While buying a newly built home may not be the first thought to come to mind for homebuyers, purchasing new construction is a common option that comes with distinct benefits in today's market.
Currently, about one-third of all homes for sale are newly built and are often a boon to homebuyers who've been struggling in hot markets to find pre-existing properties at an affordable price.
"New construction should be on the radar of all prospective homebuyers, given declining housing affordability and limited existing home inventory," says Robert Dietz, senior vice president and chief economist for the National Association of Home Builders.
New construction can refer to single-family homes, condos, or apartments, and are available across the U.S. Here's a thorough rundown of the benefits of buying a new build—followed by some of the potential downsides—so that homebuyers can weigh the pros and cons and decide whether it's right for them.
The benefits of buying new construction
New-construction homes come with many advantages that aren't found in older houses.
New homes rarely need repairs/renovations
Oftentimes when purchasing a pre-owned home, the buyer will have to set aside funds to immediately make repairs or upgrades. That's not the case with a new-construction home.
"With a new-construction home, everything is updated and in good working order, so there is no need to allocate additional money above and beyond the purchase price once you've moved in," says Jesse Little, senior director of advice for Wells Fargo Wealth & Investment Management. "With a pre-owned home, there could be hidden defects that are not discovered until after the purchase."
This pristine condition extends to cosmetic details as well.
"A brand-new home that doesn't have any scratches, dents, dings, or stains in the walls, trim, floors, appliances, or fixtures," says Heidi Bolyard, founder of Simplified Living Architecture and Design in Dublin, OH.
Some new-construction homes may be customizable
One of the exciting things about a new-construction versus a pre-existing home is that there is the possibility that you'll get to make some design decisions to suit your personal tastes.
"Depending upon how early you go into contract on the home, you may have the opportunity to make some of the selections for the colors, finishes, and fixtures in the new home—like paint colors, flooring, trim, cabinets, countertops, and appliances," says Bolyard.
Lower maintenance costs
Because you're moving into a space where everything is new, maintenance costs (and time) should remain at a minimum for at least the first few years.
"With new and modern plumbing, electric, appliances, heating and cooling systems, new-construction homes provide the potentially significant financial benefit of low-maintenance costs," says Little.
"Every item of the home is essentially a different asset with a different life expectancy, maintenance instructions, and replacement cost," says general contractor David Steckel, home expert for Thumbtack. "When you're the first person taking over that home, you're controlling that asset management, and you can choose to keep everything in perfect working order."
Most new-construction homes have warranties
Even when things are new, they may still break down. Fortunately, a new-construction home should have a warranty that will take care of it.
"If there are any issues with the home during the warranty period, such as a leak in the roof or a crack in the foundation, the builder will cover the cost," says Little.
Most renovations or remodels don't have mandated protection, whereas most new builds do. Basically, the warranty is your protection from defects in workmanship.
"Every county has its own extremely strict rules on a new-home warranty," Little explains. "These warranties often last up to seven years for structural deficiencies, and one year for finishes."
A new-construction home will be up to code
Building codes are the minimum design and construction requirements to ensure safe and resilient structures.
"These codes reduce casualties, costs, and damage by creating stronger buildings designed to withstand disasters," says federal construction and security contractor Charles Chadwick Jr. Sometimes, the codes change, which may cost a homebuyer purchasing a previously owned home a chunk of change as they must bring the home up to code.
"Depending upon the municipality, it is likely that the new home has had several inspections during the construction process," says Bolyard. "You can be confident knowing that the home has been built to meet the local building code requirements, including smoke and CO2 detectors."
There may be buyer incentives for financing
Financing options for new-construction homes are the same as for pre-owned homes (e.g., conventional loans, jumbo loans, and government-insured loans). And while buyers can certainly shop around for the best interest rate and terms, many builders prefer you work with their affiliated in-house lender since that way, they know the loan will close on time—and may offer buyers money-saving incentives to entice them in this direction.
"Many homebuilders will help buy down the mortgage rate and offer extended rate locks," says Ali Wolf, chief economist for real estate analysis firm Zonda. "Buying a home from a homebuilder could make a lot of sense right now given how much mortgage rates have risen."
