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BUY OR BUILD A HOME?

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The biggest concern these days relating to owning a home comes with either buying or building one. Many are left at the crossroads in making the right choice when it comes to knowing what to do between the two. A home is usually the single largest investment that a person makes. Most buyers end up spending lots of time and energy either searching for or designing “the perfect home” before signing any contracts. Location, price, market trends, property taxes, Homeowners Association fees and the condition of the property are factored into the house hunt. Also, each buyer typically has a wish list that includes specific needs (the things the buyer absolutely has to have) and wants (the features the buyer would like but could do without if necessary).

While the home-buying process involves a number of important choices, one of the very first decisions buyers need to make is whether to shop for an existing home or build a new one. Each path has its advantages and disadvantages.

Buying an Existing Home

There are two primary advantages to buying an existing home: convenience and cost. Once you are pre-approved by your lender, you can shop around, pick out a home and make an offer. A qualified real estate agent can streamline the process by helping you find appropriate properties, guiding you through negotiations and assisting with the paperwork. Once your offer is accepted, you may be able to close and move in within a month or two. 

Even though the process involves numerous steps – such as financing, viewing homes, making offers, home inspections and closing – the convenience of being able to move in right away is compelling enough for many people to choose an existing home over a build. This may be especially true for buyers on a tight schedule, such as those relocating for a new job or whose children will be starting at a new school.

Then there’s cost. In many (but not all) cases it’s cheaper to buy an existing home, according to research. Once you’ve found a prospective, existing home, use a mortgage calculator to get a better estimate of the total cost of purchasing that home based on today’s interest rates.

Convenience versus Customization 

Another reason an existing home may be a better option is if you would like to be in a particular established neighborhood – near work, school, friends and/or family. Odds are, too, that the home will have mature landscaping, so you won’t have to worry about starting a lawn, planting shrubs and waiting for trees to grow. And if you want to live close to town, your best bet will be an existing home since most, if not all of the land, will have already been built upon.

On the flip side, the biggest disadvantage of buying an existing home may be that you won’t get exactly what you want. You may not be in love with the floor plan and may wish that half bath on the first floor was a full bath or that there was another bedroom on the main floor. Older homes, in particular, may be functionally obsolete, no longer meeting the needs of most buyers. For example, an otherwise beautiful four-bedroom house may only have one bathroom, or the kitchen may be too small with no room for expansion.

Unless you find an existing home that has exactly what you want and is in perfect condition, you will have to spend additional money on remodeling, repairs, decorating and/or landscaping. These additional expenses should be factored into the overall price, especially when choosing among various properties or comparing the cost to building your own house.

Building a Home

Building a new home doesn’t offer the same convenience as buying an existing house. Not only do you have to find the land, which may not be in an existing neighborhood, you also have to factor in the time to find an architect or builder, and choose every element of the new structure. Joining an existing development can streamline the process, though it may limit your degree of choice. You also need to worry about systems, such as whether the land gives you access to municipal water and sewage, or requires a well and septic system, along with any environmental and other permits.

The big advantage is you are much more likely to get exactly what you want. For many, this factor alone is enough to choose to build over buying, but there are other advantages too. A new home is more efficient, especially with the new energy codes including better HVAC [heating, ventilation, and cooling], insulation and air filtration standards. Better efficiency is good for the environment and can save you money on your utility bills each month.

Another perk? A new house may literally be better for you. A new home is less likely to have the health concerns or toxic materials of an older home – things such as asbestos, lead paint, mold, etc. And it can be built with certain materials making it better for the environment such as Green appliances/Energy Star rated appliances, and more efficient toilets, plumbing fixtures, and electrical fixtures that allow one to build “green” for a more sustainable home in the long run. Also, there’s the option to install, sleeve and/or wire for future technology upgrades, such as home automation and solar. One can have more significant profits with the resale of a new home. A newer home is typically more appealing than an older home to most people. In addition, a new home will require fewer repairs and less maintenance, which can save both money and time. One will have a warranty with a new home, so even if something does go wrong, you may still be covered.

Money and features aside, building a house can lead to a level of satisfaction that one can’t achieve through buying an existing home. There is a definite feeling of an emotional connection to living in a new home that one has created. The new-home smell, no one else has stepped foot (or pets) on your carpet. This is your creation that matches your style and personality that you created from scratch.

Time and Money

The biggest drawbacks to building a house tend to be the higher costs and longer timeframe, both of which can increase throughout the home-building process. That said, you can limit the risk that your house will go over budget or take longer than you expected by working with a reputable builder and having a good contract in place. To be on a safer side, have a potential builder provide references and then check their past homeowner references. To avoid unexpected price increases, try to use a lump-sum contract, instead of a cost-plus contract. A lump-sum contract specifies a fixed price for construction, putting the risk of cost overruns on the builder instead of the buyer.

In addition, the contractor should work with you to help you reduce costs. The builder should provide a list of cost-saving items, if requested. Substituting different materials and fixtures can save a lot, so if costs are a concern, ask ahead of time if there’s a cheaper alternative. And keep in mind that anything out of the ordinary is going to cost more.

To control the timeframe, try to have a contract that includes a construction time duration. Avoid the open-ended deadlines, and have a game plan and schedule. In case you are not available, make sure your builder keeps you up to date with the progress. Request for progress photos on a regular basis, and determine who will be your main point of contact throughout the process.

