Friend-Feature Friday: Building a house VS buying a house

 Yippe! Yay for Friday!
I got an email from a reader friend, Laure, about building a house VS buying a house. 
Reminder: I am not a realtor, nor am I a real estate professional. However, in the last 5 years…
*We bought a town house in 2007 that we currently own and rent out.
*We bought, built, then walked away from bigger house in 2009, losing all the deposits we put down on it. (For the background story on building and walking away from our home click HERE.)
*Fought for/waited for 12 months for our new home that we just moved into Dec 1. It was a messy short sale, and it was a screamin’ deal. (For my take on how to buy a short sale click HERE.)
So, while I’m no professional, I have been around the block a few times.
Here’s Laure’s question:
Q: Would you ever build a house again? What are some fees or expenses that could come up during the process outside of the price of the home? – Laure
Here’s my answer:
First of all, it’s been a few years since we’ve built, so things have probably changed. My number one recommendation is to find a realtor that KNOWS THEIR STUFF and sit down and talk with them about it. If they are honest and you really trust them, they will know what’s best for you in your individual market. Trust me, they get a commission whether you buy or build, so they will be happy to answer your questions.

*If you are in Utah and need a good realtor, Craig Collette was ours. I have never known anyone who was more savvy with the market and home-buying and selling. He’s seriously a phenomenon. Click HERE for his info.
But here are a few quick thoughts I had on buying vs building based on my personal experiences:
  • We started house-hunting for 18 months before finding the house we are in now. We quickly learned that to build a house like the one we ended up buying would have cost us more money...which is why we bought rather than built. The house we bought was a short sale on the brink of foreclosure, so we got a screaming deal on it. HOWEVER…in the 18 months of looking it’s the only house we really really liked. If we hadn’t found this one then maybe my answer would be different for you.
  • When we built, we had to have more cash up-front…but it was more spread out through the entire process. You have to pay construction deposits along the way, in addition to a down payment, realtor fees, etc. It’s nice because it spread out the payments so it wasn’t one huge chunk at the end, but it still required more cash along the way. This may be different now, but we had to constantly be saving up our cash for deposits on things. Which, just for the record, are non-refundable. That’s essentially the money we lost when we decided not to buy the house. You also have to remember that you aren’t buying just the house – you are also buying the land. To build a house could cost $2-$300,000, but then the land could be another $100,000 on top of it! Every area is different, but just remember that lot size and location makes a huge difference in the final cost of your home. 
  • With our townhouse we were able to pick our colors, carpet, and customize a few things, but we weren’t paying for a custom home because it was part of a development; not a custom home. The builder built 150 townhouse units so everything was cheaper than buying a single home. This was the perfect option for us as newlyweds. There are tons of neighborhoods like this today. Many of them are called “Tract homes” (if they are single-family homes) or “developments” (if they are townhouses or condos). It’s where they are all basically the same layout and exterior, but you can customize what you’d like – paying PER customization to get what you want. These are typically much cheaper than a fully custom home because, like buying bulk, they are doing lots of homes at once and can get a better deal on everything. 
    • Our town home cost $205K, which was what we could afford as newlyweds. In that situation and price range it was perfect for us to get a brand new home and pick out all the specs. I have found that smaller homes like condos and townhomes seem to still be good deals to build, especially in this economy.  For example, we could only sell our townhouse for probably $180K (which is why we are renting). However, because the builder would rather take SOMETHING than NOTHING, you can build a brand new townhome in our development for around the same price. It’s a no brainer in our neighborhood – why buy used, when you can build brand new for the same (or even similar) price?? 
    • For this new house we are in, however, it was wasn’t as good of a deal for us to “build” (even a tract home) because we found our home that had tons of equity in it, and were able to find a previously very expensive home that was now a short-sale, which we bought for pennies on the dollar. We found that getting into the higher price-range of houses ($375-$500K+) we got more bang for our buck by buying rather than building.
  • The benefits of building a house is that you get exactly what you want. YOU pick the colors, carpet, layout of the house, everything. You might pay more, but that could be worth it to you to get exactly what you want. If you plan to be in the house for a long, long time, that is a great option for you. If you plan to be in a house only for just a few years, I don’t know if I would recommend building. In the Utah market, anyway, brand new custom homes are more expensive (even townhouses and tract homes) – unless they go to short sale or foreclosure, or unless the builder is in a tough spot and is dramatically reducing prices (like in our town home complex). But please remember…it is NOT WORTH IT to risk short-sale or foreclosure!!!! Don’t do that to yourself or your family! If you have a chance of not being able to pay your mortgage after only a few months of living in a home, you have no business buying a home in the first place. Don’t over-stretch yourself, it’s not worth it!
  • The benefits of buying a house is that you often times have a greater chance of walking in with equity. For example, our house appraised at $100,000 more than we bought it for. That would be next to impossible if you were building a house, from my understanding. 
  • For us, it would probably be determined more by the area than anything. If you look for 1 year or more in the areas where you want to live and there is absolutely nothing in your price range that you want to commit to, don’t settle! Building could be a great option. For us, we wouldn’t have been able to afford to build a home in the neighborhood we are in now, but we knew we really wanted to live here – so building wasn’t an option for us.
  • Really, it depends so much on A) how long you plan to be in the home, B) your budget, C) and how the market is doing in your area. Once again, I recommend finding a realtor that knows their stuff and having a long discussion with them about what your ultimate goals are.