For example, Wolf says if the headline mortgage rate is 5%, a builder might be able to offer a loan as low as 3.9%.
A new home tends to hold its value—or the price may even go up once the development is done
Though a new-construction home may cost a little more initially, if you plan to stay put for a while, chances are you'll recoup that expenditure quickly. To begin with, new-construction homes tend to hold their value well. And if you get in early, chances are you'll see the home price go up upon completion.
"Typically, there is a significant spike in home value once the entire community is finished, if you were able to get in pre-build," says Steckel.
It will have a more modern floor plan
While older homes might have character or quirky design features, the great thing about a new-construction home is that it will likely reflect the way homeowners live today.
"Functionally speaking, the home will have a layout that aligns with how a 21st-century family will use the spaces," says Bolyard. "The home will most likely have much more storage than an older home, including larger closets in the bedrooms, a mudroom near the most used entry, a pantry in the kitchen, and linen storage in the bathrooms."
The community may come with a gym and other amenities
"New-construction homes are often located in new communities with amenities and features that aren't always available with the purchase of a pre-owned home," says Little. "This could include social activities, a fully equipped gym, pools, tennis courts, and a clubhouse."
Although there is typically a cost associated with these benefits included in a homeowners association fee, the perks can be an important element for a purchasing decision. Especially if someone thinks it is an amenity they will really use or that might save them money elsewhere (like a gym membership).
The potential downsides of new construction
While new-construction homes offer an array of advantages, there are also some disadvantages to be aware of.
New-construction homes may cost more than pre-existing homes
All of the above advantages of new construction usually come with a heftier price tag.
According to the U.S. Census Bureau, the median price for a new single-family home is currently $436,800. In comparison, the National Association of Realtors® found that the most recent median sales price for a pre-owned home is $384,800.
"Newly constructed homes tend to be more expensive not just in list price but in price per square foot as well," says Little. Plus, if you want any special upgrades (such as Italian marble countertops), many of those may cost extra.
New homes take time to build
For homebuyers who have a short time frame to move into a new home, buying new construction could be challenging if the house isn't built yet. This is not always the case, since a community may have some quick move-in homes or spec homes that are already complete (or nearly so) and ready for a buyer to move in. But if not, a buyer may have to wait.
According to Dietz, from start to finish, it generally takes about 6.5 months for most new homes to be completed. At the moment, supply chain slowdowns are still a reality in many areas, lengthening that time frame to about eight months today for areas affected.
"Due to supply chain issues, prospective homebuyers should be patient," says Dietz. "Delivery delays and higher manufacturing costs have resulted in longer construction times and higher new-home prices in many cases."
The good news, however, is that the current backup is relatively minor. Of course, if you can't wait to move in, a 1.5-month delay may feel like forever. And since delays can come up without warning, make sure your current living situation can accommodate any delays.
The neighborhood and landscaping may be sparse, at least at first
Landscaping is typically done last.
"Unlike an existing home or a mature neighborhood, it is going to take at least a few years for your trees, shrubs, and perennials to grow and fill in," says Bolyard.
In some cases, the whole neighborhood may not even be finished.
"Depending on when you move in, they may or may not have finished all the other homes in the community, so there may be a massive construction project in front of your home," says Steckel. "New communities are also typically farther away from the urban center in large plots of undeveloped land, so services might be limited for a few years."
Property taxes may be a bit higher
While it varies by neighborhood, new-construction communities sometimes have higher taxes than older ones because they lack established infrastructure.
"Many new developments have to take out loans from the city to install the roads, electrical grids, and infrastructure needed to maintain the new neighborhood," says Little. "This loan is paid down every year from the taxes within the community."
Some states use special development districts to finance such capital improvements, and those costs are paid for over time by increased property taxes, Dietz says. However, in other markets, those costs are borne by the builder, in which case the costs are paid upfront in the form of higher new-home sales prices.
"It varies greatly," says Dietz.
Bottom line: Check the property taxes and factor them into your calculations to get an accurate picture of what you'll be paying.
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