In addition, to save both money and time, maintain good communication with your builder and make sure you are happy with the design/specs before the build begins. It’s not good for you or the builder if you change your mind about something that has already been installed.

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Real Estate

Costs Unknown to Home Buyers in Purchasing New Homes

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Many homebuyers think that purchasing a brand-new home is smarter than purchasing a “used” home. Many reasons are attributed to it such as a new home’s maintenance costs should be minimal; its construction materials, systems, and appliances should be up to code and energy efficient; the floor plan and amenities should meet the needs of modern buyers, and the home should be move-in ready—or so they reason. A newly constructed home also has an emotional appeal for buyers who like the idea of living in a place that’s completely clean and potentially perfect.

However, buying a new home can be even more expensive than you expect. There are lots of hidden costs that can add more than 10% to the total bill, which you need to budget for. If one doesn’t prepare for it, the first few years of owning one’s own home can be a time of real hardship.

Paying for a new home is the overwhelming cost, of course, but there are many other costs which are rather concealed until one starts the process of buying a home.

What many buyers don’t realize is that new homes often have numerous hidden costs. For the unsuspecting homebuyer, that’s what can be truly frightening, because the costs aren’t just negotiated during the buying process. They keep coming long after you’ve moved in. Thus, if you’re purchasing a new construction from a builder or real estate developer, here’s what you should look out for to make sure you’re spending your money wisely and there aren’t any unpleasant surprises.

Hidden Defects

Just like an older home, a brand-new home can have hidden defects (also called “latent defects”) that require expensive repairs. Heavy rains can reveal inadequate waterproofing or grading that leads to leaks or flooding. A weak slab could crack. Siding could fall off. The wood floors could warp. Your toilet could overflow. Electrical wiring could be done incorrectly. Any problem that you might be afraid to find in an older home can also appear in a brand-new one.

There’s a need to arrange for two inspections at different times to make sure your new home is truly free of defects and in move-in shape.

To protect oneself, there’ll be a need to research the builder’s reputation before one commits to a purchase. We must not skip a thorough inspection by an independent home inspector who is not affiliated with the builder. Ideally, one may be opportune to have one inspection after the home has been constructed but before all the finishes have been put in, when some problems are easier to identify, and another inspection just before payment is made and one taking possession.

Also, one needs to find out what kind of warranty the home comes with and read it carefully before one buys the home. One may have to rely on that warranty if any latent defects pop up, because one’s homeowner’s insurance policy may not cover them. Different aspects of the home may be covered for different lengths of time so make sure you’re aware of those limitations. Report any problems to the builder as soon as you notice them.

Missing Necessities, Indoors and Outdoors

New homes often don’t come with everything you need. It’s quite common for them to lack essentials like appliances and window coverings indoors, and decks, fencing, and landscaping outdoors.

Each of these missing items can be a major added expense. Before you make an offer, ask what is included in the price of the home, note what’s missing, and do some research to figure out how much these items will cost. Make sure to factor these purchases into your budget. If you can’t afford to pay for them out of pocket, getting the builder to pay your closing costs might free up the cash you need for blinds, sod, and a washer and dryer.

If that doesn’t work, look for a new home that comes with all the essentials, or consider a property that’s almost brand new and is just lived-in enough that the previous owner has installed all the missing necessities.

Pricey Upgrades

The showy model one will tour will typically have all the upgrades the builder offers, from hardwood floors and granite counters to bay windows and oversize bathrooms. Seeing what you could have can lure you into spending significantly more than the base price that originally attracted you to the property and the community. The price difference between the base model and the model with all the bells and whistles can be tens of thousands of dollars.

Also, if one buys the upgrades through the builder, one might pay an upcharge and have a limited selection compared to doing the upgrades oneself. One also has to consider the future resale value. Make choices that will appeal to a wide variety of buyers and won’t result in one’s home being over- or under-improved for the area.

Some builders do include upscale features in the standard model and factor them into the base price. One has to Just make sure one knows what one is looking for before one tours a home and falls in love with something one can’t afford.

Uncertain Future

In a new community, you don’t really know what you’re buying into. Who will your neighbors be? What will get built on that vacant land next door? How good will the new school system be? How will these unknowns affect your quality of life and your home’s resale value? “New construction” is not a synonym for “low crime,” “friendly neighbors,” or “excellent education.”

It’s OK to take a chance on these unknowns. Just realize that you’re taking a chance. Conditions can change in established neighborhoods, too, but those might give you a better idea of what life will be like in your new home, compared to a quarter that’s evolving.

Lack of Representation

When you buy a new home, you shouldn’t walk into the sales office unarmed. The builder’s sales agent represents the builder—not you—and any financing the builder may have arranged will not necessarily be the best available financing. Do your research and familiarize yourself with the different mortgage types available and the interest rates available for lenders in your area.

Then, based on your research, get your own real estate agent and your own lender to make sure you get the best price on the home and the lowest interest rate and fees on your mortgage.

In all, don’t make any assumptions about what you’ll be getting if you buy a new home. It can be more expensive and come with many more uncertainties than you bargained for. However, if you prepare for the experience, you’ll know how to watch out for your best interests and spend your money wisely.

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