As the seller’s market continues, many first-time homebuyers are deciding which route is best for them: buying an existing home or building a new one. While the right answer varies from person-to-person, there are several pros and cons for each option. As the housing inventory shortage continues, new construction has grown in popularity but the demand still outpaces the supply, so many buyers look to existing construction. Understanding what each option entails will help homebuyers make a better, more informed decision in their home buying journey.
Buying an Existing Home
Existing homes are often referred to as resale homes. “Resales are properties that are previously owned and re-selling not new.”
How To Know If an Existing Home Is The Right Choice For You
Sonia Graham, Realtor with JPAR Maryland Living advises that “Existing homes are a great choice too – you can tell if the bones are good; neighborhoods are established. Maybe you want something with good bones and a vintage feel that you can also update.”
Things To Consider With Existing Homes
Graham states in the Annapolis-Baltimore area that approximately 65% of recent sales are existing construction and that, “we are in a seller’s market here in Maryland. Homes are being priced really well, however, because of the lack of inventory, homes get sold at higher than listing.” This is true across the U.S. In September 2020, existing home sales increased by 9.4% from the previous month and 20.9% increase from last year for a total of 6.5 million homes.
- Total housing inventory declined from the prior month and one year ago to 47 million, enough to last 2.7 months at the current sales pace. What this means for buyers: There are less homes to choose from.
- Existing homes prices were up 14.8% from September 2019 and according to the National Association of Realtors “September’s national price increase marks 103 straight months of year-over-year gains.” What this means for buyers: You may pay more for less home depending on your budget.
- In September 2020 properties remained on the market for 3 weeks – an all time low according to NAR. What this means for buyers: The market is fast paced and requires buyers to decide and act quickly to secure a home.
- Eighteen-percent of September 2020 sales were purchased by cash buyers according to NAR’s data. What this means for buyers: Buyers must make strong, clean offers to compete against the large portion of cash buyers.
- For homes that sold in August 2020, homeowners had just over 3 offers on their home according to NAR. What this means for buyers: Expect that you will have to compete and present your highest and best offer every time.
Buying A New Construction Home
Housing starts, or new construction, rose 8.1% from this time last year, according to National Association of Realtors’ Chief Economist, Lawrence Yun. Sonia Graham says that 37% the Annapolis-Baltimore home sales have been new construction. And there’s a reason the new construction has grown in popularity: it’s helping to ease the housing shortage.
How To Know If New Construction Is The Right Choice For You
Sonia Graham states that with new construction “the biggest incentive is the closing help; using the builder’s lender generally keeps the cost lower for the builder and so they have more room to offer incentives.”
Things To Consider With New Construction
As Graham says, “everyone loves the idea of being the first to live in a home – nothing used by anyone before, everything sparkly and brand new…” However, it’s important to understand no home is perfect; existing or new. This is why Graham strongly suggests “using the home inspector your Realtor works with… red flags will be found in the home inspection.”
- “Housing starts had hit 1.617 million in January and fell to 934,000 in May. The recovery hit a snag due to the shortage and rising cost of lumber, with the price of softwood lumber up 81% year-over-year as of September”, according to NAR’s latest data. What this means for buyers: As lumber prices increase, so will new home cost. The increase cost in lumber is ultimately transferred to the buyer.
- Thirty-nine percent of buyers choose new construction to “avoid renovations or problems with plumbing or electricity.” What this means for buyers: There should be no looming large expenses like a roof or plumbing with new construction.
- Closing costs are negotiable. Unlike with existing homes, builders tend to be more open to paying for some or all a buyer’s closing costs. This should be negotiated early-on and put into writing between the buyer and builder. What this means for the buyer: If the burden of closing costs AND a down payment are an issue, new construction could possibly ease that burden by helping with closing costs.
- Builders provide warranties, but read the fine print! Builders will typically provide a one year builder’s warranty; however, they don’t cover everything. It’s advised that buyers request to see a copy of the warranty prior to purchasing the home. Buyers may also purchase additional home warranty options which cover more.
To decide which option is best, it’s important that as a buyer you work with an experienced and knowledgeable Realtor that is proficient in both areas. As Sonia Graham reminds, “Its truly a family by family choice and neither is “right or wrong” as a whole – just “right or wrong ” for the client and their family.” By working with a Realtor, buyers can feel comfortable and informed on which choice is best for them. To start your new or existing home search, download the Homes.com app on your smartphone or search via the web.