CO.

The Decision

So, what’s the bottom line? Is a custom home cheaper? Or can you save money by remodeling an older home?

Poulos says renovating is usually more affordable, in part because the permitting process may be cheaper and faster.

Faccone also votes for rehabbing, especially if you can do some of the work yourself to lower the cost.

Anderson says remodeling makes sense if a few low-cost projects will create the home you want. Otherwise, he believes building a new home could be cheaper.

“Remodeling is a facelift,” Anderson says. “It can make one area nice, but may not make the house what you really want. In the long run, remodeling can be the more expensive option.”

Since there’s no way to make a true apples-to-apples comparison, you’ll need to research both options, think carefully about your needs and wants and then try to make the best of whichever option you choose.

Either way, your new home should be a huge improvement.