For many prospective homebuyers, affordability is a big factor in determining whether to purchase a house.
But, looking at average home sale prices only tells part of what a house might actually cost: the type of house purchased, where it's located, and many other variables could impact the price of owning a home. Whether an individual opts to build a house vs. buy a house, for example, could affect if they'll end up paying more.
According to the National Association of Realtors, the median sale price of existing homes is $295,300. That price point is nearly $34,000 less than the cost of a new house. Because these numbers reflect all homes across the U.S., though, they only tell a partial story about whether it is cheaper to buy or build a house.
For those considering whether they're ready to buy a house, it can be helpful to know the true cost of each option before making a choice.
Related: How to budget for buying a house
Buying an existing house: What can it cost?
Sales data suggests that it is often cheaper to buy an already built house than to build a brand-new one. But, when it comes to buying an existing home, the price paid to the seller may only reflect a portion of the actual cost of home ownership.
Even if an individual can afford the home listing price, there are often additional costs—like, home-buying fees and closing costs.
Identifying existing wear and tear
For pre-built homes, age is one factor. The older a house, the more likely it is to need some upkeep and extra care—generally speaking.
While some home upgrades may be superficial (painting, etc), other time-intensive repairs and improvements might be necessary to keep a home habitable, whether in the short term or in the years ahead.
Before buying an existing house, a home inspection conducted by a certified professional can help future homeowners to stay informed about the current state of the house—including whether any major repairs or structural improvements are needed.
Typically, the buyer is responsible for paying for a home inspection, which can add several hundred dollars to the purchasing costs.
If buying an existing home, it may be wise to have a professional identify any potentially costly problems, such as faulty wiring or older pipes, before finalizing the sale. Some buyers even choose to make their purchase conditional on a successful inspection, lest the review come up with any surprise extra expenses.
During the home buying process, an official inspection might be performed as soon as the seller accepts a buyer's offer. With the seller's permission, it can even be possible to set up a pre-offer inspection.
A pre-offer inspection may give interested buyer's a clearer idea of anticipated costs with that specific property (and could be a signal that the seller is willing to negotiate).
Potential repairs might include anything from installing a new roof or drywall to fixing the furnace or hot water heater. Tweaks like these might quickly add thousands of dollars (or more) to what a buyer will pay in the long run (assuming the seller is not open to negotiating).
For house updates, a buyer may want to account for the costs of parts, supplies, and labor labor—tabulating how much extra expenses might end up totaling. Some repairs can also require work permits, which the buyer would typically pay to obtain prior to the start of any construction.
Evaluating home improvement costs
Though shag carpeting from the 1970s may not—technically—make a home unlivable, it can make it unlovable in the eyes of some.
As such, many future homeowners opt to make additional, costly improvements to make their new house feel like a home.
Other changes, such as converting one oversized bedroom into two smaller rooms, may be desirable for buyers with a growing family.
Whether it's changing the flooring, applying a fresh coat of paint, or even putting on an addition, many buyers choose to make changes aimed at turning an existing dwelling into their dream house.
And, it's worth noting that each change along these lines would add extra costs to the listed purchase price.
Even if a buyer can live with the previous owner's debatable décor decisions or layout in the near future, it's often worth evaluating the cost of future alterations when estimating the cost of buying a house—whether such changes are large or small (or medium or long term goals).
Ongoing repairs, maintenance and warranties
Even if repairs are not required right away, it can be useful to review the age of an existing home (along with that of its component parts).
Although buyers may not want to replace the roof at the time of purchase, mulling over the average lifespan of major home features (like roofing) can be beneficial. Some questions to chew on:
- When were the house features last updated?
- How well have these features been maintained?
- What will need repairs first in the near future?
Here's one extra maintenance detail to think over: Older homes may not be as energy-efficient as newly built houses, meaning that—without upgrades to existing systems—it could cost a buyer more each month to heat and cool the house. Such ongoing and future expenditures may, over time, offset any savings received early on from buying instead of building a new home.
Buying an existing home: Other advantages
Even with potential extra expenses up front or down the road, in some cases buying a pre-existing house can save buyers hassle and even money.
For instance, if a prospective home has been well-maintained and boasts modern features, it may be move-in ready as-is—minus the need to spend more than the agreed-upon price of the house, affiliated taxes and home-purchase fees.
In addition to reducing the stress associated with a move, buying a house that's move-in ready with a short closing can reduce interim housing costs, such as rent.
On average, existing homes take 45 days to close —far less time than it might take to build a new house from start to finish. In practice, this can mean a buyer may start paying down the mortgage faster.
Constructing a new house: What can it cost?
So, compared to buying an existing house, how can a buyer evaluate how much it might cost to build a new home? The average single family home costs $114 per square foot to build, according to data from the National Association of Home Builders (NAHB) Construction Cost Survey. But, that statistic is just a mathematical average—the individual cost can still vary greatly, depending on a home's location, the builders chosen, property lot size, materials used and other variables.
Calculating construction costs
The NAHB also estimates that construction costs amount to 61% of the average single family new home build (finished lot costs comprise about 18.5% of sale prices). Included in these costs are things like:
- Building permit fees
- Land preparation
- Excavation and foundation work
- Frame construction and sheathing
- Roofing pricing
- Plumbing, electricity and HVAC
- Windows and doors
- Appliances
- Flooring
- Clean-up
Put another way, if a new house costs $300,000 to purchase, $183,300 of that would go towards construction—including materials and labor.
Interior finishes
On top of those costs, individuals interested in building a new home may also want to ponder the cost of interior finishes. According to the NAHB, interior finishes—things like, walls, stairs and doors—amount to slightly more than one-quarter of new home building costs.
While the actual amount will depend largely on a home buyer's specific choices, based on this average, $76,200 of a $300,000 home would go towards interior costs, such as painting, trim, doors, plumbing fixtures, appliances, and lighting.
Building a house: pros and cons
While on paper it might appear cheaper to buy a house than to build a new one, it can be helpful to look deeper than just the listing price.
On the up side, a brand-new house could require less maintenance and upkeep for years into the future.
In many newly built homes, items such as appliances, roofing and HVAC may be covered initially by manufacturer and construction warranties. In that case, were something to break (if under warranty), the out-of-pocket expense could be covered (and not on the buyer to shell out for).
But, some potential cons may exist for building a new home. According to the US Census data, new homes take an average of seven months to build from start to completion.
It also takes longer to move into a custom home than for move-in-ready ones—with owner-built homes averaging 12 months wait time for residents. So, not all buyers may want to wait around that long to move in.
With a built-from-scratch home, buyers could also run a higher risk of ballooning construction costs or extended delays, which might result in extra interim costs (like, rent or subleasing). While construction on the new home is being finished up, for instance, a buyer may need to pay for another place to stay.
Still, if a buyer has been house-hunting for a long while and hasn't found the home that matches their search requirements, the chance to custom-design a house may, ultimately, be worth the added costs up front. And, for some, that option's priceless.
Taking the next step towards a new house
So, whether it is cheaper to build or buy a house can come down to individual budgets, desired locations, and home amenities (or design). For different buyers, the main motivating factor may vary.
This article originally appeared on SoFi.com and was syndicated by MediaFeed.org.
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This article originally appeared onSoFi.com and was syndicated by MediaFeed.org.
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