buy existing VS building new
#1
01-11-05, 12:38 PM
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buy existing VS building new
Hi Guys - i've got a question for you regarding buying an existing home VS. building a new home.
in our area, we've looked at some really nice quality homes in really nice "desireable" neighborhoods for as low as $43 per square foot (example: one was over 3800 sq ft for around $165,000). but when i called a builder (just one) he said he charges between $85-100 per sq ft to build, and then we'd have $23,000 for the lot we like on top of that, so to build the same size house, we'd have to spend $346,000!!!). why would an older but really nice home be that much less expensive per square foot than new construction, when homes appreciate in value?
what am i missing here? or is that how it's supposed to be? i guess i'd rather have an older big house, than a new dinky one!
in our area, we've looked at some really nice quality homes in really nice "desireable" neighborhoods for as low as $43 per square foot (example: one was over 3800 sq ft for around $165,000). but when i called a builder (just one) he said he charges between $85-100 per sq ft to build, and then we'd have $23,000 for the lot we like on top of that, so to build the same size house, we'd have to spend $346,000!!!). why would an older but really nice home be that much less expensive per square foot than new construction, when homes appreciate in value?
what am i missing here? or is that how it's supposed to be? i guess i'd rather have an older big house, than a new dinky one!
#2
01-12-05, 04:12 AM
Yeah, you're finding out what I have found out!
My MIL lives with us in a MIL apartment. When we are no longer able to take care of her, we plan on moving to a smaller home. What I have found in this area is that it will be MUCH cheaper for me to buy an older home and remodel it (and even add on if necessary) than to build from scratch. Guess that holds true in your area too. As an architect, I would love to design my own home from the ground up, but I just plain can't justify the extra cost.
There are, of course, some big advantages to a new home such as up to current codes, warranties, you get what you want, etc., etc. But for the difference in cost, I can do a lot of remodeling. Especially when I do a good share of the remodeling myself.
Bruce
My MIL lives with us in a MIL apartment. When we are no longer able to take care of her, we plan on moving to a smaller home. What I have found in this area is that it will be MUCH cheaper for me to buy an older home and remodel it (and even add on if necessary) than to build from scratch. Guess that holds true in your area too. As an architect, I would love to design my own home from the ground up, but I just plain can't justify the extra cost.
There are, of course, some big advantages to a new home such as up to current codes, warranties, you get what you want, etc., etc. But for the difference in cost, I can do a lot of remodeling. Especially when I do a good share of the remodeling myself.
Bruce
#3
01-13-05, 09:37 AM
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Annette and Bruce,
Just some added thoughts.
I have experience as a real estate agent, general contractor and now a building designer. I stress that I can only give you my analysis from the latter 2 professions.
What I am finding from the Detroit suburbs is that if I look at the housing market, there are numerous factors that justify what road you take - buy existing or build new.
Location - we all have a desire to be near certain (local) amenities - maybe it is schools, police and fire, hospitals, shopping conveniences, how far to drive to work, etc.
Most existing homes, may be located in areas that meet those requirements, some, if not most and we make compromises. I am finding that the existing home may be closer to what they need rather than what they want. Costs will vary and the tax caps may be of importance. True, each property has equity, for the most part it should be increasing not declining. At what rate it increases depends on many issues of the surrounding community.
As I do many additions and remod's, the amount of money those are willing to spend almost seems mind boggling. They are willing to spend $75,000 or more to enhance the homes overall function rather than sell, making a substantial profit and build new. Before I discuss what they want, I usual ask what has brought them to this decision. Answers given do vary but almost all provide this; Close to work, great neighbors, school system, shopping conveniences, hospitals, close to main highways.
They may mention that they thought about a new home, some have even decided to sell after talking to me, buy property and build new. Those that don't, feel they would be giving up what they now have. In their minds, it would not be worth it to build new. The value of "worth " isn't always about money, it's about that sense of belonging and secure feeling they have come to enjoy. They know what they have now and for most, relocating is a fear they cannot deal with. It is the fear of the unkown.
As Bruce and you pointed out and I think this best explains it, when you look at property for sale of an existing home, you may find a home that is in a "desireable neighborhood". This is based upon what you "feel". You like it but on paper, the value is lower in one location than one that is similar in another. I have seen existing homes here that in one area running $65 a square foot, nice homes but older and then go to another area where that similar home would be worth $165 a square foot. The difference is location which may be only a couple of miles apart! In one case, the difference is just walking across the street, one zip code to another, like comparing North Oaks to Arden Hills, right Bruce?
