New Home vs. Resale: Which is Right for You?

Is a newly built home right for you? Do you want a home that you’ve helped design and that offers the latest in energy-efficiency and design? Or a previously owned home that may need fix-ups, paint jobs, and walls moved around to create the types of open living spaces that make sense today?

These are baseline questions that confront many home shoppers early in the process. Your own answers are likely to depend on your lifestyle preferences, financing needs, and the priorities you put on features like high energy-efficiency, functional arrangements of interior living spaces, and your desire, budget and aptitude when it comes to repairs and capital improvements.

How to Choose Between Resale & New Homes

There are a number of reasons you might prefer a resale house, even if it needs work. For instance, you may have your heart set on moving to a specific neighborhood in the city or a close-in suburb, where newly constructed houses are rare or not available unless you buy an existing home, tear it down, and build a new home on the same lot. Or you may be a do-it-yourself aficionado and relish the opportunity to take an old house and transform it, even if that takes considerable time and money.

So it’s understandable that some buyers prefer an existing house in an older neighborhood. But have you seriously considered the potential advantages of buying new? Here’s a quick overview of some of the important advantages of new homes to think about:

Energy Consumption & “Green” Construction

If you care about “green” — whether that means the money you spend on energy bills every month or your concern about the environment — a newly constructed home is virtually always the better option. Homes built today regularly meet or exceed Energy Star and WaterSense standards, which are national code standards for energy efficiency that are far tougher than just a few years back.

Most newly built homes, in fact, come with energy certifications covering walls, roofs, windows, doors and even appliance packages. Virtually no resale homes offer certifications because they were built to much lower standards — often decades ago, when energy usage was an afterthought.

You can retrofit many elements of an existing house to improve its energy efficiency, but it’s costly. Even then, because of design shortcomings, you may not be able to achieve the level of efficiency that is now routine with a newly constructed home. In addition, new homes typically offer better air filtration which increases indoor air quality, reducing symptoms from those who have asthma or allergies.

Flexibility for Space and Wiring Customization

Possibly the biggest draw for many new construction buyers is the chance to have a house where everything is new-new-new and just as the buyer wants it to be, rather than compromising and accepting a previous owner’s tastes plus a certain amount of wear and tear.

A resale house may include room layouts, ceiling heights, and lighting that may have made sense in the 1950s or earlier — formal dining rooms, small kitchens, fewer bathrooms and windows, and the like.

With a new home, by comparison, you can often participate in the design of interior spaces with the builder prior to actual construction. In addition, many new homes come with the sophisticated wiring that’s needed for high-speed electronics and communication equipment, entertainment centers, and security systems.

Buying an older home means that you may have to spend substantial sums of money to take down walls where that’s possible — some are so-called load-bearing walls that are not easily moved — to enlarge rooms in order to create the flowing, more open living space that is preferred today.

Replacement Costs

Those looking to buy a house with minimal maintenance required might be better-suited for a new construction home. By definition, with a new house everything is new, including costly components — such as the furnace, water heater, air conditioning unit, kitchen appliances and roof, doors, windows, and more.

In a new home, most of these components come with a builder warranty — sometimes for up to 10 years — which offer an extra margin of protection. With a resale house, the equipment and structural features you buy have been in use for a while and may be close to needing replacement. There may or may not be warranties, but if there are, they probably have significant limitations.

Consider some of these typical capital improvements that may be part of the true cost to you over the early years of the purchase of an existing house:

• Heating and Air Conditioning: The typical furnace has a 20-year life expectancy; the typical central air system 15 years. Replacing them could cost you $4,100 for an air conditioning unit and $3,675 and up for the furnace, depending on the system you choose.
• Flooring, Carpeting, Tile, Hardwood Floor Refinish: You’re virtually guaranteed to replace some carpeting in a resale home and you may need to upgrade other flooring or finishes. Costs can run anywhere from a few thousand dollars to well over $15,000, depending on your choices.
• Roof: The average shingled roof lasts about 25 years. Replacement costs can be anywhere from $5,000 up.
• Exterior Painting: With a new house, you get to select the color. With an existing house, there’s a good possibility you’ll want to repaint. Typical cost: $5,000 and up.
• Interior Painting: Again, with a new house, you choose the wall colors of the rooms as part of the package. With an existing house, you’re probably going to want to repaint some of the interior. Even if you do it yourself, it will cost money and time.
• Kitchen Remodel: Think anywhere from $20,000 to $40,000.
• Master Bath Remodel: $15,000 and up.

This is not to say that new homes have no additional costs, though they will typically still be considerably lower than the repairs and replacements needed in resale homes.

Other price factors can be less obvious but merit factoring into a purchase budget, according to Mary Beth Eisenhard, an agent with Long & Foster Real Estate. Take, for example, window treatments. “People might say, gee, that’s not a big deal,” she says. “But if you go to price out blinds or plantation shutters on 52 new windows, that can be pricey.” Landscaping is also included — the owner of a newly built home might want to invest in additional shrubs, trees and ground covers in order to achieve a certain level of maturity among the plantings on the lot, she says.

Bottom Line Here:

Although you — and your budgetary resources — control what you improve and when, it’s highly likely that you’re going to spend a substantial amount of money on at least several of the above capital improvements in the early years following purchase of a resale house. They are the unadvertised costs of not buying new.

Safety Features (Especially from Fires)

Newly built homes come with modern fire retardants in materials, such as carpeting and insulation, unlike most existing houses. Builders also hard-wire smoke and carbon monoxide detectors into their homes, making it unnecessary for new owners to install less-dependable battery-powered detectors. Many builders also back up their hard-wired detectors with battery power to handle electrical outages.

Mortgage Financing

Builders often have mortgage subsidiaries or affiliates, and are able to custom-tailor financing — down payments, “points,” other loan fees and even interest rates — to your specific situation. Many are also willing to work with you to help defray closing costs at settlement.

Sellers of resale homes may be willing to offer contributions to settlement charges, but you can be certain they don’t own a mortgage company and, thus, have the leeway to come up with the loan you need. When you finance a resale purchase, you are basically on your own.

Buyer Competition

One consideration — which can vary regionally — is that new construction buyers essentially are competing against no one else to buy a given home. “Our inventory (of homes for sale locally) is low, and though it may not cause a bidding war on resale homes, it may result in multiple offers,” says Eisenhard. “But with new construction, the seller is in the driver’s seat. You’re not competing against anyone else. That’s crucial in our market. Recently, I’ve been involved where one buyer has made four offers (on resale properties) and has been beaten out each time by multiple offers.”

Resale Value

You may plan to live in your next home many years, but at some point, most people sell a given home for any of a myriad of reasons — moving to a bigger home to accommodate a growing family, moving down to smaller digs when children are gone, moving across town or across the country for another job, etc. While the home you sell will (by definition) no longer be new, a five-year-old home will often be more desirable — given all the features above — than a 25-year-old home at resale.

Additionally, Dean Glascock, a real estate agent with F.C. Tucker Co, says that many new communities have an unwritten, de facto home-value escalation clause for those who are concerned about resale value. “In new construction, you’re basically paying retail for a home,” he says. “The flip side is that, locally, that retail price might be a good price down the road, because prices continue to go up” as new “phases” and developed areas are opened in a subdivision. Those new areas’ prices seldom go down, compared to the earlier development areas.

The decision to buy a newly built or used home is ultimately best made by each home buyer. Now you know the questions to ask, and the relative costs involved, in order to make the best decision for you.