I found THIS great article that clearly lays out the pros and cons of building and buying. It’s worth checking out! Here are some of the points it makes:

Building a new home
When you build a new home, you’ll work with a builder to create a custom home that has all the features you want.  Depending on your budget, you can customize every aspect of your new home down to a T or you can choose from a range of already-existing floor plans and features.  The home building process can take as little as a few months or many as a few years.
Home building pros:
  • Control: Building a home lets you have control over all the features and options that will affect you on a daily basis.
  • Knowledge: As you monitor the construction process, you’ll learn useful things about home construction and gain a sense of ownership that can only come from watching your house take shape step by step.
  • Expert advice:  You’ll have the expertise of the builder, contractors, and an architect to guide you.  Have peace of mind knowing that the pros are thinking about code, permits, and energy efficiency — not you.
  • The eco-friendly edge:  You have the option of using environmentally sound materials and energy-saving features that will both make your conscience feel good and keep more cash in your wallet over the years.
Home building cons:
Cost overruns:  You could have to pay extra for unexpected expenses.  Unexpected costs can occur in any home construction project.
Time: Waiting for construction to finish can be disheartening, not to mention that having to come up with alternate living arrangements while you wait can be costly.
Stress:  Every time a decision has to be made or a problem arises, you’ll hear about it.  Dealing with those considerations on a daily basis throughout the home building process can take their toll unless you’ve got a positive mental attitude.
Buying a new home Buying a new home involves scouring real estate listings with an agent to find a home that suits your needs.  The process can take a few days or a few months, depending on how fast you want to move.
Home buying pros:
  • Shopping around:  You get to be a critical shopper, comparing different features until you find exactly the right combination at the right price.
  • Bargaining:  You can drive a tough bargain and get the best deal possible, knowing that, in a competitive market, there are other options waiting for you right up the road.
  • Taking your time: When buying a new home, you get to work at your own pace.  You can take your time house hunting.  And when it comes to moving in, you work with the seller to choose a date that’s soon or a few months away.
Home buying cons:
  • Concessions: When buying a home, may have to make concessions in regards to features you want.  You may not find the “perfect” house since you didn’t design it yourself.  And you may need to spend money making updates or repairs.
  • Stress:  Finding and making an offer on a new home can be stressful, especially if you are in a seller’s market.  You may need to act fast or make an offer that’s more than the listing price if you get stuck in a bidding war.
In the end, buying a new home and building a new home both involve some headaches.  But if you’ve done your research and planned carefully, the end result is sure to be rewarding no matter which option you choose. 
I’m not sure if that helped or not, but good luck and be sure to do your research before committing to anything! :) Here are some other great articles to check out on building vs buying:

http://www.askmen.com/money/investing_150/190_investing.html
http://www.ehow.com/about_5488980_cost-building-house-vs-buying.html

And here’s a good article on buying land:
http://homebuying.about.com/od/secondhomes/qt/102507_buyland.htm

Good luck, and happy building or buying!

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