Is New Construction Ever a "Deal"?
- Adam Garrett
- Apr 6, 2024
- 1 min read
Image by American Real Estate Photography at a former listing of Adam's where the owners used a kit to build it.
New Construction is Typically for Customization Preferences, not a "Deal"
As published by Houzeo, "It is usually cheaper to buy a home than build a new one. However, by building your own home you get a brand-new residence, customized to your needs."
Also according to Houzeo, "The average cost per square foot to build a house in Virginia is $190. This doesn't include land costs, permit fees, excavations, and other costs."
New construction is typically less about a deal and more about fitting unique preferences if you plan to custom-build.
Exception 1: If Building Extensively With Your Own Hands & You Either Can't Add More Hours at Work & Don't Have Viable Secondary Work Options or Work for Not too High of an Hourly Rate
One exception would be if you are planning on building the home primarily with your own hands, that of your friends/family or your crew's hands if you are a builder/contractor. That's true if the savings equivalent for that would be superior to what you can make by working the same number of hours more at your main profession or doing a side job (after taxes/FICA). Of course that means that the higher your hourly rate/salary, the less it can make sense to build yourself.
I have worked with a contractor before who had his own crew, and knew many in the construction industry where he could get good work contracted out cheaply. For him, it made sense absolutely to build new construction, where he could easily profit from building his own home for himself as well as for others. When he built his own home, the costs involved brought about essentially instant equity.
I have also worked with those who built their own home, such as those who used a log cabin kit pictured near the title & again here:
1 key element of building yourself is doing it right, i.e. permits when required, quality work, etc. I've seen excellent DIY work (i.e. by an engineer) and I've seen sloppy work by contractors. I've also seen a lot of bad DIY jobs. I'd also advise getting a home inspection of your home if you do a DIY construction job, especially with someone who specializes in new construction. It's possible to get them at multiple increments of the job as well.
If wanting new construction to minimize hassle, even if it costs more to acheive it, you look at homes already built that are new or purchase in a mass quantity new construction neighborhood.
While you'll typically find "deals" more in resale (especially fixer-uppers) rather than
mass-produced new construction, a new construction community comes the closest to being considered "a deal" when it comes to new construction that most people have access to. Be sure to check reviews though before you work with a new construction builder, as there are some pretty scathing reviews of many new construction builders that are produced in mass, and the quality is often not as good as custom builds that are more costly.
Keep in mind transportation as well. If you live nearby, it will be a lot easier to take off on weekends and some nights than if you live far away.
Exception 2: Habitat for Humanity or Other Non-Profit (Niche)
1 niche form of new construction is when a non-profit builds it. While the quality might not be as good as a for-profit in some cases, especially if a volunteer crew is involved, these can still be considered a deal at times. Habitat for Humanity is 1 example where they build new construction homes and provide a 0% interest loan on the Peninsula in VA. Something like that would absolutely be considered a deal. That said, keep in mind that it typically requires at least 300 hours of volunteering, has strict income minimum and maximum, etc.
Exception 3: Subdividing & Selling Parcels
Purchasing a large parcel, subdividing it, and getting it ready for homes through improvements (i.e. roads, clearing some land, etc.) can be costly but lucrative if done right. That said, keep in mind:
Resale of land is inherently risky
Improvements of land typically comes out of pocket, but typically should be done to maximize profit margins
It's also best to pay for studies of the parcels that can be marketed when the parcels are listed
Subdividing is complicated and it's best to involve a subdividing expert (a paid 3rd party who is not a real estate agent) into the equation
Sometimes a city or county won't be amenable to subdividing even if it's theoretically possible according to the zoning ordinance
Sometimes the zoning, road frontage, acreage, setback restrictions, wetlands, and/or other factors won't allow it
This process is time consuming. It's not unusual for it to take a year or more. I read where one new owner wanted to give up after "getting an approval has been long and tedious over 4 year period (Lawyers.com)".
Commission rates (for both the listing firm and the buying firm) for land are typically higher than for homes, especially at lower price ranges.
It's not uncommon at all for listing agents to do a poor job marketing land. Many listing agents are very inconsistent in terms of their baseline marketing for low cost properties they are selling. For instance, among properties selling in REIN MLS that sold recently as of 4/6/24 (1944 houses, townhouses, and condos) the median # of pictures was 31. For the past 645 land and farm sales under $50k in the same MLS, on the other hand, the median number of photos was only 2 photos. Some of those "pictures" weren't even actual images of the property either. Most neglected aerials, photos of area amenities, and more. None of them had 3-D tours, i.e. Matterport.
Exception 4: Mass Quantity New Construction
Of the 4 main options presented here, this one has the least chances of truly being a deal, while being often better than going the modular/manufactured/mobile home route.
If wanting new construction to minimize hassle, even if it costs more to achieve it, one option is to look at homes already built that are new or purchase in a mass quantity new construction neighborhood. With a mass quantity build, certain standards can be lower than with custom builds (i.e. door handles, door stops, & shower inserts), but it really depends on who is doing the custom build. Also, it's not completely rare for certain standards, i.e. energy efficiency, to be higher with mass quantity builds vs custom builds, especially when those standards are used as part of advertising.
Be sure to check reviews though before you work with a new construction builder, as there are some pretty scathing reviews of many new construction builders that are produced in mass, and the quality is often not as good as custom builds that are more costly.
What About Manufactured, Mobile, & Modular Homes?
Some might be tempted to think that these are all great options, but it's important to keep in mind that according to HUD, "Manufactured homes have an expected life of 30 to 55 years." Mobile homes will tend to last the least time & the lowest build quality. Modular homes are typically better built than manufactured or mobile homes and have more places where they can be built than manufactured or mobile homes, but they still carry a stigma, and won't appreciate typically as well as traditional stick-built homes. When they are listed, it often needs to be disclosed in a number of MLS that they are modular, manufactured, mobile, or traditional built. It's not uncommon for buyers to rule out modular, manufactured, and mobile homes, decreasing demand. Many buyers I work with do rule them out, especially manufactured and mobile homes. Lending requirements also are different for mobile and manufactured homes, with some lenders not even doing them. If you're going to go this route, I highly recommend considering a modular home rather than a mobile or manufactured home. For more details, go to my article on the subject here:
Count the Cost Before Showings
Prior to seeing your first land in person, it's best to speak to lender(s), your real estate agent, and builders, so that you can know what you're getting into upfront, and compare the total costs to available properties that aren't new construction, paying particular attention to resale properties with extensive non-cosmetic renovations/updates/replacements, i.e. plumbing, insulation, roof, main systems, & electrical.
Related:
House Issues by Year for Purchasers
What to Look for in a Buyer's Agent for Your Home or Other Real Estate
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