When this is the case, the one owner at $65 feels that he could get a much nicer home if he could afford the new payments for a few hundred dollars more a month. On the other hand adding on to his home would not bring his value up to an acceptable level that would be considered a good candidate for a return on that investment. On the other hand, the guy that is living a $165 per square foot value may just add on and increase his overall value. As in remodeling/additions, if he adds on, he automatically is making $65 per square foot! The great thing about this is the tax cap, set when the home was built will not change. That rate is lower verus building a new home when the tax rate will be very expensive. This means not only are we looking a the cost of a new home but the yearly taxes you will have to endure.
Determining when to add on and to what extent is based upon current conditions of many factors. Building new means that the costs to do so are expensive. True, you build a new home with all the amenities you may ever want, it will be expensive. In most cases, building new within an established community may be too expensive. Building one out from the suburbs may be lower in cost but overall expenses will increase such as gas, travel time, possibly poor school system, etc. One factor that many don't look at is the insurance cost increases - more driving miles - increase, not close to local public services like police and fire - increase, as examples. The issue of calculating all the factors must be addressed. New versus existing.
The term "over building" was once used allot. You know, we really need more room but don't want to "over build" in the neighborhood? That term is almost obsolete unless you are an old foggie like me. Many homeowners are adding on rather than building new as the actual building costs continue to rise and the best way to counter this is to improve what you have by using the equity that you have acquired. For most younger couples, they may have to start at the bottom, buying a home that is in an area that has a history of rising property value but is in an area that meets their needs. Then they may sell and purchase another of more value. Some may decide to build but again, they must consider all the factors in that choice.
Hope this makes sense!
Just some added thoughts.
I have experience as a real estate agent, general contractor and now a building designer. I stress that I can only give you my analysis from the latter 2 professions.
What I am finding from the Detroit suburbs is that if I look at the housing market, there are numerous factors that justify what road you take - buy existing or build new.
Location - we all have a desire to be near certain (local) amenities - maybe it is schools, police and fire, hospitals, shopping conveniences, how far to drive to work, etc.
Most existing homes, may be located in areas that meet those requirements, some, if not most and we make compromises. I am finding that the existing home may be closer to what they need rather than what they want. Costs will vary and the tax caps may be of importance. True, each property has equity, for the most part it should be increasing not declining. At what rate it increases depends on many issues of the surrounding community.
As I do many additions and remod's, the amount of money those are willing to spend almost seems mind boggling. They are willing to spend $75,000 or more to enhance the homes overall function rather than sell, making a substantial profit and build new. Before I discuss what they want, I usual ask what has brought them to this decision. Answers given do vary but almost all provide this; Close to work, great neighbors, school system, shopping conveniences, hospitals, close to main highways.
They may mention that they thought about a new home, some have even decided to sell after talking to me, buy property and build new. Those that don't, feel they would be giving up what they now have. In their minds, it would not be worth it to build new. The value of "worth " isn't always about money, it's about that sense of belonging and secure feeling they have come to enjoy. They know what they have now and for most, relocating is a fear they cannot deal with. It is the fear of the unkown.
As Bruce and you pointed out and I think this best explains it, when you look at property for sale of an existing home, you may find a home that is in a "desireable neighborhood". This is based upon what you "feel". You like it but on paper, the value is lower in one location than one that is similar in another. I have seen existing homes here that in one area running $65 a square foot, nice homes but older and then go to another area where that similar home would be worth $165 a square foot. The difference is location which may be only a couple of miles apart! In one case, the difference is just walking across the street, one zip code to another, like comparing North Oaks to Arden Hills, right Bruce?
When this is the case, the one owner at $65 feels that he could get a much nicer home if he could afford the new payments for a few hundred dollars more a month. On the other hand adding on to his home would not bring his value up to an acceptable level that would be considered a good candidate for a return on that investment. On the other hand, the guy that is living a $165 per square foot value may just add on and increase his overall value. As in remodeling/additions, if he adds on, he automatically is making $65 per square foot! The great thing about this is the tax cap, set when the home was built will not change. That rate is lower verus building a new home when the tax rate will be very expensive. This means not only are we looking a the cost of a new home but the yearly taxes you will have to endure.
Determining when to add on and to what extent is based upon current conditions of many factors. Building new means that the costs to do so are expensive. True, you build a new home with all the amenities you may ever want, it will be expensive. In most cases, building new within an established community may be too expensive. Building one out from the suburbs may be lower in cost but overall expenses will increase such as gas, travel time, possibly poor school system, etc. One factor that many don't look at is the insurance cost increases - more driving miles - increase, not close to local public services like police and fire - increase, as examples. The issue of calculating all the factors must be addressed. New versus existing.
The term "over building" was once used allot. You know, we really need more room but don't want to "over build" in the neighborhood? That term is almost obsolete unless you are an old foggie like me. Many homeowners are adding on rather than building new as the actual building costs continue to rise and the best way to counter this is to improve what you have by using the equity that you have acquired. For most younger couples, they may have to start at the bottom, buying a home that is in an area that has a history of rising property value but is in an area that meets their needs. Then they may sell and purchase another of more value. Some may decide to build but again, they must consider all the factors in that choice.
Hope this makes sense!
#4
01-13-05, 10:09 AM
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thanks for all the good info, guys!
i guess what i'm still confused about is, how can a builder say what his rate per square foot is, when he doesn't even know yet whether i'm going to want a really plain, basic, vinyl-sided, no-frills rectangular shaped house versus an upgraded, irregularly shaped, fancy brick & stone one with tons of trimwork? and also, not knowing WHERE i'm going to be building it. surely, those factors would produce more variance in his price than just $85 to $100, wouldn't they?
i guess what i'm still confused about is, how can a builder say what his rate per square foot is, when he doesn't even know yet whether i'm going to want a really plain, basic, vinyl-sided, no-frills rectangular shaped house versus an upgraded, irregularly shaped, fancy brick & stone one with tons of trimwork? and also, not knowing WHERE i'm going to be building it.
surely, those factors would produce more variance in his price than just $85 to $100, wouldn't they?
#5
01-13-05, 10:42 AM
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Annette,
Sorry for not answering that part but here is the explaination I have.
As a felllow designer, I will advise homowners what it cost to build a "basic" home or addition. The key word here is basic as many think it includes all the nice items, like hardwood floors, lots of ceramic, granite tops, etc.
Unless you have drawings done and then have the project bid out and all costs calculated, noone can provide an "exact" cost without doing all this.
For most new homes or additions, those in the trade, like contractors, architects and building designers, we know what the basic costs are. This experience assists in providing the owner with good approximates costs to do their project. I agree that unless you have the full scope of what the client wants, the "basic" square foot price is just used as a "guide" or gauge, if you will, as many do not know what it may cost.
Honestly the $85 - $100 price range would be a good "guide" for what you mentioned for a basic home. Things that vary that cost would be like slab on grade, crawl space or basement, vinyl siding versus brick exteriors, windows - vinyl versus wood clad, fireplaces, 4 or 5 fixture bath verus traditional 3 fixture, grade of cabinetry, etc.
I will provide "estimated" square foot cost based upon what they tell me. We know that the bottom line will come only after drawings are done and bids have been collected and added up. With many years of doing this and maintaining current cost data from my projects and contractors, I have done very well and feel very comfortable in telling clients what to expect. Once I am told what their budget is, I strive to be below that budget if at all possible and through the design process I explain that this is more expensive than that or you could save money by doing this than that. All the while, I ensure that the client understands that what they ask for effects the price of the project. I give these suggestions or warnings in writing so I am not to blame for what they desire. Usually, I am within 5% to 10% of that ballpark or estimated cost quote. Rarely am I over budget.
Does this help?
Sorry for not answering that part but here is the explaination I have.
As a felllow designer, I will advise homowners what it cost to build a "basic" home or addition. The key word here is basic as many think it includes all the nice items, like hardwood floors, lots of ceramic, granite tops, etc.
Unless you have drawings done and then have the project bid out and all costs calculated, noone can provide an "exact" cost without doing all this.
For most new homes or additions, those in the trade, like contractors, architects and building designers, we know what the basic costs are. This experience assists in providing the owner with good approximates costs to do their project. I agree that unless you have the full scope of what the client wants, the "basic" square foot price is just used as a "guide" or gauge, if you will, as many do not know what it may cost.
Honestly the $85 - $100 price range would be a good "guide" for what you mentioned for a basic home. Things that vary that cost would be like slab on grade, crawl space or basement, vinyl siding versus brick exteriors, windows - vinyl versus wood clad, fireplaces, 4 or 5 fixture bath verus traditional 3 fixture, grade of cabinetry, etc.
I will provide "estimated" square foot cost based upon what they tell me. We know that the bottom line will come only after drawings are done and bids have been collected and added up. With many years of doing this and maintaining current cost data from my projects and contractors, I have done very well and feel very comfortable in telling clients what to expect. Once I am told what their budget is, I strive to be below that budget if at all possible and through the design process I explain that this is more expensive than that or you could save money by doing this than that. All the while, I ensure that the client understands that what they ask for effects the price of the project. I give these suggestions or warnings in writing so I am not to blame for what they desire. Usually, I am within 5% to 10% of that ballpark or estimated cost quote. Rarely am I over budget.
Does this help?
Last edited by Doug Aleshire; 01-13-05 at 11:46 AM.
#7
06-24-05, 01:54 PM
building can be cheaper in an expensive neighborhood
I'm looking at a lot that was on a block w/ really nice houses. The houses on the block are going for $700,000 or more. The lot that i'm looking at is around $180,000 and i have a builder who looked at the lot w me, estimated that w/ another $300,000, i can have a nice house (than the ones adjacent to the lot) built. I figure, i'm still coming $200,000 less than what's on the market. Then why didn't the lot owner think of that and make a nice profit building on his own lot?
#8
06-24-05, 02:35 PM
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tthai,
Economics. Owner may not have the desire nor means to take on such a project. Your guess is as good as mine.
p.s. In the future, start a new thread than responding to threads that are too old and your questions are important. In doing such would be placed at the the top of the new posts lists for others to see and respond.
Hope this helps!
Economics. Owner may not have the desire nor means to take on such a project. Your guess is as good as mine.
p.s. In the future, start a new thread than responding to threads that are too old and your questions are important. In doing such would be placed at the the top of the new posts lists for others to see and respond.
Hope this helps!
#9
07-01-05, 02:56 PM
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Annette,
on the whole I always feel it is less costly to either buy a fixer and make it into your dreams with sweat equity, or buy in a new subdivision. The difference in cost between "track" and custom is scale of economy. sub contractors prices go down due to multiple units in one location. The advantage with a subdivison home is upgrades may be included in the purchase price and part of a standard loan package with 3-10% down.
Here in California building new means more money upfront. You have to have 50% equity in the land, architect, engineering, plan check and permit fees paid upfront. Here a 1/2 acre lot is $350,000 so 1/2 down is $175,000. architects and engineering fees $15-20,000. Permits, plancheck, hook up, impact fees $30-$50k. So prior to the bank lending you would need $225,000.00 cash up front prior to a construction loan kicking in. Same scenario with a fixer is only 3-10% down. Then if you want to do an addition you supply the bank with plans and they appraise the project as if it is complete and loan construction funds appropiately.
You would need to check with your local lenders as you may need 50% equity in the land there as well.
I hope you find what you are looking for.
Good luck
Brian Garrison
General Contractor/Professional Building Designer
on the whole I always feel it is less costly to either buy a fixer and make it into your dreams with sweat equity, or buy in a new subdivision. The difference in cost between "track" and custom is scale of economy. sub contractors prices go down due to multiple units in one location. The advantage with a subdivison home is upgrades may be included in the purchase price and part of a standard loan package with 3-10% down.
Here in California building new means more money upfront. You have to have 50% equity in the land, architect, engineering, plan check and permit fees paid upfront. Here a 1/2 acre lot is $350,000 so 1/2 down is $175,000. architects and engineering fees $15-20,000. Permits, plancheck, hook up, impact fees $30-$50k. So prior to the bank lending you would need $225,000.00 cash up front prior to a construction loan kicking in. Same scenario with a fixer is only 3-10% down. Then if you want to do an addition you supply the bank with plans and they appraise the project as if it is complete and loan construction funds appropiately.
You would need to check with your local lenders as you may need 50% equity in the land there as well.
I hope you find what you are looking for.
Good luck
Brian Garrison
General Contractor/Professional Building Designer
